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Plant Operations and Product Recalls in the Automotive Industry: An Empirical Investigation
Abstract
While there is overwhelming support for the negative consequences of product recalls, empirical evidence of operational drivers of recalls is almost nonexistent. In this study, we identify product variety (measured as the number of factory installed options), plant variety (measured as the number of models per assembly line in a plant), and capacity utilization as drivers of subsequent manufacturing-related recalls. We examine their individual and joint effects using a unique data set compiled for a seven-year period by linking assembly line production data for North American automotive manufacturers with recall data from the National Highway Traffic and Safety Administration. We show that manufacturing-related recalls are positively associated with product variety and plant utilization, but not with plant variety. We also find that the joint effect of plant variety and utilization is positively associated with increased recalls. In quantitative terms, a one-standard-deviation increase in the number of options (four additional options) is associated with two additional recalls and costs 167 million.
This paper was accepted by Yossi Aviv, operations management.
... firm's product recalls, mostly by analyzing secondary data. The dependent variable (DV) is usually a firm's number of recalls or the number of units recalled in a period [43,44,[59][60][61]. The causes (independent variables) have been discussed from the focal firm's and/or its product-market stakeholders' perspective [2], such as the deployment of marketing assets [62] and marketing personnel [63], CEO characteristics [64], the levels of the recalled product [43,49,61], manufacturing operations [59,61], supply chain [65,66], the board of directors [44], the industry [67], and the regulatory investigation [4]. ...
... The dependent variable (DV) is usually a firm's number of recalls or the number of units recalled in a period [43,44,[59][60][61]. The causes (independent variables) have been discussed from the focal firm's and/or its product-market stakeholders' perspective [2], such as the deployment of marketing assets [62] and marketing personnel [63], CEO characteristics [64], the levels of the recalled product [43,49,61], manufacturing operations [59,61], supply chain [65,66], the board of directors [44], the industry [67], and the regulatory investigation [4]. Notable in this list are two omissions. ...
... The dependent variable (DV) is usually a firm's number of recalls or the number of units recalled in a period [43,44,[59][60][61]. The causes (independent variables) have been discussed from the focal firm's and/or its product-market stakeholders' perspective [2], such as the deployment of marketing assets [62] and marketing personnel [63], CEO characteristics [64], the levels of the recalled product [43,49,61], manufacturing operations [59,61], supply chain [65,66], the board of directors [44], the industry [67], and the regulatory investigation [4]. Notable in this list are two omissions. ...
This article examines the dynamic interdependencies among the negativity and the positivity in news and user-generated content about safety in a firm’s products (or the lack thereof) and the firm’s product recalls. The authors use a panel vector autoregression (PVAR) to unearth theoretically novel and managerially relevant asymmetric associations. Specifically, they find that the negativity in the news negatively correlates with recalls, whereas the negativity in UGC positively correlates with recalls. Whereas the positivity in the news positively correlates with recalls, the positivity in UGC does not matter. Further, the negativity in the news and the negativity in UGC substitute for each other, whereas their positive counterparts complement each other’s associations with recalls. Lastly, the negativity and positivity in the news have significant, though differently patterned, long-term associations with recalls. The findings contribute to research on the associations between earned media and managerial decisions in the product market.
... Thirumalai and Sinha (2011) found that firms with broader product portfolios have an increased likelihood of recalls. Similarly, greater product variety (Shah et al., 2017) and product competition (Ball et al., 2018) drive product recalls. Considering external cooperation, Steven et al. (2014) observed that outsourcing can increase recalls. ...
... We need to include these observations in our regression as they contain relevant venturing information. GEEs account for these observations and, in contrast to fixed-effects models, do not exclude all firms where the observation is zero for all years from the analysis (Shah et al., 2017). Third, we have heteroscedasticity in our data that GEEs also control for (Shah et al., 2017). ...
... GEEs account for these observations and, in contrast to fixed-effects models, do not exclude all firms where the observation is zero for all years from the analysis (Shah et al., 2017). Third, we have heteroscedasticity in our data that GEEs also control for (Shah et al., 2017). Because our dependent variable is binary, we follow A. J. and use a binomial family with a logit link specification, an exchangeable correlation structure, and robust standard errors. ...
Despite growing numbers of corporate venture capital (CVC) deals and alliances, their effectiveness is not guaranteed. This paper investigates the positive and negative impacts of CVC and alliance activity on product safety under different levels of market turbulence. Using a resource-based learning perspective and panel data from large U.S. firms, we find that both CVC and alliance activity have inverted U-shaped relationships with product recall likelihood. Market turbulence moderates both relationships, but differently. We discuss how learning theory complements the resource-based view to understand why no or rather bold external venturing are less harmful than small-scale “stuck-in-the-middle” initiatives.
... First, by studying how news coverage of safety in a firm's products affects its voluntary product recalls, we take multidisciplinary product recall research into new but consequential territory (Hora, Bapuji, and Roth 2011;Wowak et al. 2021). Specifically, we demonstrate that recalls are as much a response to external pressure as they are to internal characteristics Shah, Ball, and Netessine 2017) or managerial values (Mayo, Ball, and Mills 2021;Wowak et al. 2021). ...
... These factors include the firm's decisions in the domains of production (Shah, Ball, and Netessine 2017;Thirumalai and Sinha 2011), supply chain (Kalaignanam, Kushwaha, and Nair 2017;Kini, Shenoy, and Subramaniam 2017), corporate management and governance (Byun and Shammari 2021;Wowak et al. 2021), labor (Kini, Shen, Shenoy, and Subramaniam 2021), financing (Kini, Shenoy, and Subramaniam 2017), the stock market (Bendig et al. 2018), and prior experience Thirumalai and Sinha 2011). Decisions by firm stakeholdersspecifically, safety regulators (Ball, Siemsen, and Shah 2017), rivals (Ball, Shah, and Wowak 2018), investors , and consumers Mukherjee and Sinha 2018)-also impact a firm's recalls). ...
... Consequently, the media may report less about any particular product line. Further, Shah, Ball, and Netessine (2017) have reported that greater variety among products increases the number of recalls. Liu, Y., & Shankar, V. (2015). ...
Does the news media's reporting of the safety (or the lack thereof) in a firm's products impact managers' voluntary recalls of the products? The current article empirically answers this question in the context of safety defects in vehicles of 22 manufacturers from June 2009 to December 2020 in the United States. Results show that the volume of news reports about safety in a manufacturer's products increases voluntary recalls by managers. Further, the negativity in these news reports strengthens the main effect of news volume, whereas news positivity does not moderate the main effect. Lastly, the media's rating of the manufacturer's products weakens the news volume effect, thus acting as a buffer. The supplementary analysis demonstrates that none of the main or moderation effects exist for involuntary recalls, confirming the theory that news affects managers' voluntary behavior. Lastly, the effects exist for high (and not low) severity voluntary recalls only. The findings unearth the news media's role in enhancing public safety by affecting managerial decisions about recalls.
... The quality of goods and services, or product quality in general, is an important research topic in Operations Management (OM). OM researchers have investigated various factors related to internal operations (e.g., plant utilization) and supply chain management (e.g., buyer-supplier proximity) that explain the variation in product quality across firms (Steven et al., 2014;Bray et al., 2019;Gray et al., 2011;Shah et al., 2017). However, the extant OM literature has largely F o r R e v i e w O n l y 2 overlooked the possible product quality impact of competition from companies located in other countries (i.e., foreign competition). ...
... OM researchers have also examined various factors that explain the variation in product quality across firms (e.g., Pil and Rothenberg, 2003;Gray et al., 2011;Bray et al., 2019;Steven et al., 2014;Steven and Britto, 2016;Shah et al., 2017;Phillips and Sertsios, 2013). Earlier studies on the antecedents of product quality focus on firm-level characteristics, such as firms' financial conditions (Phillips and Sertsios, 2013), environmental performance (Pil and Rothenberg, 2003), and plant-level variety and utilization (Shah et al., 2017). ...
... OM researchers have also examined various factors that explain the variation in product quality across firms (e.g., Pil and Rothenberg, 2003;Gray et al., 2011;Bray et al., 2019;Steven et al., 2014;Steven and Britto, 2016;Shah et al., 2017;Phillips and Sertsios, 2013). Earlier studies on the antecedents of product quality focus on firm-level characteristics, such as firms' financial conditions (Phillips and Sertsios, 2013), environmental performance (Pil and Rothenberg, 2003), and plant-level variety and utilization (Shah et al., 2017). For instance, Pil and Rothenberg (2003) show how firms' efforts to enhance environmental performance can drive superior product quality, while Shah et al. (2017) identify several plant-level operational characteristics (e.g., plant variety and utilization) as the causes of product quality issues. ...
Researchers have investigated various factors that explain the variation in product quality across firms, but little is known about how competition from companies located in other countries may affect domestic firms’ product quality. Although such foreign competition has received much attention from news media and the public, especially during the recent US-China trade war, its impact on product quality is still unclear. Our research answers this important question by conducting a quasi-natural experiment in the US, in which significant reductions in import tariff rates represent an exogenous increase in foreign competition for US firms. Performing a difference-in-differences estimation of the difference in product quality changes between treatment and control firms, our research shows that increased foreign competition has a negative impact on the product quality of the US firms concerned. However, such a negative impact is less significant for firms with high levels of operational slack and R&D intensity. Firms pursuing product differentiation rather than cost leadership strategies are also less affected by foreign competition. Overall, our research demonstrates foreign competition’s negative impact on product quality and highlights the crucial role that firms’ operational resources and strategies play in mitigating the negative impact.
... Recall-induced learning is limited to a firm's own recalls when initiated voluntarily (Hall and Johnson-Hall 2017;Haunschild and Rhee 2004). It varies based on the firm's attributes (Ball et al. 2018;Hall and Johnson-Hall 2017;Shah et al. 2017;Thirumalai and Sinha 2011) and the recall's attributes, as introduced by current works: Learning is more profound for knowledge gap failures than for slip-up failures (Anand and Mukherjee 2024), and more present for human error (Park et al. 2022). ...
... The study incorporates firm attributes and yearspecific effects as control variables, based on their known impact on learning outcomes identified in previous research, outlined in Table 2. Note. Created by author, content adapted from Hall and Johnson-Hall, 2017, p. 2017and Kalaignanam et al., 2013 Additionally, the study uses temporal separation, applying variables from the previous year (t-1) to predict recalls in the following year (t), ensuring that the analysis accurately captures learning effects (Kalaignanam et al. 2013). The rationale of negative binomial regression on recall data has been given in previous work (Hall & Johnson-Hall, 2017;Haunschild & Sullivan, 2002;Steven et al., 2014;Thirumalai & Sinha, 2011) given its count nature and overdispersion. ...
