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Spread too thin: The impact of lean inventories

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  • Ortiz, Julio L.

Abstract

Widespread adoption of just-in-time (JIT) production has reduced inventory holdings. This paper measures the share of publicly traded manufacturing firms that adopted JIT since 1980 and quantifies a trade-off created by JIT between firm profitability and vulnerability to supply disruptions. Empirically, JIT adopters experience higher sales and less volatility on average while also exhibiting heightened sensitivity to aggregate supply chain pressures. I explain these facts in a structurally estimated general equilibrium model of JIT production. Relative to a counterfactual economy without JIT, the baseline model implies higher firm profitability in normal times but a deeper contraction amid a supply disruption. Moreover, a transition to an equilibrium with less JIT and larger inventory buffers leads to a roughly 4% output loss.

Suggested Citation

  • Ortiz, Julio L., 2026. "Spread too thin: The impact of lean inventories," Journal of Monetary Economics, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:moneco:v:159:y:2026:i:c:s0304393226000474
    DOI: 10.1016/j.jmoneco.2026.103932
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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