Items to Consider for

Just-in-Time Use in
Marketing Channels
Toward a Development of a Decision Tool

S. Altan Erdem
Cathy Owens Swift
This study focuses on an empirical analysis of variables associated with the evaluation of inventory management techniques. There are 23 items that channel managers should examine before deciding to use just-in-time as the primary
inventory control method in a particular channel network.
These items can be grouped under the five categories of delivery effectiveness, information system needs, spatial concerns,
financial resources, and channel cohesiveness to form a crucial decision tool for channel managers. 1998 Elsevier
Science Inc.

Address correspondence to Dr. S. Altan Erdem, Department of Marketing,

University of Houston - Clear Lake, 2700 Bay Area Boulevard, Houston, TX
77058-1098.

Industrial Marketing Management 27, 2129 (1998)

1998 Elsevier Science Inc. All rights reserved.
655 Avenue of the Americas, New York, NY 10010

INTRODUCTION
Increasing competitiveness among industrial channel
members has resulted in a growing awareness of various
cost-saving procedures in marketing. Efforts directed toward lowering the cost figures traditionally have focused
on the physical distribution functions of these members
as well as the production tasks. Transportation, warehousing, inventory management, materials handling, protective packaging, and order processing are the major
components of physical distribution in industrial channels. Among all of these elements, inventory control has
been one of the major areas in which recent marketing
research activities have focused.
Given the widespread availability of computer technology and the more complete understanding of sophisti-

0019-8501/98/$19.00
PII S0019-8501(97)00001-1

What are the inventory control issues of

concern to marketers?
cated relationships in inventory management, numerous
methods of inventory control have evolved. Among these
methods are just-in-time (JIT), manufacturing resource
planning, optimized production technology, and flexible
manufacturing systems [e.g., 1, 3, 8, 11, 14, 24, 29, 31,
34, 4144].
With the wide range of choices available, implementation of the best inventory management system is critical
for managers. Managers need an effective method for
evaluating their operations to determine which of these
techniques would be preferable. The purpose of this
study is to examine the elements that should be reviewed
before implementing one of these inventory control
methodsJIT.
BASIC ISSUES OF INVENTORY CONTROL
Regardless of the specific method that a manager
chooses, there are certain aspects of an inventory management system that can be used by any manufacturingoriented or distribution-oriented firm [26]. Specifically,
managers should stock merchandise according to profitability and should actively seek to eliminate stockouts.
Managers need to decrease emphasis on less profitable
items and maintain desirable relationships among inventory levels of different products. Accordingly, a profitable inventory management system should be cost-justified and no more elaborate than necessary [17]. Surplus
inventory (i.e., greater than the maximum operating level)
indicates an inventory control problem, whereas excess
inventory (i.e., greater than the excess policy) indicates
the existence of an extreme inventory control problem
that requires immediate attention and action [27].
S. ALTAN ERDEM is Assistant Professor of Marketing at the
University of Houston-Clear Lake.
CATHY OWENS SWIFT is Associate Professor of Marketing at
Georgia Southern University.

22

Successful logistics management systems entail the

systems, total cost, and trade-off concepts [9]. From raw
materials to finished goods, the management of inventory
flow embodies aspects of both opportunity and cost. The
inventory manager must constantly balance anticipated
opportunities against the associated costs.
On the other hand, there are numerous opportunities
and costs that the purchase and maintenance of large inventories provide. For example, large quantities of inventory-on-hand offer the opportunity for a sale to occur
without needing to worry about stock-outs or waiting for
replenishment. Also, the purchase of large quantities of
inventory often provides various opportunities for significant cost savings, vis--vis quantity discounts. In addition, large inventories can reduce stockout risk due to
supply inconsistencies of lumpy demand.
Several costs can occur as well. Large purchases require large expenditures of cash or the use of valuable
lines of credit (which are frequently needed elsewhere in
the firm). Storage, pilferage, and spoilage of inventory can
also counterbalance many of the proposed benefits.
Therefore, managers must be in a position to make informed decisions about the benefits and costs of inventory.