Medical device recalls, manifesting product failures, endanger patient safety and cause repercussions for manufacturers, but foster organizational learning. This study examines how the cause and severity of recalls affect learning outcomes. We aim to identify the most frequent causes and severity classes of medical device recalls by analyzing 1000 recalls in the U.S. from 2018 to 2022, using ChatGPT-assisted labeling and descriptive statistics. We further examine their impact on future recalls using negative binomial regression on a panel of 56 firms. Processing, design, component, and software emerge as the most frequent recall causes, while recalls of moderate severity emerge as the most frequent recall severity class. The study finds no significant inverse relationship between past and future recalls but highlights the mixed effects of recall attributes. While most impacts are non-significant but decreasing, manufacturing-related recalls significantly increase future recalls, and low-severity recalls significantly decrease future recalls. These results suggest that a few causes and severity classes account for most recalls and vary directionally in their impact on learning outcomes. The research advances the understanding of variation in organizational learning by differentiating between failure cause and severity. We develop managerial recommendations for aligning risk and quality management to prevent recalls.
... All automobile manufacturers carry many car models and use component sharing as a strategy to reduce costs in design, production, and the supply chain (Chao et al., 2009;Fisher et al., 1999). However, component sharing can lead to a situation in which multiple car models are affected by the same defect (Ramdas & Randall, 2008;Shah et al., 2017). For example, Dongfeng Honda had to recall its Spirior, Ciimo, and Elysion models due to the same airbag defect. ...
... Defect severity was classified into 5 levels, coded from 1 to 5: low, relatively low, moderate, relatively high, and high. Defect type was classified as design-related (coded as 1) or manufacturing-related (coded as 0) defects (J.Ni & Huang, 2018;Shah et al., 2017). ...
Manufacturers often recall defective products. When this occurs, multiple recalls of defective products can be announced in the same statement or separate statements (i.e., concurrent vs. separate recalls). We draw upon the attribution theory to study whether and how concurrent (vs. separate) recalls of multiple products affect each recalled product's market share loss. In this study, a unique dataset of product recalls in the Chinese automobile industry and two experiments reveal that when products are concurrently (vs. separately) recalled, each product's defect is perceived as less distinctive, thus assuaging the market share loss for the focal product. In addition, the mitigating effect of concurrent recalls is stronger when the focal product is recalled with many (vs. few) other products but weaker for products with high price premiums and those with a recall history. These insights suggest that manufacturers can strategically use concurrent recalls to minimize market share loss resulting from product recalls, particularly when dealing with lower‐priced products or those with a limited recall history.
... Next, we examine the channels through which stable institutional investors can improve the quality management of their investee firms. First, prior studies suggest that IJMF overinvestment could distort product quality (Shah et al., 2017;Thirumalai and Sinha, 2011) as an excessive pursuit of product variety without adequate focus can lead to the trade-off between quality and quantity. Therefore, a possible mechanism is that institutional investors with significant and persistent holdings can enhance the investment efficiency of their investee firms by limiting overinvestment issues. ...
... The prior literature shows that managers' excessive pursuit of value creation makes firms more susceptible to product failures (Shah et al., 2017;Thirumalai and Sinha, 2011). Intuitively, when firms engage in a substantive number of projects that broaden product offerings, it is likely that they cannot ensure the quality of each product and consequently experience more recalls. ...
Purpose
This study examines the effect of stable institutional investors on firms' product quality failures. Furthermore, the authors investigate the channels through which institutional ownership stability enhances product quality management.
Design/methodology/approach
This study uses probit, ordered probit and negative binomial regression frameworks to investigate the research questions. In addition, the authors utilize the three-stage least-squares to address the endogeneity issues.
Findings
Using a sample of product recall incidents from 2012 to 2021, the authors find that firms with more stable institutional ownership have a lower probability, frequency and severity of recall incidents and adopt a proactive product recall strategy. Institutional investors with significant and persistent holdings improve quality management by reducing overinvestment and the use of option-linked and relative performance executive compensations. Furthermore, the influence of stable institutional owners on product quality failures is more pronounced in firms with low managerial ability and specialist CEOs. Lastly, the empirical evidence demonstrates that stable holdings by active investors have a more substantial impact on reducing product recalls than passive and other stable institutional holdings.
Originality/value
This study is the first to examine the impact of institutional ownership stability on firms' product recalls. The authors contribute to the literature on the benefits of stable institutional ownership on firm outcomes and the determinants of product quality failures.
... Another important relationship that has been underexplored is the effect of variations in the reasons for the failure, and thus of experiences, on the likelihood of a future failure (Haunschild and Sullivam, 2002;Shah, Ball and Netessine, 2017). An examination of the broader learning from experience literature reveals a theoretical puzzle. ...
... Therefore, we hypothesize that failure response times negatively moderate the positive effect of variations in the reasons for past failures on subsequent failures. In doing so, we follow calls to further examine the extent to which organizational learning from variations in failures depends on the temporal dimension of experience (Shah, Ball and Netessine, 2017). ...
Using drug recalls during 2006-2016, we examine the effect of response time and variation in the causes of past failures on subsequent failure. Longer response time reduces the likelihood of subsequent failure. Variation in failure experiences increases the potential for subsequent failure. However, a longer response time helps overcome the challenges associated with this variation. By focusing on the temporal dimension of learning from failure we provide unique theoretical insights into when and how organizations can learn from failure.
... In comparison to the aforementioned models, GEE ("xtgee" in Stata) addresses serial correlation, allows for robust standard errors, and averages out unobserved differences between firms, which can be a source of latent heterogeneity [78,79]. GEE models are thus useful for evaluating repeated count data [80] and are particularly useful for analyzing over-dispersed count data when autocorrelation and unobserved cross-sectional heterogeneity may be present [18,75,[81][82][83][84]. The GEE model implemented assumes the dependent variable is negative binomially distributed, uses a log link function, and deploys an exchangeable correlation structure. ...
In response to ever-increasing pressure from stakeholders to reduce the impact of their operations and supply chain on the natural environment, firms frequently make public commitments to improve environmental performance. However, the commitments are difficult to validate and thus of unknown quality. Understanding whether and when the commitments are valid proxies for action is essential because they are used by environmentally conscious stakeholders to assess firm environmental performance in anticipation of buying from, investing in, working for, or selling to a firm. Results from examining 442 U.S. manufacturing firms show that firms generally follow through on such commitments. Larger firms and firms with better environmental performance are more likely to follow through. However, firms tend not to follow through if they are experiencing negative environmental publicity or resource constraints at the time of the commitment. The results provide important insights for environmentally conscious stakeholders who use the commitments to determine whether to buy from, invest in, work for, or supply to a firm. The study also highlights the benefits to firm leaders of following through and provides input towards ideas that can increase follow-through. Finally, the study contributes to several streams of the research literature, including the literature evaluating environmental management, environment commitments, and environmental accidents.
... Control variables are as before, except we control for recalls in the prior 12 months (not prior 36 months). Following the approaches taken by previous authors, we evaluate a fixed-effects negative binomial model (Ball et al., 2018b;Wowak et al., 2020), a random-effects negative binomial model (Ball et al., 2018b) and a general estimating equation (GEE) model (Shah et al., 2016). As shown in Sample selection bias exists if differences in firm characteristics, such as size or profitability, affect the probability of a firm experiencing the "treatment" (an EA). ...
Purpose
This study investigates whether a firm that has experienced an environmental accident (EA) is less likely to conduct a product recall. If true, it would indicate that EAs tempt firms to hide operational problems that need to be revealed. The logic is that both events are operational failures that damage a firm's reputation and share price. Following an EA, a firm may avoid a discretionary product recall to avoid providing additional evidence of operational incapability and social irresponsibility and thereby triggering amplified reputational and market penalties.
Design/methodology/approach
The dataset is compiled from several public and private sources and includes 4,355 product recalls, 153 EAs and 120 firms from the industries that often recall products, including automotive, pharma, medical device, food and consumer products. The study timeframe is 2002–2013. Empirical models are evaluated using hazard modeling.
Findings
Results show that EAs reduce the probability of a product recall by 32%, on average. Effect sizes are larger when accidents are more frequent or more severe and when recalls are less severe. Through post hoc analyses, the study finds support for the proposed mechanism that firms avoid recalls due to reputational concerns, provides evidence that EAs can have a lengthy impact on recall behavior, and shows that firms are more likely to avoid recalls managed by the CPSC and NHTSA than recalls managed by the FDA.
Originality/value
Prior studies in operations management (OM) have not examined the impact of one negative event on another. This study finds that EAs tempt firms to hide operational problems that need to be revealed. While recalling fewer defective products is of concern to consumers and regulators, should EAs influence a broader set of discretionary operational decisions, such as closing/relocating a production facility, outsourcing production or conducting a layoff, study implications increase significantly.
... To test the hypothesis, we analyze our data using the method Generalized Estimating Equations (GEE) (Ballinger 2004;Shah, Ball, and Netessine 2017). We use GEE because our observations are not independent, as several managers 12 In seven divisions, there is a tie for lowest performance (in five cases between two employees and in two cases between three employees). ...
We investigate managers’ propensity to engage in strategic promotion behavior. Strategic promotion behavior occurs when managers pursue personal economic interests when contributing to employee promotion decisions, such that the probability that relatively lower performing employees are selected for a promotion is increased. We develop theory about how two important organizational characteristics—transparency about individual performance levels and the presence of group incentives—jointly affect managers’ tendency to strategically influence promotion decisions. Using a stylized lab experiment, we find that transparency about individual performance levels decreases strategic promotion behavior when group incentives are absent but not when group incentives are present. We discuss how our findings contribute to our understanding of management accounting and control systems.
... This study can be interpreted as the overall effect of mine type, geographic location, mine size, and coal seam thickness on RCMD and RCS concentration, which has significant relation with lung diseases among coal miners. GEE is widely used for panel estimation 49,50 . The GEE is used to investigate the variation in RCMD and RCS concentrations per mine-year across 30-years unbalanced panel data. ...
