[rat_1234]

"However, accounting systems count inventory as an asset, so and any significant reduction in inventory had a negative impact on the balance sheet...successful JIT efforts tended to make senior managers look bad"

This shows a poor understanding of managerial accounting.

High "working capital" requirements, of which inventory is a big part, are a huge drain on free cash flow. Any company that sees its inventory as a % of assets go DOWN would view it as a positive by both its management and investors.

[pwinnski]

Were you working in managerial accounting in the 1980s?

My own arms-length exposure at that time suggests that, however simplistic it might seem, the assessment in the article is correct. It might seem obvious that lowering inventory as a percentage of assets is good, but only if you look at that, rather than just seeing the top-line assets total go down.

This article seems to very accurately represent my experience.

[rat_1234]

To be fair, no I wasn't working in managerial accounting in the 1980s.

Maybe what would help is if you could explain what metric a reasonable manager would measure that would get worse under JIT versus better.

I guess maybe if your assets go down you could look more highly levered, but financial leverage isn't really something that a manager can affect anyway (more of a CFO level metric).

All of the asset-oriented measures I can think of -- like asset turnover, working capital as % of sales, working capital as % of assets, WIP inventory as a % of total inventory, etc. -- would all improve.

[jdlshore]

Mary is talking about the transition from cost accounting to throughput accounting, which happened several decades ago. And yes, cost accounting really did resist attempts to decrease machine utilization, which resulted in increased inventory.

Look in the mirror before throwing stones at others' knowledge.

[bluGill]

You are confusing what the business leaders of today think with what they thought in the 1920s. In the 1920s and before nobody could think of a reason why large inventories would be bad: they were a buffer against surges in demand, and you got to build them at today's prices. A large inventory just meant you need to hire more salesmen (literally men, it was a sexist time), and/or hold a sale.

Of course now management theory knows of many reasons the above is wrong, it is entirely accepted that you want inventories low because of the advantages it brings.

[kgwgk]

The article is talking about the 80’s, not the 20’s. The importance of working capital management was well understood by then.

[bluGill]

In the 1980s it was well understood in universities. However senior management in real companies were catching up. Some companies understood at and were executing well (mostly Japanese companies who started early). other companies had figured out how important it was, but were still trying to figure out how to apply it. Other companies were just waking up to the fact that their competition doing something else was beating them, without knowing why.

[bsder]

> it is entirely accepted that you want inventories low because of the advantages it brings.

Advantages ... until you have an earthquake in Taiwan and the entire semiconductor industry shuts down because nobody has any inventory ...

[noir_lord]

Not to mention K-Factor (carrying cost) and that 200K in stock sat in your yard is 200K you aren't earning interest on/able to re-invest into you business.

It's a double whammy, you pay (in terms of utilities, rent etc) to hold stock that means you can't use the money elsewhere and for a lot of stock you also have depreciation (though I work for a company that makes stone products so at least our raw materials don't expire).