Complementarity and Cost Reduction: Evidence from the Auto Supply Industry

Over the last 20 years, the success of Japanese manufacturing firms has brought renewed attention to the importance of cost reduction on existing products as a source of productivity growth. This paper uses survey data and field interviews from the auto supply industry to explore the determinants of average-cost reduction for a sample of 171 plants in the United States and Canada between 1988 and 1992. The main result is that the determinants of cost reduction differ markedly between firms which had employee involvement programs in 1988 and firms that did not. The two groups of firms achieved equal amounts of cost reduction, but did so in very different ways. Firms with employee involvement saw their costs fall more if they also had such involvement gained no cost-reduction benefit from these programs; instead, their cost-reduction success was largely a function of increases in volume. These results provide support for Milgrom and Roberts's concept that certain production practices exhibit complementarity.

Supplier Relations and Adoption of New Technology: Results of Survey Research in the Auto Industry

Using an original data source, this paper investigates the circumstances under which fmns adopt computer numerical control (cNC), an important type of flexible automation which can significantly increase production product variety and quality. The paper shows that arms'-length supplier/customer relationships are a significant barrier to CNC adoption, even where CNC would improve efficiency. For firms where CNC would be efficient. but who currently receive little commitment through their customers,an increase in contract length of one year would increase the adoption rate by 30%. These results have theoretical implications in two areas. First the paper integrates questions of appropriability into the technical change literature by adding supplier relations as a determinant of technology adoption. Second, the paper extends transaction-cost analysis, by relaxing the assumption that agents' private maximizing behavior will always produce organizational forms that may social efficiency

Complementary and Cost Reduction: Evidence from the Auto Supply Industry

Over the last 20 years, the success of Japanese manufacturing firms has brought renewed attention to the importance of cost reduction on existing products as a source of productivity growth. This paper uses survey data and field interviews from the auto supply industry to explore the determinants of average-cost reduction for a sample of 171 plants in the United States and Canada between 1988 and 1992. The main result is that the determinants of cost reduction differ markedly between firms which had employee involvement programs in 1988 and firms that did not. The two groups of firms achieved equal amounts of cost reduction. but did so in very different ways. Firms with employee involvement saw their costs fall more if they also had "voice" relationships with customers and workers. Firms without such involvement gained no cost-reduction benefit fkom these programs; instead, their cost reduction success was largely a fiction of increases in volume. These results provide support for Milgrom and Roberts's concept that certain production practices exhibit complementary

International Differences in Lean Production, Productivity and Employee Attitudes

The study examines US-European productivity and worker attitude differences, focusing on changes in incentive structures. We analyze productivity and worker attitudes in five plants in the UK and US belonging to the same multinational producer of automotive sensors and actuators. We examine the firm's efforts to make complementary changes in product strategy and human-resource policies. In particular, we look at the impact of a Value-Added Gainsharing plan (VAG) that was introduced at different times among the four plants. Our analysis draws on multiple plant visits, surveys of almost all of the workforce, and confidential financial data. Our study offers a rare look inside a low-wage, non-union firm. We find that the VAG had an impact on productivity and profitability. We find that the UK plant's productivity and worker satisfaction was well below that of the US plants. However, neither our analysis nor interviews with managers suggest that differences in national institutions play a key role in explaining these results.

Supplier Relations and Adoption of New Technology: Results of Survey Research in the U.S. Auto Industry

Using an original data source, this paper investigates the circumstances under which firms adopt computer numerical control (CNC), an important type of flexible automation which can significantly increase productivity, product variety and quality. The paper shows that arms'-length supplier/customer relationships are a significant barrier to CNC adoption, even where CNC would improve efficiency. For firms where CNC would be efficient, but who currently receive little commitment from their customers, an increase in contract length of one year would increase the adoption rate by 30%. These results have theoretical implications in two areas. First, the paper integrates questions of appropriability into the technical change literature, by adding supplier relations as a determinant of technology adoption. Second, the paper extends transaction-cost analysis, by relaxing the assumption that agents' private maximizing behavior will always produce organizational forms that maximize social efficiency.

Determinants of Trust in Supplier Relations: Evidence from the Automotive Industry in Japan and the United States

This study examines the determinants of inter-organizational trust by using survey data from just over 1000 suppliers in the automotive industry. We define trust and derive a model of its determinants from transaction cost economics, game theory and sociological exchange theory. Regression analysis results indicate that determinants of trust are different from determinants of opportunism. US-Japanese differences are found in three respects: (i) the way trust is conceptualised by suppliers is richer in Japan than in the US; (ii) the level of trust is higher in Japan than in the US; and (iii) the factors facilitating trust and those attenuating opportunism differ in the US and Japan