Dust is an inherent byproduct of mining activities that raises notable health and safety concerns. Cumulative inhalation of respirable coal mine dust (RCMD) and respirable crystalline silica (RCS) can lead to obstructive lung diseases. Despite considerable efforts to reduce dust exposure by decreasing the permissible exposure limits (PEL) and improving the monitoring techniques, the rate of mine workers with respiratory diseases is still high. The root causes of the high prevalence of respiratory diseases remain unknown. This study aimed to investigate contributing factors in RCMD and RCS dust concentrations in both surface and underground mines. To this end, a data management approach is performed on MSHA’s database between 1989 and 2018 using SQL data management. In this process, all data were grouped by mine ID, and then, categories of interests were defined to conduct statistical analysis using the generalized estimating equation (GEE) model. The total number of 12,537 and 9050 observations for respirable dust concentration are included, respectively, in the U.S. underground and surface mines. Several variables were defined in four categories of interest including mine type, geographic location, mine size, and coal seam height. Hypotheses were developed for each category based on the research model and were tested using multiple linear regression analysis. The results of the analysis indicate higher RCMD concentration in underground compared to RCS concentration which is found to be relatively higher in surface coal mines. In addition, RCMD concentration is seen to be higher in the Interior region while RCS is higher in the Appalachia region. Moreover, mines of small sizes show lower RCMD and higher RCS concentrations. Finally, thin-seam coal has greater RCMD and RCS concentrations compared to thicker seams in both underground and surface mines. In the end, it is demonstrated that RCMD and RCS concentrations in both surface and underground mines have decreased. Therefore, further research is needed to investigate the efficacy of the current mass-concentration-based monitoring system.
... TQM aims at eliminating defects and reworking to increase quality (Brown and Mitchell, 1991). For quality performance, we distinguished between an internal and external quality performance dimension as per Shah et al. (2017) and used the metrics rejected batches and customer complaint rate as respective internal and external performance indicators. JIT aims at reducing waste in production flow to achieve low inventory levels (Shah and Ward, 2003). ...
Purpose
The purpose of this study is to investigate how soft lean practices moderate the performance effects of hard lean practices. The authors provide new evidence from the pharmaceutical industry, which is characterized by a highly regulated and technical environment and has been largely uncharted in the lean literature.
Design/methodology/approach
Based on a review of the literature, the authors define a set of soft and hard lean practices. The authors test the hypotheses using factor analysis and moderated hierarchical linear regression on a unique dataset containing survey data and real performance measures of 351 pharmaceutical plants.
Findings
The results show that soft lean practices can be both enabling and constraining. When management engages in performance measurement, visualisation and employee empowerment the relationship between hard lean practices and performance is positively moderated. On the other hand, when managers emphasise goal setting and work standardisation the performance outcomes are reduced.
Practical implications
Effective lean managers build organisational commitment by motivating other employees to implement lean. They use performance measurement, visualisation and employee empowerment to focus on the “why”. Less effective managers engage in commanding and micro-management. Such managers focus on the “what” by using practices like goal setting and work standardisation.
Originality/value
This article contributes to the literature on lean management by empirically testing the moderator-variable interaction effects between soft and hard lean practices. In addition, it adds new evidence from the important pharmaceutical industry.
... The preponderance of recall studies explores either the causes of recalls (Ball et al. 2018a;Bray et al. 2019;Haunschild and Rhee 2004;Shah et al. 2017;Steven and Britto 2016;Thirumalai and Sinha 2011;Wowak et al. 2021) or their consequences (Archer and Wesolowsky 1996;Mukherjee et al. 2021;Thirumalai and Sinha 2011). Few examine the recall decision, as we do herein. ...
Problem Definition. There is a concerted effort across multiple academic disciplines to understand the recall decision-making process. Specifically, what steps does a manufacturer take following a product defect discovery and resulting in the product recall decision? This effort has often been limited to case studies within a particular manufacturer largely due to the absence of consistent and comparable data across firms.
Methodology/Results. This data paper provides a foundation for future research on recall decisions by processing and coding textual disclosures on 2,120 recalls initiated in the United States by 27 automobile manufacturers from 2009-2018. For each recall, the data set provides the time the firm took to make the recall decision by comparing the defect awareness date to the recall decision date, whether the recall is associated with a supplier, the number of events in the recall decision-making process, and the date and description of each event.
Managerial Implications. Not only can this data enhance product recall research by providing key recall decision-making variables unavailable in related research, an additional indication of the value of our data set also comes from National Highway Traffic Safety Administration (NHTSA), the automobile regulator in the United States. We held discussions with a senior leader at the NHTSA’s Recall Management Division related to this data set. This discussion revealed that the NHTSA does not have these data in an analyzable form and that they would be interested in using our data set for its reports, such as the NHTSA’s biennial reports to the U.S. Congress. This signal suggests that regulators, as well as researchers, practitioners, and other safety advocates may find our data set useful.
... The preponderance of recall studies explores either the causes of recalls (Ball et al. 2018a;Bray et al. 2019;Haunschild and Rhee 2004;Shah et al. 2017;Steven and Britto 2016;Thirumalai and Sinha 2011;Wowak et al. 2021) or their consequences (Archer and Wesolowsky 1996;Mukherjee et al. 2021;Thirumalai and Sinha 2011). Few examine the recall decision, as we do herein. ...
Problem definition: There is a concerted effort across multiple academic disciplines to understand the recall decision-making process. Specifically, what steps does a manufacturer take following a product defect discovery and resulting in the product recall decision? This effort has often been limited to case studies within a particular manufacturer, largely due to the absence of consistent and comparable data across firms. Methodology/results: This data paper provides a foundation for future research on recall decisions by processing and coding textual disclosures on 2,120 recalls initiated in the United States by 27 automobile manufacturers from 2009 to 2018. For each recall, the data set provides the time the firm took to make the recall decision by comparing the defect awareness date to the recall decision date, whether the recall was associated with a supplier, the number of events in the recall decision-making process, and the date and description of each event. Managerial implications: Not only can these data enhance product recall research by providing key recall decision-making variables unavailable in related research, but an additional indication of the value of our data set also comes from National Highway Traffic Safety Administration (NHTSA), the automobile regulator in the United States. We held discussions with a senior leader at the NHTSA’s Recall Management Division related to this data set. This discussion revealed that the NHTSA does not have these data in an analyzable form and that they might be interested in using our data set for their reports, such as the NHTSA’s biennial reports to the U.S. Congress. This signal suggests that regulators, as well as researchers, practitioners, and other safety advocates, may find our data set useful.
... We test Hypotheses 1 to 3 using generalized estimation equations (GEE). This approach extends generalized linear models by applying quasi-likelihood estimation to panel data (Shah et al., 2017). It allows researchers to control for serial correlation within firms' manager appointments and can account for the distribution of our binary dependent variable (Ballinger, 2004;Liang and Zeger, 1986). ...
Building on the concept of dynamic managerial capabilities, we set out to advance scholarly understanding of the antecedents of the presence of technology leadership in the form of the chief information officer (CIO) in the top management team. We derive a holistic framework from the literature of dynamic capabilities and introduce into that literature the concept of adaptation pressures. We suggest that external and internal dimensions that pertain to information technology, comprising an environmental, structural, and strategic dimension, intensify the pressure on a firm to adapt. The pressure to adapt increases the likelihood that the firm will add a CIO to its top management team. In turn, the presence of a CIO can direct a firm toward exploration as a way to relieve the adaptation pressure. Results from regression analyses of a longitudinal data set covering 503 large U.S. firms from 2006 to 2017 confirm our hypotheses. This study contributes to the literature of both information systems and strategy by clarifying the antecedents of technology leadership in the C-suite and explicating how environmental, structural, and strategic factors can act as such antecedents. Moreover, this study reinforces the notion that IT leadership can induce strategic change.
The rapid progress in artificial intelligence (AI) has revolutionized problem-solving across various domains. The global challenge of pharmaceutical product recalls imposes the development of effective tools to control and reduce shortage of pharmaceutical products and help avoid such recalls. This study employs AI, specifically machine learning (MI), to analyze critical factors influencing formulation, manufacturing, and formulation complexity which could offer promising avenue for optimizing drug development processes. Utilizing FDAZilla and SafeRX tools, an open database model was constructed, and predictive statistical models were developed using Multivariate Analysis and the Least Absolute Shrinkage and Selection Operator (LASSO) Approach. The study focuses on key descriptors such as delivery route, dosage form, dose, BCS classification, solid-state and physicochemical properties, release type, half-life, and manufacturing complexity. Through statistical analysis, a data simplification process identifies critical descriptors, assigning risk numbers and computing a cumulative risk number to assess product complexity and recall likelihood. Partial Least Square Regression and the LASSO approach established quantitative relationships between key descriptors and cumulative risk numbers. Results have identified key descriptors; BCS Class I, dose number, release profile, and drug half-life influencing product recall risk. The LASSO model further confirms these identified descriptors with 71% accuracy. In conclusion, the study presents a holistic AI and machine learning approach for evaluating and forecasting pharmaceutical product recalls, underscoring the importance of descriptors, formulation complexity, and manufacturing processes in mitigating risks associated with product quality.
We examine whether managers’ activities in striving to reach earnings targets through real earnings manipulation affect their firms’ product recalls. Our evidence implies that firms suspected of manipulating real activities in trying to meet earnings benchmarks exhibit a higher likelihood and frequency of product recalls. In cross-sectional results consistent with expectations, we find that the impact of exploiting real activities to attain earnings benchmarks on product recalls intensifies for firms whose managers have stronger incentives to manage earnings and subsides for firms subject to greater customer power and firms with more growth opportunities. Additional analysis shows that lowering product quality to meet or beat earnings expectations undermines firms’ future performance.
This paper was accepted by Ranjani Krishnan, accounting.
Funding: Y. Chen acknowledges the General Research Fund of the Research Grants Council of Hong Kong [Project 15504219] for financial support. L. Ma acknowledges financial support from the Ministry of Education Project of Humanities and Social Sciences [Project 22YJC630099] and the Young Scholars Grant Program of the University of International Business and Economics [Project 20YQ06].
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.04035 .
In the context of digital economy, businesses are increasingly involved in diverse digital innovation initiatives with the aim of achieving high product quality. Despite this, there is no unanimous consensus on product quality, even in the realm of traditional technological innovation. Therefore, it is worth contemplating whether digital innovation in business invariably leads to enhanced product quality. This study investigates the interplay between the scale and value of digital innovation (DI-S and DI-V) and product recalls, which serve as a crucial indicator of product quality, while considering product variety as a moderating factor. The analysis is based on 1,408 digital patent data collected from 31 automotive companies engaged in digital innovation activities from 2012 to 2020 in China. The findings reveal that while DI-S does not yield the expected significant impact on product quality, DI-V has a positive influence on product quality. Furthermore, businesses with a broader range of product categories can enhance product quality more effectively by focusing on improving DI-V, especially when compared to those with fewer product categories. This research offers practical insights into the implementation of digital innovation by businesses and holds significant importance in motivating government actions aimed at enhancing policies for achieving high-quality development.