JUST-IN-TIME
JIT derives various inventory levels for optimum materials requirements and maximizes long-term efficiency
by focusing upon inventory management in the short-run.
JIT basically describes an inventory control technique
that has been used to schedule raw materials, components, or commodity inputs. Implementation of JIT concerns the production function from two unique perspectives: (1) it provides a method for deriving optimum
materials requirements and inventory levels in a production process; and (2) it maximizes long-term benefits by
accepting short-term dis-economies.
The time which a product takes to be completed can be
viewed as a function of motion and work [46]:

This study concerns JIT users with

significant experience.
product time 5 motion time 1 work time
Based on the JIT philosophy, all those activities that
make up motion time (such as materials handling, transporting, preparing, counting, etc.) need to be eliminated,
as they are wasteful. On the other hand, other activities
(such as fabrication and assembly) make up the work
time and add real value to the product. In production, it is
important to pay attention to these activities, because
they actually make the product worth purchasing by consumers.
The companies using JIT must look beyond the production and purchasing areas and examine the potential
use of JIT within their overall marketing strategies [35].
For instance, in a manufacturing process, JIT involves
the movement of (raw and semi-finished) goods along a
production sequence. Because a distribution channel basically represents the movement of (finished) products
along a delivery sequence, one can examine the implementation of JIT in the distribution function of the marketing mix. Accordingly, JIT represents a philosophy of
viewing the distribution network from a systems perspective. It instills a problem-solving process to analyze the
entire system and eliminates the inefficient components
of it [16, 49].
As is widely recognized, one of the central functions
of the distribution process is related to physical supply,
storage, and transportation of commodities. When JIT is
in use, these tasks are emphasized, because the tenets of
the process are based on zero inventory. Even though
this implies a lack of a buffer stock [31], JIT use in production still allows some inventory to be kept as a safety
stock [41]. This stock is maintained at a minimum level,
so that inventory carrying costs can be minimized and
lead time requirements can be significantly decreased
[31, 36].
When a manufacturing firm uses JIT, its purchasing
routines [7, 21, 40, 45, 48] need to be adjusted. The firm
needs to examine numerous practical concerns before
switching completely to JIT from a traditional model
such as economic order quantity [19, 25]. JIT implemen-

tation strategy requires a multi-phase project plan [37],

which includes issues such as layout design, lead time
reduction, supplier integration, system stability, a pull
system, etc. One needs to ensure that purchasing and
accounting personnel realize the rewards of the JITpurchasing philosophy along with the details of day-to-day
routines so that they do not oppose the decision to switch
to JIT [20].
As stated earlier, distribution represents a flow network, not unlike a production process. The main purpose
of JIT in distribution is to get the proper amount of finished goods from manufacturers and deliver them to retailers (i.e., end distributors such as mill supply house,
VAR, service centers, etc.) while minimizing inventory
requirements and maintaining channel satisfaction levels.
The basic activities conducive to this process can be
summarized as follows:
1. forecasting retailer demand for goods;
2. coordinating manufacturers production schedules with
retailers demand schedules;
3. maintaining accurate and timely information flows
from retailers; and
4. performing the delivery of products to retailers just in
time to eliminate the excess inventory.
JIT implementation requires not only systematic thinking but also integration of different activities performed
by numerous functional areas [10]. Identifying the salient
issues involved in JIT implementation is essential. Certain variables appear to be crucial in providing managers
with an opportunity to assign specific cost estimates to
various alternatives and consider associated benefits of
inventory decisions. The items need to be evaluated by
managers in deciding on the use of JIT and therefore securing the paths to increased profitability.
This study was designed to ascertain the issues that inventory managers consider important in effecting JIT.
Studying establishments that have successfully implemented JIT can provide guidance for inventory managers
in considering adoption of JIT.
23

Five selection factors are identified.

