The profitability-risk tradeoff of just-in-time manufacturing technologies

Qualitative survey studies and a recent quantitative study by Callen et al. (2000) indicate that JIT manufacturing is more profitable than conventional non-JIT manufacturing. This study tests the hypothesis that the excess profitability of JIT manufacturing just compensates for the additional operational risks of JIT technology relative to conventional manufacturing. An often-suggested alternative hypothesis is that JIT manufacturing dominates conventional manufacturing in reducing costs and increasing revenues and that risk is not an issue. The multivariate results unambiguously reject the hypothesis that excess JIT profits are compensation for additional risk. We find that profitability is inversely related to risk, especially for JIT plants. We also find that the JIT plants in our sample are more profitable than non-JIT plants even after adjusting for risk, consistent with the dominance argument.