The shift to a service-oriented economy has driven traditional product-oriented manufacturing firms to integrate various services into their businesses. This study aims to provide empirical evidence on how manufacturers’ service offerings impact demand variability and intrafirm bullwhip effects. Through “bag-of-words” text mining on 10-K filings of U.S.-listed manufacturing firms, we propose a novel measurement to identify annual services offered. We validate the measurement’s statistical and economic significance and verify its consistency with the results obtained using the large language model (i.e., GPT-4). Services are categorized as complementing product sales (e.g., maintenance and repair) or substituting product sales entirely (e.g., machine hours). Utilizing difference-in-difference techniques, we find robust evidence that manufacturers’ service offerings reduce the bullwhip effect in two steps: basic complementing services decrease demand variability, whereas advanced substituting services mitigate intrafirm bullwhip. Moreover, servitization mainly minimizes demand variability through information channels, whereas increased production efficiency decreases intrafirm bullwhip. Our findings contribute to understanding manufacturers’ business model innovations by demonstrating that servitization can smooth demand and mitigate intrafirm bullwhip.
This paper was accepted by Karan Girotra, operations management.
Funding: This work was supported by the National Natural Science Foundation of China [Grants 71931007, 72091214] and General Research Fund by Hong Kong Research Grants Council [Grant 14505320].
Supplemental Material: The data and the online appendix are available at https://doi.org/10.1287/mnsc.2023.01026 .
Our research investigates firm learning from failures by dividing them into two types, failures that occur due to slip-ups and those that occur due to knowledge gaps, and by examining whether learning occurs in the context of both types of failures. We study these phenomena in the context of product recalls in pharmaceuticals and medical devices. Based on text analysis of recall documents, recalls are divided into process related and design related to represent slip-up failures and knowledge gap failures. We further study how innovation capabilities, represented by accumulated stocks of patents and lagged research and development (R&D) intensity, impact learning from both types of failures. We test our hypotheses using negative binomial generalized linear models to analyze longitudinal data for 108 publicly traded U.S. firms over 2000–2016 comprising 7,984 recalls. Results indicate that design-related recalls generate learning to a greater extent than process-related recalls, and that accumulated patents and lagged R&D intensity enhance learning from design-related recalls. These findings suggest that the learning mechanisms invoked by failures are concentrated more on knowledge gap failures than slip-up failures, and such learning is impacted by innovation capabilities. Overall, this research extends organizational learning theory by differentiating between learning from different types of failures and extends absorptive capacity theory by incorporating the role of innovation capabilities in enhancing learning from failures. We develop recommendations for learning from slip-up failures by focusing on the cultural and social mechanisms of organizational learning in addition to the technical and structural mechanisms that may mainly impact learning from knowledge gap failures.
Supplemental Material: The online appendices are available at https://doi.org/10.1287/orsc.2021.15663 .
Under the trend of economic globalization and lean production, how to cope with the costs in the supply chain is a core issue to be considered in the operation and management of enterprises. In this paper, we construct a supply chain system consisting of a supplier and a manufacturer who buys components from the supplier to produce finished products and then sells them to consumers. Considering the potential product recalls and the existence of cost-sharing contracts among supply chain members, we constructed game models for the non-cooperative and cooperative scenarios respectively, and explored how supply chain members adjusted their advertising media and quality investments to cope with the product recalls in both scenarios; we also explored the coordinating effects of the cost-sharing contracts on the supply chain through the comparisons of the two scenarios. The study finds that: Manufacturers can effectively incentivize suppliers to invest more in primary quality and improve product quality through cost-sharing contracts. The effectiveness of cost-sharing contracts in coordinating the supply chain is affected by the likelihood of recalls and the extent of recall damage, and cooperation can only be achieved when both are relatively small.
Research examining the antecedents instead of consequences of recalls is relatively sparse and has not considered whether firms’ likelihood to recall products is influenced by legal changes that could induce managerial opportunism, such as those reducing shareholder litigation risk. To examine this question, the authors exploit the staggered adoption of universal demand (UD) laws across different states in the U.S. as a quasi-natural experiment. UD laws aim to prevent frivolous litigation from disrupting a firm’s normal business operations by making it more difficult for shareholders to sue managers for neglecting their fiduciary duties and hold them personally liable. Although UD laws are well-intended, the reduced threat of shareholder litigation disciplining a firm’s managers could have unintended negative consequences. Indeed, using a difference-in-differences (DiD) analysis, the authors find that following the adoption of UD laws, affected firms become less likely to recall products. This effect is weaker in the presence of organizational mechanisms constraining managers’ self-interest-seeking behavior, such as a corporate culture focused on customer needs and interests or the exercise of normative control through monitoring by institutional investors. The authors do not find support for a potential alternative explanation of operational improvement and therefore higher product quality driving their findings.
This study shows that shareholders demand a higher level of conservatism when the firm commits non‐financial misconduct. This positive relationship between corporate non‐financial misconduct and accounting conservatism is more pronounced for firms with higher information asymmetry, worse financial conditions and greater monitoring by shareholders. Further analyses reveal that corporate non‐financial misconduct is associated with less efficient managerial control over operations, lower employee satisfaction, worse performance and higher information uncertainties in the future. These results are robust to alternative measures, endogeneity concerns and controls for the potential influence arising from financial misconduct and internal control weakness.
Problem definition: Suppliers are increasingly involved in innovation activities that contribute to a firm’s product quality and introduce risks to firms’ quality control, leading to quality failures and recalls. This quality trade-off suggests the possibility of a nonlinear relationship between supplier innovation and product recalls, which is the focus of this research. Recall literature focuses on firms’ internal drivers of recalls, whereas anecdotal evidence increasingly points to the role of external drivers, such as suppliers. We contribute to the literature by examining supplier innovation as an external driver leading to recalls via quality and risk spillovers. Methodology/results: We collect and assemble a unique panel data set of consumer product recalls from firms and their supply bases (i.e., first tier suppliers). We estimate econometric models to examine the nonlinear relationship between supply base innovation, measured by research and development (R&D) intensity of the supply bases, and the likelihood of product recalls. We find a quadratic (i.e., U-shaped) relationship between the probability of recalls and supply base R&D intensity. We also find that this nonlinear relationship is critically related to three specific sources of risk: radicalness of supplier innovation, technological distance between firms and their suppliers, and complexity of supply base. Managerial implications: Our findings suggest that firms should be mindful of the quality trade-offs in encouraging supplier innovation to reduce product recalls. Further, to minimize recall risks, firms should better evaluate and manage the risks associated with external supplier knowledge that is novel and different and closely work with global suppliers to reduce coordination challenges in knowledge transfer and integration.
Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.1213 .
Building on capital structure and product market interactions, and the role of debt enforcement in leveraged firms' investments, we examine whether cross‐country debt enforcement can produce different associations between financial leverage and product failures. Results show that different debt enforcement systems can generate opposite leverage effects. In countries with weak/nearly ineffective debt enforcement, financial leverage shows an incentive investment effect due to low default costs, and thus highly leveraged firms tend to invest more and are less likely to have product failures. Conversely, in countries with strict/effective debt enforcement, distressed companies tend to have an underinvestment effect and more product failures.
Inadequate nurse staffing continues to challenge healthcare delivery in the United States. In this research, we undertake a fine‐grained, unit‐level analysis to understand the relationships between nurse staffing, nurse turnover, and pressure ulcers, the latter of which is a key nursing‐sensitive care quality indicator. We examine these relationships within two types of hospital units: intensive care units (ICUs) and medical‐surgical (MedSurg) units, which have unique patient mixes and needs. Using hospital unit‐level data between 2008 and 2017, we show that nurse staffing primarily affects nurse turnover in ICUs, and that the adverse effects of nurse turnover on care quality tend to be stronger in ICUs than in MedSurg units. These findings provide important theoretical insights into the varying roles of staffing, turnover, and quality across organizational units. The findings suggest that hospital administrators may prioritize staffing needs for ICUs over MedSurg units to maintain strong quality performance on measures such as pressure ulcers. Further, our study reveals that staffing requirements for ICUs may be inadequate compared with MedSurg units. Thus, there is a need to evaluate existing guidelines on ICU staffing.
This paper aims to seek the innovative development strategy for a leading firm in a competitive market when considering product unreliability and risk behavior. A higher innovation level may bring about better product performance. Nevertheless, it may cause some unreliability events which might incur serious negative outcomes (e.g., products recall). Facing uncertain outcomes, the innovative firm may care more about the risk of innovation when making decisions, especially in a competitive market. We build a Stackelberg game model for a competitive market consisting of a leading firm and a competitor. The Conditional Value-at-Risk (CVaR) is used to measure the firm’s risk attitude. The optimal innovation strategy of the leading firm and the response strategy of the competitor is obtained. We find that the optimal innovation strategy takes three different forms depending on the risk attitude and the development cost of innovation. i.e., no innovation, complete innovation and partial innovation. In addition, different from most existing literature on risk-averse players’ pricing decisions, we find that a risk-averse innovative firm may set a higher price to focus on only tech-savvy consumers. Moreover, the effects of innovation are also investigated. We find that the two competing firms can achieve a win–win result by adopting an appropriate innovation strategy.
O elo de Pós-Venda envolve além dos processos de fluxo físico e lógico dos bens e de scrviços, os dcscartcs c discrcpâncias no ponto dc consumo. Estcs itens podcm ter dcstinos de reciclagem, recondicionamento, reparos ou refugo, podendo retornar ao estoque diretamente ou ser direcionado para algum outro processo intermediário ou definitivo. O presente estudo busca identificar os processos da logística reversa como fator diferencial na melhoria do produto e/ou processo, através do estudo de caso de um “rcc’n//” de grande proporção de “nn ôog.s ” com o propósito de realizar o relato de experiência mediante estudo de caso único. O resultado conduz a importantes reflexões em que o fator custo possui implicações nos resultados da empresa no curto prazo. No entanto, ao longo dos tempos a questão qualitativa constitui-se no elemento que assegura a imagem e a continuidade institucional fundamental que pode diferenciar no longo prazo.
In this chapter we review the body of operations management (OM) literature that studies compliance issues. Researchers in OM focus on how operational-level decisions (such as process improvement, capacity, quality, and risk mitigation) impact performance outcomes in business and society. In recent years there has been growing interest among OM scholars in compliance issues, mostly in the context of environmental regulation and corporate social responsibility (CSR). The focus on operations casts new light and brings novel insights to compliance issues, and in some cases provides guidance for implementable solutions.