THE STUDY
The sample for this study consisted of 231 businesses
located in a major southwest metropolitan area. The sample was selected from Chambers of Commerce directory
listings. Following an in-depth review of the operational
structures of the business establishments (eliminating
firms with relatively greater involvement in services),
204 of them were deemed appropriate for this study.
These firms were industrial distributors with significant
expertise in inventory management and were all JIT users. Executives in charge of inventory control were interviewed using a questionnaire designed to measure attitudes toward various aspects of inventory control and JIT.
Respondents were asked to rate the importance of a set
of 23 variables in selecting JIT as the primary inventory
control method. These variables were selected based on a
review of the current literature concerning JIT implementation. The initial set of variables was reviewed by
six inventory control managers and was adjusted and
simplified based on their comments. After this refinement, they appeared to be rather self-explanatory statements (accordingly, further explanation was avoided, because it could bias the participants responses). A 7-point
Likert scale was used, where 1 5 very important and 7 5
very unimportant.
Information was also collected regarding the business.
Almost two-thirds (63.7%) of the respondents had annual

sales of $2.5 million or less. Almost half (46%) classified

themselves as distributors, 33% were wholesaler/distributors, 12% were manufacturer/wholesalers, 6% were
wholesalers and 3% were manufacturers (see Table 1).
Thus, the sample was representative of channel members
at various levels.

ANALYSIS AND RESULTS

To understand the underlying dimensions of the scale,
factor analysis with varimax rotation was performed on
the entire sample across all 23 items. Factors were retained
with an eigenvalue of one or greater. A 0.60 cutoff was
used for the factor loadings. In the initial rotation, six of
the items were eliminated due to inadequate factor loadings.
Five factors, consisting of 17 items, appear to have
captured the dimensionality in the sample, and explained
78.8% of the total variance in the data set. The factors
were identified as delivery effectiveness, information system
needs, spatial concerns, financial resources, and channel
cohesiveness (see Table 2).
Factor 1, labeled delivery effectiveness, was comprised of timing of delivery, demand estimation, quality
of delivery, proximity of suppliers, cohesiveness with
suppliers and competition in the market. Factor 1 emphasizes the crucial role of the delivery process in coming up
with a unique niche in distribution functions.

TABLE 1
Sample Characteristics
Sales
Classification
Distributors
Wholesalers/
Distributors
Manufacturers/
Distributors
Wholesalers
Manufacturers

24

No. of
Companies

,$2.5 mill.

.$2.5 mill.

94

22

72

5171,5192, 5065, 5032,

5039, 5049, 5046, 5052, 5113

324

67

16

51

5063, 5065, 5084, 5093, 5052, 5113

229

25
12
6

19
12
5

6
0
1

3251, 3271, 5032

5198, 5085, 5063
3291, 3363, 3341, 3351

533
426
334

SIC Code

Age of
Companies

Channel intermediaries need to make

adjustments to implement JIT.
Regardless of whether the specific function being
evaluated is manufacturing, wholesaling, or retailing, inventory needs must be anticipated, secured, maintained,
and monitored. Although the estimation of inventory requirements to fulfill manufacturing processes tends to be
more deterministic than, say, anticipating final consumer
demand levels, estimates must be made nonetheless. Historically, the primary consideration of inventory management has been to provide supplies of product to meet the
expected volume of business over a predetermined decision period (such as a year). To justify the selection of
JIT, a business in any of these various sectors should be
able to show that implementation of JIT can reduce certain unnecessary routines and reduce organizational costs
without compromising quality standards.
An important aspect of demand estimation is accurately anticipating seasonal and other cyclic changes.
Special forecasting methods may be needed for this purpose. In certain business settings (e.g., small business
units), some studies have suggested how managers can
use specific techniques to include these demand swings
in their planning cycles [5]. Such techniques will be particularly useful for wholesalers and retailers of seasonal items (e.g., holiday items and lawn and garden
supplies).
Understanding the consumer demand is an important
task, because retailers demand is basically a derived demand, partially determined by consumer demand. Meeting
the demand requirements on time, both in the promptness
and quantity of delivery, is a challenging task for the distribution manager. The ability to deliver promised goods
to other intermediaries such as retailers (and eventually,
final consumers) is critical to the long-run viability of the
firm [12].
The degree of flexibility on this customer service issue may indeed prompt consideration of alternative inventory management methods. For example, an inventory system that seeks to eliminate (minimize) backup
inventories, vis--vis a JIT-type approach, will tend to increase the likelihood of stockouts. Consequently, manag-

