The effect of TPS on US manufacturing during 1981–1998: inventory increased or decreased as a function of plant performance

More than 14 000 firm years of data (average number of firms per year times 18 years) were processed to investigate the effect of Toyota Production System (TPS) in high and low performing firms. This is a longitudinal study of the records of US manufacturing firms operating for the entire duration of 18 years from 1981 to 1998. Using industry data from COMPUSTAT† files, manufacturing firms covered by SIC 3400–3900 were ranked on performance. Evidence from the ranked companies shows that the ratio TI/S ((total inventory)/(sales)) declined significantly in the top and middle performers (top 10% and middle 10% in performance). In contrast, the study discovered that firms making the bottom 10% showed an unhealthy “inventory growth” trend in TI/S during 1981–1998; the better performers got better, and the weak performers got weaker with time. This discovery of the unwanted and unexpected growth in TI/S in bottom performers opens many new avenues for research stemming from questions such as: what is the source of the “inventory growth” problem in low performing firms in industries widely embracing TPS? How could the OM profession address the inventory growth problem facing low performers? †The Standard and Poors Corporation publishes COMPUSTAT electronic files. The COMPUSTAT database of fundamental financial and market information provides extensive coverage of the North-American marketplace. The database contains thousands of companies and hundreds of financial data items collected from a wide variety of sources including news wire services, news releases, shareholder reports, direct company contacts, and quarterly and annual documents filed with the Securities and Exchange Commission.