Problem definition: Expansions in product assortment by online retailers often engender operational challenges. In undertaking such expansions, retailers exercise a strategic choice between expanding assortment width or depth. Our understanding of how this choice affects the order fulfillment process is limited. Thus, we examine the impact of these dimensions of assortment strategy on order delivery timeliness. Academic/practical relevance: Order delivery timeliness is a critical measure of operational success in online retail. We contribute to theory and practice by adopting a multidimensional perspective of retailer assortment strategy and studying the relative impact of assortment width and depth on order delivery timeliness. Methodology: Employing a data set comprising more than 200 million orders, we study the effects of assortment strategy on delivery timeliness using an instrumental variable approach. We then utilize a two-stage model to estimate the impact of delivery performance on sales. Further, we employ a matched difference-in-differences and a novel Bayesian structural time-series model to confirm this relationship. Results: We find that assortment width has a greater negative impact on order delivery timeliness compared with assortment depth. A one-standard-deviation increase in assortment width increases average delivery times by 0.55 days. Further, we find this effect to be positively moderated (i.e., worsened) by the average size of orders and to be negatively moderated (i.e., improved) by the logistic service provider’s (LSP) experience. Finally, a one-day increase in delivery times for 10% of the orders results in a 2.7% reduction in sales. Managerial implications: Our findings suggest that online retailers focused on ensuring timely deliveries should be wary of widening product assortments, especially when facing larger average order sizes. We also find that experienced logistic service providers can help mitigate the dilatory effects of assortment width expansions. However, the benefits of experienced LSPs are limited for retailers deepening their assortments.
History: This paper has been accepted as part of the 2018 MSOM Data Driven Research Challenge.
Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2022.1156 .
Government supervision on vehicle recall has become a social focus in recent years with the rapid development of the automobile industry and the growing impact of public opinion in the recall process. Motivated by this, we apply the evolutionary game approach to study the interaction between the automakers and the governments in their vehicle recall and supervision behaviors under the impact of public opinion. The equilibrium outcomes when public opinion exists or not are analyzed. We find that the governments may choose weak or strong supervision under no supervision of public opinion, but the automakers always choose hiding vehicle defects in stable states; and the players’ optimal strategies may exhibit periodic fluctuations over time. Under public opinion supervision, the automakers may choose voluntary recall regardless of whether the governments choose strong or weak supervision. With a high public opinion supervision and low penalty for hiding defects, the governments may choose strong supervision even with sufficiently high supervision cost. Furthermore, although the players’ behaviors may also exhibit periodic fluctuations given a certain level of public opinion, the system will converge to the desired stable states under which voluntary recall is optimal for the automakers as public opinion increases. Our study highlights the role of public opinion in the players’ product recall and supervision behaviors.
Paper-based microfluidics is a promising field and currently expanding its borders in fields of food quality, chemical testing, medical diagnostic devices and clinical testing. However, controlling the fluid flow mechanism especially valving functionality is one of the challenges that remain to be addressed. Herein, a mechanically actuated valve is designed to control the flow rate in downstream delivery channel. Detailed experimental study was performed by averaging results of wicking distance and velocity at contact widths of 2 mm, 4 mm, 6 mm and 8 mm. The experiments were conducted with the valve in the turned ‘ON’ state. Experimental study of sequential delivery and intermixing of reagents was also performed which shows diffusion based mixing of liquid dyes that
can be used as a mechanism for multiple chemical reactions at the same site. The developed paper-based
mechanically actuated valve will prove to be a promising addition in volumetric flow control and on/off
functionality for sequential delivery of reagents enabling paper-based microfluidics to reach one step closer to
a true point-of-care diagnostic platform.
Product recalls are highly disruptive for many firms. Understanding the drivers of such recalls is paramount to helping firms effectively reduce product recall risk. While prior studies have investigated the drivers of product recalls in developed markets, little is known about the factors that drive product recalls in emerging markets. Using data for 2010–2016, this study identifies firm innovation and negative electronic word-of-mouth (eWOM) as drivers that influence the volume of vehicle recalls in the Chinese automobile industry, a sector characterized by increasing R&D investment and consumer quality awareness. Considering the foreign ownership restriction policy of the Chinese automobile industry, we further examine the moderating effect of ownership structure. We find that firm innovation increases the volume of product recalls for Chinese domestic automakers (CDAs) while decreasing the volume of product recalls for international joint ventures (IJVs), negative eWOM leads automakers to recall defective vehicles, and the ownership structure itself (IJV versus CDA) has a significant impact on the volume of product recalls. These results offer insights that can help managers take concrete steps to reduce and counter product recalls.
Product reliability is a key concern for manufacturers. We examine worker turnover as a significant but underrecognized determinant of product reliability. Our study collects and integrates (1) data reporting factory worker staffing and turnover from within a major consumer electronics producer’s supply chain and (2) traceable data reporting the component quality and field failures—that is, replacements and repairs—of nearly 50 million consumer mobile devices over four years of customer usage. Devices are individually traced back to the factory conditions and staffing, down to the assembly line–week, under which they were produced. Despite the manufacturer’s extensive quality control efforts, including stringent testing, each percentage point increase in the weekly rate of workers quitting from an assembly line (its weekly worker turnover) is found to increase field failures by 0.74%–0.79%. In the high-turnover weeks following paydays, eventual field failures are strikingly 10.2% more common than for devices produced during the lowest turnover weeks immediately before paydays. In other weeks, the assembly lines experiencing higher turnover produce an estimated 2%–3% more field failures on average. The associated costs amount to hundreds of millions of U.S. dollars. We demonstrate that staffing and retaining a stable factory workforce critically underlies product reliability and showcase the value of traceability coupled with connected workplace and product data in supply chain operations.
This paper was accepted by Charles Corbett, operations management.
Research on product recalls has recently witnessed a sharp increase; however, this stream of research is dispersed within and outside the discipline of management. In the current article, we review this research stream by adopting a stakeholder-stage framework that draws on stakeholder theory and crisis management literature. Specifically, we summarize and integrate the product recall research along two dimensions: the stakeholders involved (e.g., managers, employees, shareholders, consumers, suppliers, competitors, media, and regulators) and the key issues at different stages of a recall (before-recall, during-recall, and after-recall). We find that current research has focused on managers, shareholders, and consumers, but has paid limited attention to other equally important stakeholders such as suppliers, employees, competitors, media, and regulators. Also, researchers have predominantly examined the issues associated with the after-recall stage to minimize the consequences of recalls, while the before- and during-recall stages that prevent recalls and make them more effective are relatively underexamined. To address these gaps and extend the current research, we develop a range of future research opportunities that can make nuanced theoretical contributions and generate implications for practice and policy. By emphasizing the need to adopt a stakeholder management approach and consider recalls as a process, rather than an event, this review paves the way for enriching future research on product recalls.
Social media has become a vital platform for voicing product-related experiences that may not only reveal product defects, but also impose pressure on firms to act more promptly than before. This study scrutinizes the rarely studied relationship between these voices and the speed of product recalls in the context of the pharmaceutical industry in which social media pharmacovigilance is becoming increasingly important for the detection of drug safety signals. Using Federal Drug Administration drug enforcement reports and social media data crawled from online forums and Twitter, we investigate whether social media can accelerate the product recall process in the context of drug recalls. Results based on discrete-time survival analyses suggest that more adverse drug reaction discussions on social media lead to a higher hazard rate of the drug being recalled and, thus, a shorter time to recall. To better understand the underlying mechanism, we propose the information effect, which captures how extracting information from social media helps detect more signals and mine signals faster to accelerate product recalls, and the publicity effect, which captures how firms and government agencies are pressured by public concerns to initiate speedy recalls. Estimation results from two mechanism tests support the existence of these conceptualized channels underlying the acceleration hypothesis of social media. This study offers new insights for firms and policymakers concerning the power of social media and its influence on product recalls.
Service organizations face a trade-off between high utilization and responsiveness. High utilization can improve financial performance, but causes congestion, which increases throughput time. Employees may manage this trade-off by reducing processing times during periods of high workload, resulting in an inverted U-shaped relationship between utilization and throughput time. Using two years of inpatient data from 203 California hospitals, we find evidence that patient length of stay (LOS) increases as occupancy increases, until a tipping point, after which patients are discharged early to alleviate congestion. More interestingly, we find a second tipping point—at 93% occupancy—beyond which additional occupancy leads to a longer LOS. These results are indicative of a workload-related “saturation effect” where employees can no longer overcome high workload by speeding up. Our data suggest that the saturation effect is due to an increase in the workload requirements of the remaining patients. Collectively, we find that the underlying relationship between occupancy and LOS is N-shaped. Consequently, managers who seek cost efficiencies via a strategy of high utilization in tandem with speeding up may find that their strategy backfires because there is a point at which employees are no longer able to compensate for a high workload by working harder, and throughput time counterproductively increases. We perform a counterfactual analysis and find that an alternate strategy of employing flexible labor when faced with high occupancy levels might be a more productive approach, and could save the hospitals in our sample up to $138 million over 23 months.
This paper was accepted by Serguei Netessine, operations management.
Initiatives in managing manufacturing companies have been streaming in from all parts of the world. A new set of customerfocused principles helps managers to make sense of them and move confidently into the future.
In this article we describe and illustrate the mixed-model sequencing approach used by Hyundai Motor Company. Although several mixed-model sequencing procedures have been developed and presented in the literature, there are few studies describing the actual use of these procedures by organizations. While the detail of the situation described in this article may be specific to the studied company, Hyundai's experience can provide some general insights into the mixed-model sequencing problem for other organizations.
Although the goal of a product recall program is to enhance safety, there is little known about whether firms learn from product recalls. This study tests the direct effect of product recalls on future accidents and future recall frequency and indirect effect through future product reliability in the automobile industry. The hypotheses are tested on 459 make-year observations involving 27 automobile makers between the period 1995 and 2011. The findings suggest that increases in recall magnitude lead to decreases in future number of injuries and recalls. This effect, in turn, is partially mediated by future changes in product reliability. The results also suggest that the positive relationship between changes in recall magnitude and changes in future product reliability is 1) stronger for firms with higher shared product assets and 2) weaker for brands of higher prior quality. The findings are robust across alternate measures and alternate model specifications and offer valuable insights for managerial practice and public policy.
Purpose
The objectives of this paper are: to identify the key defining elements of a subcontractor plant from an operations management perspective and examine whether there are differences between the operational contexts of such plants and original equipment manufacturer (OEM) plants; and to examine whether these differences should translate into different operational practices, addressing the specific case of process quality management practices.
Design/methodology/approach
The paper uses a multiple case study involving five plants in the electronics industry representative of the OEM and different subcontractor contexts.
Findings
Results suggest that the operational contexts of subcontractor and OEM plants are different and that, as a result, these types of plants should emphasize different sets of process quality management practices.
Research limitations/implications
Results are considered to be generalizable to most discrete goods industries. However, future research should ascertain whether these results replicate in industries other than electronics.