ers may wish to avoid this and similar approaches in

favor of more stock-intensive methods under such conditions.
Factor 2 was named information systems. The computer software and hardware needs, together with the
availability of automation, were included in this factor.
The availability of technological resources to facilitate
the use of automated distribution processes is crucial.
Many of the sophisticated inventory management systems such as JIT require complex computer hardware
and software systems [30]. The ability to measure and
maintain manufacturing floor or distribution stocking
area inventories on a continuous basis is essential for

TABLE 2
Results of Factor Analysis
Factor Loading
Factor 1: delivery effectiveness
Timing of delivery
Demand estimation
Quality of delivery
Proximity of suppliers
Cohesiveness with suppliers
Competition in the market
Factor 2: information system needs
Computer software needs
Computer hardware needs
Advanced automation
Factor 3: spatial concerns
Availability of space
Cost of space
Quality of space
Factor 4: financial resources
Cash-on-hand
Short-term debt
Long-term debt
Factor 5: channel cohesiveness
Vertical integration
Competition with suppliers

0.84449
0.83653
0.82619
0.82543
0.79365
0.75964
Cronbachs alpha 5 0.8867
0.90246
0.89211
0.84165
Cronbachs alpha 5 0.8624
0.84557
0.83455
0.82247
Cronbachs alpha 5 0.8591
0.83763
0.77576
0.68445
Cronbachs alpha 5 0.7654
0.85648
0.78798
Cronbachs alpha 5 0.6678

25

Similar decisions are made by channel

members at different levels.
zero-buffer methods. In addition to hardware and software, the implementation, maintenance, and system upgrade costs can be high.
Human resource needs must also be carefully considered. Decisions must be made regarding the hiring of inhouse specialists or securing outside consultants. The total of these information systems costs must be balanced
against the benefits gained by using correspondingly
more sophisticated inventory management systems, especially JIT.
Factor 3 captured the dimension of spatial concerns
in selecting JIT. Availability of space, cost of space, and
quality of space are the items comprising this factor, indicating the importance of return on space (ROSP).
The key issue to be evaluated is the cost of space relative to the value of its utilization. Under selling and manufacturing situations, a return on space (ROSP) value
can be calculated for various inventory control techniques. Accordingly, the alternative with the highest net
ROSP is selected. This element calls for a direct comparison between revenue generation, vis--vis selling/manufacturing, and the value of inventory space.
Productive utilization of physical space by a business
represents another critical consideration of inventory
managers. Space can be acquired by ownership, rental, or
lease. The key issue that must be evaluated here is the
cost of space relative to the value of its utilization. For
example, if selling space is able to generate $15 per
square foot per month, it has greater value than if the
same space generated $12 per square foot. A retail manager will make this kind of comparison any time that an
alternative product line is being considered.
A similar productivity comparison can be used for
manufacturing analysis. For example, if a manufacturing
area is generating $40 value-added per square foot, it has a
greater value than areas generating $30 per square foot.
Making necessary ROSP comparisons across selling/manufacturing/warehousing space is difficult. Despite these
difficulties, however, relative assessments must be made.
The role of financial resources has been captured by
Factor 4. The basic sources of funding, cash on hand,
26

