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Created: 2001-03-15
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The Inventory-to-Shipments Ratio

J. Bradford DeLong

March 2001

  • Inventory-to-shipments ratios in U.S. manufacturing have been declinng for roughly a generation.
  • The decline has been largest for durable goods production, and smaller for non-durable goods production.
  • To some extent this reduction is driven by attempts to change organizations to economize on inventory. Remember the Japanese challenge? The kanban system? Lean production?
  • To some degree this reduction is the result of the information technology revolution. Businesses that know more about where there goods are at any moment can run efficiently with smaller pipelines of goods in process.
  • The kicker: high inventories and large errors in forecasting how much inventory will be needed have been a principal force driving the business cycle over the last century. Will a lower inventory-to-shipments ratio diminish these forecasting errors and the business cycles they cause? Maybe.

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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