Practical implications
OEMs, who have a critical role in disseminating best practice within the supply chain, must recognize the differences between OEM and subcontractor environments and avoid pushing one‐size‐fits‐all best practice programs along the chain.
Originality/value
Research in outsourcing to date has focused on the outsourcing decision per se and has mainly taken the perspective of the outsourcer firm. This study contributes to a better understanding of the operational implications of outsourcing decisions for subcontractor plants. It also responds to calls for more research linking quality management and supply chain management.
In response to findings of abnormal stock market reactions following such dubious corporate behaviors as bribery, fraud, and the production of hazardous products, some researchers have argued that the stock market reaction is a sufficient deterrent to these behaviors so that additional regulation is not necessary. In this paper we examine stock market returns as a deterrent to dubious behavior in the production of defective automobiles. Relying on a broader range of assumptions about managerial behavior than are used in previous studies, we question the efficacy of the market as an instrument of social control.
The relationship between flexibility and efficiency is re-conceptualized. Much organization theory argues that efficiency requires bureaucracy, that bureaucracy impedes flexibility, and that organizations therefore confront a tradeoff between efficiency and flexibility. Others have pointed out numerous obstacles to successfully shifting the tradeoff. Seeking to advance understanding of these obstacles and how they might be overcome, an auto assembly plant that appears to be far above average industry performance in both efficiency and flexibility is analyzed. NUMMI, a Toyota subsidiary located in Fremont, California, relied on a highly bureaucratic organization to achieve its high efficiency. Analyzing 2 recent major model changes, it is fond that NUMMI used 4 mechanisms to support its exceptional flexibility/efficiency combination. These mechanisms are discussed.
Since the early 1980s, the diffusion of Just-In-Time (JIT) manufacturing from Japanese manufacturers to U.S. manufacturers has progressed at an accelerated rate. At this stage of the diffusion process, JIT implementations are more common and more advanced in large U.S. manufacturers than in small; consequently, U.S. businessmen’s understanding of issues associated with JIT implementations in large manufacturers is more developed than that of small manufacturers. When small manufacturers represent about 96 percent of all U.S. manufacturers, investigation of JIT implementations in small, as well as large, manufacturers is warranted.
This survey study investigates JIT implementation differences between small and large U.S. manufacturers. Ten management practices that constitute the JIT concept are used to examine implementation of JIT manufacturing systems. Odds ratio were constructed to determine if an association exists between implemented versus not implemented and manufacturer size for each JIT practice. Ten changes in performance attributed to JIT implementation are also assessed and examined in the study. Logistic regression models are used to examine the relationships between implementation status of each of the JIT practices and of each of the changes in performance in small and large manufacturers. The results of the study show that the frequencies of the 10 JIT management practices implemented differ between the two groups of manufacturer size, and an association exists between the JIT practices implemented and manufacturer size. Moreover, the changes in performance attributed to JIT implementation vary, depending on implementation status of specific JIT management practices and manufacturer size.
This paper examines the effect of product variety on manufacturing performance, defined here as total labor productivity and consumer-perceived product quality. Using data from the International Motor Vehicle Program (M.I.T.) study of 70 assembly plants worldwide, the paper examines three dimensions of product variety, at fundamental, peripheral, and intermediate levels. The international sample reveals great variation in the distribution of each type of product variety in different regions, reflecting in part different strategies for variety. Furthermore, the impact of different kinds of product variety on performance varies, and is generally much less than the conventional manufacturing wisdom would predict. However, an intermediate type of product variety, here called parts complexity, was found to have a persistent negative impact on productivity. Finally, the study provides partial support for the hypothesis that management policies, in both operations and human resource areas, can facilitate the absorption of higher levels of product variety, i.e. that "lean production" plants are capable of handling higher levels of product variety with less adverse effect on total labor productivity than traditional "mass production" plants.
This research studies how changes in manufacturing requirements affect production line performance in a focused factory. Specifically, we examine whether production line labor productivity and conformance quality decline as the range of models produced and the heterogeneity of production volume increase in a factory designed for high volume production of a narrow range of models. We use the organizational nature of production lines to argue that the performance of focused production lines will decline when the lines adopt new manufacturing tasks that are outside the scope of the absorptive capacity developed through the execution of their prior focused manufacturing task, but not otherwise. The study examines four years of data from 16 production lines of a compressor manufacturing factory of the Copeland Corporation. Our statistical analysis identifies limits to change, suggests paths to successfully changing the manufacturing requirements of a focused factory, and places the operations strategy discussion of focused factories in a dynamic environment.
Design management and process management are two important elements of total quality management (TQM) implementation. They are drastically different in their targets of improvement, visibility, and techniques. In this paper, we establish a framework for identifying the synergistic linkages of design and process management to the operational quality outcomes during the manufacturing process (internal quality) and upon the field usage of the products (external quality). Through a study of quality practices in 418 manufacturing plants from multiple industries, we empirically demonstrate that both design and process management efforts have an equal positive impact on internal quality outcomes such as scrap, rework, defects, performance, and external quality outcomes such as complaints, warranty, litigation, market share. A detailed contingency analysis shows that the proposed model of synergies between design and process management holds true for large and small firms; for firms with different levels of TQM experience; and in different industries with varying levels of competition, logistical complexity of production, or production process characteristics. Finally, the results also suggest that organizational learning enables mature TQM firms to implement both design and process efforts more rigorously and their synergy helps these firms to attain better quality outcomes. These findings indicate that, to attain superior quality outcomes, firms need to balance their design and process management efforts and persevere with long‐term implementation of these efforts. Because the study spans all of the manufacturing sectors (SIC 20 through 39), these conclusions should help firms in any industry revisit their priorities in terms of the relative efforts in design management and process management.
The article explores the ways in which organizational reputation responds to the revelation of product defects or quality problems, as evidenced by formal product recalls in the U.S. automobile industry. Firm reputation helps create expectations about the firm's products among potential buyers. A good reputation conferred on a firm enhances a buyer's expectation that the firm's products will be of high quality. As long as consumers share expectations about product quality across reputations, therefore, the order of reputation naturally translates into the ordering of quality expectation. Quality expectations can be viewed as an implicit promise from producers to their potential customers to produce goods with a quality level commensurate with reputation and expectations of the products. Given this, the better a producer's reputation, the higher the extent to which the producer's product defects are perceived as a breach of this implicit promise. Consequently, the negative repercussions from the disclosure of product defects will be stronger for high reputation products than for low reputation products. This reputational disadvantage in absorbing the social penalty of the disclosure of product defects can be formally modeled using Bayesian learning models of beliefs. The Bayesian updating process of quality beliefs is also consistent with the idea that the product defects of high reputation firms are likely to receive more attention from the mass media than those of low reputation firms. This disproportional media coverage for high reputation firm product recalls suggest that product defects of high reputation firms draw a larger reaction than those of low reputation firms, which translates to more market penalty.
Using 7 years of plant-level data for the North-American automotive industry, we empirically study productivity losses during new product launches. Using propensity scoring, we estimate an average productivity drop of 20% during the year of a new product launch, and we find that this reduction in productivity remains relatively unchanged over the 7-year horizon, i.e., the manufacturers do not seem to improve. We do not find statistically significant differences among manufacturers with respect to the decrease in productivity. After controlling for the endogenous choice of launch plants, we identify several possible ways to mitigate this productivity decrease. Product flexibility in the body shop is found to mitigate more than a third of the productivity loss. Furthermore, a plant’s previous experience with product launches and a plant’s experience with the product platform are found to mitigate productivity losses even further. But while the positive impact of platform experience persists over time, the experience with launching other products in the same plant fades quickly. Our results suggest that launching products in flexible plants with appropriate platform experience can each save approximately $40 million per year per launch plant.
Using a detailed data set from the U.S. automotive industry, we enrich the existing literature on product line breadth with new results that highlight previously unexplored operational aspects of its benefits and costs. We find that expanding product line breadth has a significant effect on increasing mismatch costs arising from the increased demand uncertainty associated with product proliferation. These mismatch costs are manifested through additional discounts and inventories. The effect of product line breadth on mismatch costs is comparable in magnitude to the effect on production costs, suggesting that the operational benefits of inventory pooling achievable by rationalizing product lines can be very substantial. Furthermore, we quantify the benefit of using a platform strategy to mitigate the effects of a broad product line on production costs. Finally, we propose an additional, attribute-based measure of product line breadth and find that product line breadth can work as a hedge against changes in demand conditions. For example, automakers that offer a broader range of fuel economy levels increase their market share and reduce their average discounts as gas prices become more volatile.
Does variety increase happiness? Eight studies examine how the variety among the activities that fill people's day-to-day lives affects subsequent happiness. The studies demonstrate that whether variety increases or decreases happiness depends on the perceived duration of the time within which the activities occur. For longer time periods (like a day), variety does increase happiness. However, for shorter time periods (like an hour), variety instead decreases happiness. This reversal stems from people's sense of stimulation and productivity during that time. Whereas filling longer time periods with more varied activities makes the time feel more stimulating (which increases happiness), filling shorter time periods with more varied activities makes the time feel less productive (which decreases happiness). These effects are robust across actual and perceived variety, actual and perceived time duration, and multiple types of activities (work and leisure, self-selected and imposed, social and solo). Together the findings confirm that “variety is the spice of life”—but not of an hour.
This is the second book from A. Dashchenko focussing on "XXI Century Technologies". In this book the problems of theory and practice of development in Reconfigurable Manufacturing Systems and Transformable Factories for various machine-building branches and above all automotive industry are discussed. Problems are studied concerning the development of a new class of production systems which in comparison to the Flexible Manufacturing systems are composed of a far less quantity of machine-tools. In comparison to the conventional automated lines they make it possible to rapidly transform the equipment for new products manufacturing. In 37 chapters more then 50 authors from all over the world discuss the main aspects of the mentioned above problem using their latest scientific and practical achievements.
Organizations can create volume flexibility—the ability to increase capacity up or down to meet demand for a single service—through the use of flexible labor resources (e.g., part-time and temporary workers, as compared to full-time workers). Although organizations are increasingly using these resources, the relationship between flexible labor resources and financial performance has not been examined empirically in the service setting. We use two years of archival data from 445 stores of a large retailer to study this relationship. We hypothesize and find that increasing the labor mix of temporary or part-time workers shows an inverted U-shaped relationship with sales and profit while temporary labor mix has a U-shaped relationship with expenses. Thus, although flexible labor resources can create volume flexibility for a firm along multiple dimensions, it is possible to have too much of a good thing.
This paper was accepted by Serguei Netessine, operations management.