short-term debt, and long-term debt, need to be considered before deciding on JIT.
It has been shown in the literature that the financial results of JIT implementation are far more than a decrease
in inventory [13]. The combination of increased productivity, cost reduction, and revenue growth results in net
income increase. As a result, JIT use is to be perceived
by industrial marketers as a strategic competitive decision instead of just an operations tactic [15]. Even though
the results of the technique are promising, being able to
use the system is partially a financial concern. An important consideration in the selection of an inventory management technique is the availability and management of
funds.
In general, cash, short-, and long-term debt represent
basic funding sources. The accurate assessment of funds
represents an important consideration in the selection of
an inventory method. For example, in retailing, the traditional working capital analysis may be inappropriate
for inventory evaluation under decision since the current
assets include inventory value. By including the book
value of inventory in the value of working capital, the
analysis will likely understate/overstate the funds available for future inventory acquisition. The evaluation of
working capital for this application should reflect current
assets based upon the current market value of inventory
(if it were to be sold immediately in its present form). In
other words, working capital should be fully reduced by
the book (market) value of existing inventories. In this
way, a conservative picture of funds available for new inventory acquisition is provided.
The accurate determination of available funds is critical because without sufficient levels of cash and/or
credit, large purchases and their associated quantity benefits are impossible. Indeed, the underlying need for
funds rationing will be an important consideration in the
purchase of inventory.
The last factor was labeled channel cohesiveness
and contains the items vertical integration and competition with suppliers. The necessity of having close social
relationships with suppliers for the successful implemen-

tation of JIT requires channel managers to pay attention

to their social network.
Because JIT philosophy proposes a relationship marketing approach [38], this aspect of the analysis assesses
the quality of interactions between a business unit and its
vendor(s). Even though a wide dispersion of suppliers
greatly precludes many efficiencies of JIT [4, 32], supplier evaluation goes beyond a concern for supplier location. In this dimension, one needs to examine various
financial relationships, order processing, reorder scheduling, and support services.
The degree of channel cooperation among all parties
must be considered before JIT is selected, because it requires an atmosphere of mutual cooperation, loyalty, and
trust [31]. For example, the success of buffer-stock minimization becomes extremely questionable in a hostile
channel environment. The inverse relationship between
cooperation and conflict [2, 18, 39] limits the benefits of
the zero-stock feature of JIT under conflict. In the event
of conflict, management style and organizational structure become relevant issues, because they represent the
potential to reduce (or solve) channel conflicts. Leadership styles and attitudes of members are important in this
potential [28, 47]. It has been shown that participative
leadership motivates cooperation and decreases conflict
[23]. The perceived ability of a manager to mitigate conflict and encourage cooperation among all necessary
channel participants will guide the selection of an inventory method when JIT is the major option.
When competition is not intense, an organization may
take time to distribute through different intermediaries at
various levels. On the other hand, when competition is
intense, the same managers like to go through a channel
structure with very few levels. As a result, the nature and
the degree of competition have to be analyzed before a
channel structure and the distribution strategy are selected. Because vertical integration should increase coordination efforts within a channel structure, it can be perceived as an element that lowers the negative effects of
competition [6].
MANAGERIAL IMPLICATIONS
In considering JIT implementation, channel intermediaries have several opportunities. They can move forward
in the channel and develop a JIT supply relationship with
their customers or backward and implement a JIT relationship with the manufacturers who supply them. Thus,
the findings of the study have implications for channel

