Communication and Inventory as Substitutes in Organizing Production
A major organizational design decision for manufacturing firms is t he extent to which production should be to stock versus to order: inventories and communication with customers are substitutes. The authors show that profits are convex in the share of the market supplied from inventory. Thus, firms will tend to specialize in one mode of organization. The authors examine how this choice depends on market size, the level and variability of demand, the costs of communication, price levels, production costs, and the costs of expanding product lines. The results are consistent with observed patterns in several industries. Copyright 1988 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 90 (1988)
Issue (Month): 3 ()
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