Do hospitals experience safety tipping points as utilization increases, and if so, what are the implications for hospital operations management? We argue that safety tipping points occur when managerial escalation policies are exhausted and workload variability buffers are depleted. Front-line clinical staff is forced to ration resources and, at the same time, becomes more error prone as a result of elevated stress hormone levels. We confirm the existence of safety tipping points for in-hospital mortality using the discharge records of 82,280 patients across six high-mortality-risk conditions from 256 clinical departments of 83 German hospitals. Focusing on survival during the first seven days following admission, we estimate a mortality tipping point at an occupancy level of 92.5%. Among the 17% of patients in our sample who experienced occupancy above the tipping point during the first seven days of their hospital stay, high occupancy accounted for one in seven deaths. The existence of a safety tipping point has important implications for hospital management. First, flexible capacity expansion is more cost-effective for safety improvement than rigid capacity, because it will only be used when occupancy reaches the tipping point. In the context of our sample, flexible staffing saves more than 40% of the cost of a fully staffed capacity expansion, while achieving the same reduction in mortality. Second, reducing the variability of demand by pooling capacity in hospital clusters can greatly increase safety in a hospital system, because it reduces the likelihood that a patient will experience occupancy levels beyond the tipping point. Pooling the capacity of nearby hospitals in our sample reduces the number of deaths due to high occupancy by 34%.
This paper was accepted by Serguei Netessine, operations management.
In this paper, we explore opposing theoretical claims about how organizational reputation affects market reactions to product defects. On the one hand, good reputation could be a disadvantage because expectations about product quality are more likely to be violated by defects in highly reputed products. On the other hand, a good reputation could be an advantage because of strong inertial effects on reputation orderings. We empirically test these competing hypotheses using data on product recalls in the U.S. automobile industry from 1975 to 1999. Our results support for the idea that reputation can be an organizational liability in that highly reputed firms suffer more market penalty as a result of their product recalls. We also propose that the reputational effects are moderated by two important factors: substitutability and generalism/specialism. Our results show that having few substitutes with an equivalent level of reputation, or a focused product identity stemming from specialism, buffers the negative market reactions to product recalls. We conclude with a discussion on the implications of these results for institutional, reputation, and status theories.
Stock options are thought to align the interests of CEOs and shareholders, but scholars have shown that options sometimes lead to outcomes that run counter to what they are meant to achieve. Building on this research, we argue that options promote a lack of caution in CEOs that manifests in a higher incidence of product safety problems. We also posit that this relationship varies across CEOs, and that the effect of options will depend upon CEO characteristics such as tenure and founder status. Analyzing product recall data for a large sample of FDA-regulated companies, we find support for our theory.
Using a detailed dataset from the U.S. automotive industry, we empirically study the benefits and costs of maintaining a broader product line. Consistently with theoretical predictions, we find a positive association between product line breadth and both market share and unit production costs. We enrich the existing literature with new results that highlight previously unexplored operational aspects of the benefits and costs of product line breadth. Besides the effects on production costs through economies of scale, we find that product line breadth has a significant effect on mismatch costs arising from increased demand uncertainty, which are manifested through additional discounts and inventories. The effect of product line breadth on mismatch costs is comparable in magnitude to the effect on production costs: an additional product in the line is associated with an average increase of around 55. Finally, we propose an additional, attribute-based measure of product line breadth and find that product line breadth can work as a hedge against changes in demand conditions. For example, automakers that offer a broader range of fuel economy levels increase their market share and reduce their average discounts as gas prices become more volatile.
It is apparent that severe weather should hamper the productivity of work that occurs outside. But what is the effect of extreme rain, snow, heat and wind on work that occurs indoors, such as the production of automobiles? Using weekly production data from 64 automobile plants in the United States over a ten-year period, we find that adverse weather conditions lead to a significant reduction in production. For example, a week with six or more days of heat exceeding 90F reduces production in that week by 8% on average. The location impacted the least by weather (Princeton, IN) loses on average 0.5% of its production due to severe weather and the location with the most adverse weather (Montgomery, AL) suffers a production loss of 3.0%. Across our sample of plants, severe weather reduces production on average by 1.5%. While it is possible that plants are able to recover these losses at some later date, we do not find evidence that recovery occurs in the week after the event. Furthermore, even if recovery does occur at some point, at the very least, these shocks are costly as they increase the volatility of production. Our findings are useful both for assessing the potential productivity shock associated with inclement weather as well as guiding managers on where to locate a new production facility - in addition to the traditional factors considered in plant location (e.g., labor costs, local regulations, proximity to customers, access to suppliers), we add the prevalence of bad weather. These results can be expected to become more relevant as climate change may increase the severity and frequency of severe weather.
We analyze a large, detailed operational data set from a restaurant chain to shed new light on how workload (defined as the number of tables or diners that a server simultaneously handles) affects servers' performance (measured as sales and meal duration). We use an exogenous shock—the implementation of labor scheduling software—and time-lagged instrumental variables to disentangle the endogeneity between demand and supply in this setting. We show that servers strive to maximize sales and speed efforts simultaneously, depending on the relative values of sales and speed. As a result, we find that, when the overall workload is small, servers expend more and more sales efforts with the increase in workload at a cost of slower service speed. However, above a certain workload threshold, servers start to reduce their sales efforts and work more promptly with the further rise in workload. In the focal restaurant chain, we find that this saturation point is currently not reached and, counterintuitively, the chain can reduce the staffing level and achieve both significantly higher sales (an estimated 3% increase) and lower labor costs (an estimated 17% decrease).
This paper was accepted by Noah Gans, special issue on business analytics.
The ability to manufacture several products on the same production line and switch seamlessly among them allows a firm to both hedge against demand uncertainty and respond to competition. In this paper, we empirically analyze the deployment of manufacturing flexibility in the North American automotive industry. In particular, we track demonstrated ability to manufacture automobiles with different platforms at 75 assembly plants over a period of eight years. We find that, consistent with extant theory, flexible capacity is used to manufacture products with high demand uncertainty and low demand correlation. We find evidence of product life-cycle effects: flexible capacity is used to manufacture models that are early in their life-cycle as well as aging models. Moreover, we find strong evidence that automotive manufacturers use flexibility as a “competitive weapon”; flexibility is deployed in market segments in which there are a larger number of flexible competitors. However, this use of flexibility as a competitive weapon may not be optimal, as suggested by lower plant productivity.
Are lean production jobs intrinsically motivating? More than 20 years after the arrival of lean production, this question remains unresolved. Generally accepted models of job design such as the Job Characteristics Model (JCM, (Hackman, J.R., Oldham, G.R. 1976. Motivation through the design of work: test of a theory. Organizational Behavior and Human Performance 16, 250–279.)) cannot explain the occurrence of worker intrinsic motivation in the context of lean production. In this paper, we extend the JCM to the lean production context to explain the theoretical relationship between job characteristics and motivational outcomes in lean production. We suggest that a configuration of lean production practices is more important for worker intrinsic motivation than are independent main effects, and that motivation may be limited by excessive leanness. We conclude that lean production job design may engender worker intrinsic motivation; however, there are likely to be substantial differences in intrinsic motivation under differing lean production configurations.
Five footnotes to change in organizations are suggested. They emphasize the relation between change and adaptive behavior more generally, the prosaic nature of change, the way in which ordinary processes combine with a confusing world to produce some surprises, and the implicit altruism of organizational foolishness.
This paper proposes an extension of generalized linear models to the analysis of longitudinal data. We introduce a class of
estimating equations that give consistent estimates of the regression parameters and of their variance under mild assumptions
about the time dependence. The estimating equations are derived without specifying the joint distribution of a subject's observations
yet they reduce to the score equations for niultivariate Gaussian outcomes. Asymptotic theory is presented for the general
class of estimators. Specific cases in which we assume independence, m-dependence and exchangeable correlation structures from each subject are discussed. Efficiency of the pioposecl estimators
in two simple situations is considered. The approach is closely related to quasi-likelihood.
This research identifies and tests key factors that can be associated with time to recall a product. Product recalls due to safety hazards entail societal costs, such as property damage, injury, and sometimes death. For firms, the related external failure costs are many, including the costs of recalling the product, providing a remedy, meeting the legal liability, and repairing damage to the firm's reputation. The recent spate of product recalls has shifted attention from why products are recalled to why it takes so long to recall a defective product that poses a safety hazard. To address this, our research subjects to empirical scrutiny the time to recall and its relationship with recall strategies, source of the defect and supply chain position of the recalling firm. We develop and verify our conceptual arguments in the U.S. toy industry by analyzing over 500 product recalls during a 15-year period (1993–2008). The empirical results indicate that the time to recall, as measured by difference between product recall announcement date and product first sold date, is associated with (1) the recall strategy (preventive vs. reactive) adopted by the firm, (2) the type of product defect (manufacturing defect vs. design flaw), and (3) the supply chain entity that issues the recall (toy company vs. distributor vs. retailer). Our results provide cues that could trigger a firm's recognition of factors that increase the time to recall.
There is currently much interest in the idea of integrated quality management for durable products, extending from the product design, development and manufacturing process and through the ownership cycle of the product. We have carried out a logit analysis of events pertaining to a critical incident model which demonstrates how quality in both the product and its supporting services, as well as the interactions between these factors, can affect owner intentions regarding future purchases. The model was evaluated through a study of 659 motor vehicle owners. Two of our specific conclusions are: (1) our data suggests that owners tend to have a tolerance towards negative vehicle incidents, but negative service incidents can harm owner perceptions of both the dealer and the manufacturer, and (2) positive critical incidents can counteract negative critical incidents. Proactively creating positive service incidents and avoiding negative service incidents can help improve customer loyalty to the service agent and counteract negative vehicle incidents which affect loyalty to the manufacturer. We also suggest that the results from this study may be generalizable to service and product quality management for other types of equipment.
Much of the early literature in the area of quality management literature is anecdotal, prescriptive, and methodologically suspect. As such, theory construction and rigorous empirical testing is a relatively recent development with the emphasis very much on quality practices. However, the various dimensions of quality performance and the relationship between them have received less attention from the research community. More specifically, the role of design quality has not been fully addressed in empirical studies. To address this gap we developed a path model incorporating quality practices, design quality, conformance quality, external quality-in-use, product cost, time-to-market, customer satisfaction and business performance. The model was tested with data collected from 200 suppliers in the electronics sector in the Republic of Ireland. Data analysis of the data indicated considerable support for the conceptual model.
Previous research Has found that product recall announcements in the automobile industry are associated with negative abnormal returns. We extend this research by examining announcements of product recalls and products taken off the market outside the automobile industry. We find negative abnormal returns for these announcements and that the returns are significantly more negative when products are replaced (or the purchase price is returned) than when the products are checked and repaired. We find only limited evidence that government-ordered recalls produce more negative returns than voluntary recalls.
