An examination of the effects of inflation on a pull-based production system

Companies typically use pull-based systems, such as Kanban, when they can produce what customers order quickly enough; otherwise, they must maintain inventory to meet customer demands. These companies do not overproduce until they receive orders. This approach eliminates the risk of overstocking and restricts the system’s capacity to store WIP. Nonetheless, in an inflationary environment where raw material prices frequently rise, many companies prefer to hold inventory even when there is no actual demand for it. Thus, inflation may cause pull systems to lose their minimal inventory advantage. In the literature, economic factors that could harm the kanban pull system have been ignored. This study finds this viewpoint incomplete and seeks to fill a gap in the literature by examining the effects of inflation on pull systems. To achieve this, we examined the stocking and supply strategies of a textile company that uses a one-card kanban system and operates in a high-inflationary environment between 2021 and 2023. The analysis shows that when annual inflation exceeds 10%, keeping a large inventory becomes more cost-effective than conventional JIT manufacturing. The findings indicate that designing a pull system in high-inflationary markets necessitates establishing a different supplier structure compared to traditional just-in-time production. This study is innovative as it challenges the conventional perspective that asserts JIT is always the optimal choice.