Deployment of Manufacturing Flexibility: An Empirical Analysis of the North American Automotive Industry

33 Pages Posted: 5 Jun 2012

See all articles by Manu Goyal

Manu Goyal

Tata Motors Ltd.

Serguei Netessine

The Wharton School, University of Pennsylvania

Taylor Randall

University of Utah - School of Accounting and Information Systems

Date Written: June 5, 2012

Abstract

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.

Keywords: Manufacturing, flexibility, automotive, productivity, competition

JEL Classification: C20, C25, D24, L62, M11

Suggested Citation

Goyal, Manu and Netessine, Serguei and Randall, Taylor, Deployment of Manufacturing Flexibility: An Empirical Analysis of the North American Automotive Industry (June 5, 2012). Available at SSRN: https://ssrn.com/abstract=2077659 or http://dx.doi.org/10.2139/ssrn.2077659

Manu Goyal

Tata Motors Ltd. ( email )

India

Serguei Netessine (Contact Author)

The Wharton School, University of Pennsylvania ( email )

3730 Walnut Street
Philadelphia, PA 19104-6367
United States
(215) 573 3571 (Phone)

HOME PAGE: http://www.netessine.com

Taylor Randall

University of Utah - School of Accounting and Information Systems ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States

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