Product-harm crises often result in product recalls, which can have a significant impact on a firm's reputation, sales, and financial value. In managing the recall process, some firms adopt a proactive strategy in responding to consumer complaints, while others are more passive. In this study, the authors examine the impact of these strategic alternatives on firm value using Consumer Product Safety Commission recalls during a 12-year period from 1996 to 2007. Using the event study method, the authors show that regardless of firm and product characteristics, proactive strategies have a more negative effect on firm value than more passive strategies. An explanation for this surprising result is that the stock market interprets proactive strategies as a signal of substantial financial losses to the firm. When a firm proactively manages a product recall, the stock market infers that the consequence of the product-harm crisis is sufficiently severe that the firm had no choice but to act swiftly to reduce potential financial losses. Therefore, firms dealing with product recalls must be sensitive to how investors might interpret a proactive strategy and be aware of its potential drawbacks.
Rapidly evolving technologies, global competition, and sophisticated customers have contributed to an increase in product variety in many industries. However, simply increasing variety does not guarantee an increase in long run profits, and can in fact worsen a firm's competitiveness. This makes variety management a crucial dimension of successful business practice. In this paper, I first provide a framework for managerial decisions about variety. Variety decisions can be viewed as variety-creation decisions that determine the amount, type, and timing of end-product variety, and variety-implementation decisions, which focus on the design and operation of internal processes and a supply chain to support a firm's variety-creation strategy. I sort the gamut of variety-related decisions into four key decision themes in variety creation: 1) dimensions of variety, 2) product architecture, 3) degree of customization, and 4) timing, and three key decision themes in variety implementation: 1) process capabilities, 2) points of variegation, and 3) day-to-day decisions. I describe each theme, and then review the relevant literature on each theme, with a focus on research that adds insight on problems faced in practice. Finally, I identify untapped avenues for future research that would be of value to the practicing manager, paying special attention to interdependencies among decision themes.
Sustaining operational productivity in the completion of repetitive tasks is critical to many organizations' success. Yet research points to two different work-design–related strategies for accomplishing this goal: specialization to capture the benefits of repetition and variety (i.e., working on different tasks) to keep workers motivated and provide them opportunities to learn. In this paper, we investigate how these two strategies may bring different productivity benefits over time. For our empirical analyses, we use two and a half years of transaction data from a Japanese bank's home loan application-processing line. We find that over the course of a single day, specialization, as compared to variety, is related to improved worker productivity. However, when we examine workers' experience across a number of days, we find that variety helps improve worker productivity. Additionally, we show that part of this benefit results from workers' cumulative experience with changeovers. Our results highlight the need for organizations to transform specialization and variety into mutually reinforcing strategies rather than treating them as mutually exclusive. Overall, our paper identifies new ways to improve operational performance through the effective allocation of work.
This paper was accepted by Christian Terwiesch, operations management.
For over three decades, the benefits of focus have been touted under the guiding principle that dedicated attention to a small set of linked tasks improves operating performance. Numerous studies have suggested that the performance of a division, plant, or business unit is improved to the extent that it remains focused on a narrow range of activities. Others have found similar benefits associated with focus at the level of the entire firm. A question that has received less attention, however, is whether focus at the divisional level is complementary with, or a substitute for, focus at the firm level. We explore this question by considering the performance of investigative sites in biopharmaceutical clinical trials. First, we establish that firms focusing on a particular task—at either a divisional or firm level—experience higher output and productivity with respect to that task than unfocused firms. After controlling for selection, scale, and learning effects, we find that sites that focus on conducting clinical trials significantly outperform those that mix trial activity with the provision of traditional patient care. Second, we find evidence that focus at the divisional level and firm level are substitutes. That is, organizations characterized by divisional focus alone achieve statistically similar performance to sites that are characterized by both divisional and firm focus. Copyright © 2007 John Wiley & Sons, Ltd.
This research demonstrates that operations agility---defined as the ability to excel simultaneously on operations capabilities of quality, delivery, flexibility, and cost in a coordinated fashion---is a viable option for retail banks encountering increasing environmental change. The question of whether there is empirical evidence that services, specifically retail banks, display the characteristics of agility like their manufacturing counterparts is open to debate. Conventional wisdom in operations management posits that most successful services trade off one capability for another. Drawing from the resource-based view of the firm, combinative capabilities view, and the cybernetics work of Ashby (1958), theoretical arguments suggest the contrary. The agility paradigm is viable in environments calling for a mix of strategic responses. Applying cluster analytic techniques to a sample of retail banks, using capabilities as taxons, we identify four strategic service groups: agile, traditionalists, niche, and straddlers. Our empirical results provide thematic explanations consistent with theory that account for how the agile strategic group offers a unique configuration of service concept, resource competencies, strategic choices, and business orientation. Profiles of the operations strategies of each strategic service group suggest that each group has found a fit between what certain segments of the market may want and what they have to offer. In particular, we found that the agile group exhibited greater resource competencies than its counterparts, requiring greater investments in infrastructure and technology. Consistent with theory, agile banks performed better over time on an absolute measure of return on assets.
This study examines the impact of product variety on automobile assembly plant performance using data from GM's Wilmington, Delaware plant, together with simulation analyses of a more general auto assembly line. We extend prior product variety studies by providing evidence on the magnitude of variety-related production losses, the mechanisms through which variety impacts performance, and the effects of option bundling and labor staffing policies on the costs of product variety. The empirical analyses indicate that greater day-to-day variability in option content (but not mean option content per car) has a significant adverse impact on total labor hours per car produced, overhead hours per car produced, assembly line downtime, minor repair and major rework, and inventory levels, but does not have a significant short-run impact on total direct labor hours. However, workstations with higher variability in option content have greater slack direct labor resources to buffer against process time variation, introducing an additional cost of product variety. The simulation results support these findings in that once each workstation is optimally buffered against process time variation, product variety has an insignificant impact on direct assembly labor. The simulations also show that bundling options can reduce the amount of buffer capacity required, and that random variation is more pernicious to productivity than product variety, supporting the efforts of some auto makers to aggressively attack the causes of random variation.
To help meet competitive realities operations managers need to know more about the strategic aspects of manufacturing flexibility. This paper takes steps toward meeting that need by critically reviewing the literature and establishing a research agenda for the area. A conceptual model, which places flexibility within a broad context, helps to identify certain assumptions of theoretical studies which need to be challenged. The model also provides a basis for identifying specific flexibility dimensions. The manner in which these dimensions may limit the effectiveness of a manufacturing process, and the problems in operationalizing them are discussed. Focusing next on the neglected area of applied work, concepts are presented for analyzing whether desired amounts of flexibility are being achieved and whether the potential for flexibility built into a manufacturing process is being tapped. Once more, a procedure is outlined for altering a plant's types and amounts of flexibility over time. The research agenda, which grows out of the appraisal of theoretical and applied work, indicates the value in studying generic flexibility strategies, the flexibility dimensions, methods of delivery, ways of evaluating and changing a process's flexibility, and above all measurement problems. The conclusions indicate principles for strategic research, some of which have relevance for the development of mathematical models.
The pressure on companies to practice corporate social responsibility (CSR) has gained momentum in recent times as a means
of sustaining competitive advantage in business. The pharmaceutical industry has been acutely affected by this trend. While
pharmaceutical product recalls have become rampant and increased dramatically in recent years, no comprehensive study has
been conducted to study the effects of announcements of recalls on the shareholder returns of pharmaceutical companies. As
product recalls could significantly damage a company’s reputation, profitability and brand integrity, this paper investigates
the effect on shareholder wealth and the extent to which the adoption of CSR practices by pharmaceutical companies in the
United Kingdom (U.K.) and the United States (U.S.), the two largest markets for pharmaceutical products in the world, affected
market reactions surrounding product recall announcements. The analysis of product recall announcements from 1998 to 2004
compiled from The Pharmaceutical Journal and U.S. Food and Drug Administration enforcement reports revealed marked differences in the way market participants in the
two countries responded to news of product recalls. U.S. investors penalised firms according to the severity of product defects
while U.K. investors were indifferent. While U.K. investors rewarded product recalls by firms which were not usually CSR-active,
U.S. investors punished non-CSR active firms that performed recalls. These observations could pose strategic challenges to
pharmaceutical firms operating in both countries.
This study examines the relationship between market requirements focus, manufacturing characteristics focus, and manufacturing performance. Results from a sample of plants serving the automotive industry support the general argument that market requirements focus and manufacturing characteristics focus have an impact on manufacturing performance, and provide partial support for a mediation model of focus proposed by Bozarth (1993). The results also show that focused work cells or plants-within-a-plant might not be entirely successful at buffering plants from the negative impact of diverse market requirements.
Design management and process management are two important elements of total quality management (TQM) implementation. They are drastically different in their targets of improvement, visibility, and techniques. In this paper, we establish a framework for identifying the synergistic linkages of design and process management to the operational quality outcomes during the manufacturing process (internal quality) and upon the field usage of the products (external quality). Through a study of quality practices in 418 manufacturing plants from multiple industries, we empirically demonstrate that both design and process management efforts have an equal positive impact on internal quality outcomes such as scrap, rework, defects, performance, and external quality outcomes such as complaints, warranty, litigation, market share. A detailed contingency analysis shows that the proposed model of synergies between design and process management holds true for large and small firms; for firms with different levels of TQM experience; and in different industries with varying levels of competition, logistical complexity of production, or production process characteristics. Finally, the results also suggest that organizational learning enables mature TQM firms to implement both design and process efforts more rigorously and their synergy helps these firms to attain better quality outcomes. These findings indicate that, to attain superior quality outcomes, firms need to balance their design and process management efforts and persevere with long-term implementation of these efforts. Because the study spans all of the manufacturing sectors (SIC 20 through 39), these conclusions should help firms in any industry revisit their priorities in terms of the relative efforts in design management and process management.
Flexible work assignment has great potential to increase productivity. When bottlenecks develop, for example, downstream operations may halt for lack of materials. A flexible worker can prevent this by moving in and increasing capacity temporarily, thereby avoiding work stoppages. In practice, it is not that simple. This paper identifies several “negative side effects” that occur in systems that rely on worker flexibility, effects that may partially or totally offset the advantages. Research has shown that performance feedback and work interruptions are factors that may explain some of these effects. Behavioral theories about those two factors lead to a series of hypotheses and two experiments. The results show that productivity loss due to these behavioral effects can be significant, in both the statistical and managerial sense of the word. Implications for the design and operation of flexible work environments are discussed, including methods for mitigating or eliminating the negative side effects, resulting in a meaningful productivity gain.