The Context, Organizational Design, and Performance of JIT Buying versus Non-JIT Buying Firms

INTRODUCTION As firms implement Just-In-Time (JIT) buying, they are shifting from traditional, arm's-length trade to long-term, relational trade. JIT buying involves, but is not limited to, reducing the number of suppliers, seeking proximate sources of supply, ordering in small lots and in a daily fashion, installing supplier product quality certification programs, and increased communication in the form of shared production plans and shared product design. Research on JIT buying has tended to focus on the relationship between buyers and sellers, and implementing JIT exchange.[1] This research adopts a different view of JIT exchange with suppliers which focuses not on how JIT relates to exchange itself (e.g., communication levels), but on how JIT exchange with suppliers relates to the firm's operating context, its internal organizational design, and its performance. This research addresses three questions: Research Question 1: Does the operating context of JIT buying firms differ from that on non-JIT buying firms? Operating context means situational factors that cannot be changed in the short run. Some of the context variables describe the firm itself. For instance, JIT buying firms may be larger relative to suppliers than non-JIT buying firms since the former may possess the power to impose JIT exchange requirements upon suppliers. Other factors describe the firm's environment, such as industry level concentration and industry level growth. In the case of the latter, slow growth industries may be more prone to adopt JIT buying techniques because competitive advantage may accrue to low total cost, high product quality manufacturers. In high growth industries, JIT exchange may be relatively less valuable because competitive advantage may be created from widespread distribution and other marketing efforts. The uncertainty of the environment may also differ between JIT buying firms and non-JIT buying firms. For example, managers may perceive that processes are undergoing rapid change when the level of JIT buying is high. Research Question 2: Does the internal organizational design of JIT buying firms differ from that of non-JIT buying firms? For instance, since JIT eliminates waste, the purchasing function may become flatter (i.e., fewer layers, wider span of control) as the level of JIT buying increases. Also, the structure of the JIT buying firm may differ from that of the non-JIT buying firm. Structure refers to formalization (the presence of written rules, documents, procedures, and performance control mechanisms), integration (lateral communication), decentralization (the vertical locus of decision-making authority), and specialization (the subdivision of labor).[2] Increased cross-functional coordination (to combat reduced inventory buffers), greater decentralization (to empower employees and to better tap their skills and knowledge), the hiring of specialists in such domains as transportation scheduling and plant facility layout (to implement JIT systems and manage small lot shipments of variable size), formalization in the form of performance measurement (to better monitor systems) have all been mentioned as accompanying JIT exchange.[3] However, these relationships have received little empirical attention in a JIT buying environment. Research Question 3: Do JIT buying firms outperform non-JIT buying firms? This question is approached from two perspectives: (1) is the level of inbound inventory held by JIT buying firms less than that held by non-JIT buying firms; and (2) is the long-run (i.e., three year) performance of JIT buying firms better than that of non-JIT buying firms? In the latter case, we examine market share growth, return on investment, and profitability. RESEARCH DESIGN The data reported here concerns the JIT purchasing practices of manufacturing organizations. A questionnaire was mailed to 1,002 manufacturing members of the Council of Logistics Management (CLM). …