Why Take the Stocks Out? Britain vs Japan

Abstract

The case for stock reduction in manufacturing has been argued by engineers who emphasise the productive benefits. Western management accounting does not provide an adequate indication of the costs of holding stock. This article constructs a framework for identifying and measuring the financial benefits of stock reduction. Within this framework, the financial benefits of stock reduction in Japanese manufacturing in the 1960s are estimated and the productive preconditions for successful stock reduction are identified. The case of British manufacturing where stock levels have not been reduced is considered. Financial savings from stock reduction cannot be realised in Britain because the productive preconditions are not satisfied when output growth is slow and management has poor control over the production process.

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