members as both marketers (to retailers) and as customers (of manufacturers). There are a number of salient issues associated with inventory management that channel
members should consider in selecting JIT.
Delivery Effectiveness
The first factor, delivery effectiveness, included timing of delivery, demand estimation, quality of delivery,
proximity of suppliers, cohesiveness with suppliers, and
competition in the market. This supports similar findings
in other studies [38] that emphasize the importance of the
physical distribution system. The quality of service offered by a marketer in a JIT relationship depends on the
vendors ability to deliver the product on time and in the
proper amounts. Channel members will need to coordinate manufacturers schedules with the demands of retailers. Marketers may need to consider moving closer to
the customer or perhaps using private carriage systems
rather than common carriage.
As a customer, channel members should recognize the
need to track the vendors record on delivery performance. The customer may also want to analyze the vendors
commitment to other buyers, which may strain the delivery capabilities of the supplier. As a customer, the channel
member may be asked for a blanket purchase order, and
information on demand estimates will have to be shared.
Information System Needs
The dimension of information system needs includes
computer software needs, computer hardware needs, and
advanced automation. As a marketer, the channel member needs to have vital information on each customer. To
enable the exchange of information with customers, the
member will need a sophisticated hardware system as
well as customized software. Their customers will need
to share demand forecasts as well as logistics information. Any changes in retail demand scheduling will need
to be sent immediately to the marketer. Therefore, immediate follow-up with the customer is warranted.
When acting as a customer, the channel member needs
to plan bills of materials. In addition, special JIT software
will have to be used that includes manufacturers specifications, materials planning, and manufacturing control.
Spatial Concerns
Spatial concerns contains the items availability of
space, cost of space, and quality of space. The channel
27

member, as marketer, must recognize that materials management resources must be increased. This may call for
an increase in warehouse capacity, and inventory levels.
The marketer will have to hold goods for a longer period
of time and will have to do a better job of managing capacity.
As a customer, the channel member may need to make
physical plant changes. Specifically, because inventories
will not be as large for any single retailer, the intermediaries may be able to expand their own customer bases.
Financial Resources
Included in the financial resources dimension are cashon-hand, short-term debt, and long-term debt. As a marketer, the channel member should recognize that JIT implementation is a high risk proposition. Considerable
resources of the company will be devoted to making the
changes required for a JIT system.
JIT implementation also creates considerable risk for
the channel member as a customer. Considerable investments will be made in becoming involved with JIT. The
firm needs to ensure that resources are adequate and be
prepared to make appropriate investments.
Channel Cohesiveness
Channel cohesiveness concerns both vertical integration and competition with suppliers. The channel member, as a marketer, must be very selective in identifying
customers with whom they wish to implement JIT. This
will, of necessity, involve a closer relationship with the
retailer, and concentration on present customers, rather
than new customers. Even the role of the salesperson
changes.
As a customer, the channel member will need to ensure that there is a direct relationship between the planning
department and the supplier. This relationship should be
considered in all planning activities. The focus should be
on value added service on the part of the supplier.
LIMITATIONS
There are several limitations to this study. The surveys
were collected in a geographic region of the southwest,
limiting the generalizability of the results.
In addition, the managers who were interviewed were
a convenience sample. They were all prescreened to determine that they were in charge of inventory control and
were either using or considering a JIT system. However,
28

because the respondents were not chosen randomly, results cannot be generalized.
Finally, this was an exploratory study. As such, there
were no prior hypotheses to be tested in the study.
CONCLUDING REMARKS
This article has proposed tentative scale items to be
used in implementing JIT in distribution channels. An attempt was made to capture the core issues associated
with inventory management in general, and JIT in particular, and to reveal the commonalities across various
channel members at different levels.
There appear to be five factors considered by the managers in selecting JIT. The issues of delivery effectiveness, information system needs, spatial concerns, financial resources, and channel cohesiveness were presented
as dimensions relevant to JIT use.
This study involved the use of exploratory factor analysis. Before any generalizations can be made, further
work is needed with larger and different samples using
alternative techniques. Then a structural equation model
between common factors of JIT use and a given marketing feature can be established for future inquiry. This
structural equation will express the relative significance
of each factor in terms of its marketing implications. By
so doing, the contribution of each JIT attribute can be examined within the field of marketing.
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