Given the generally positive relationship between technology utilisation and performance, why do some plants use installed technologies to a lesser extent than others? Literature suggests that the extent of use of technology, as a decision of choice, is influenced by a variety of factors. Organisational and individual influences include process type, plant size, perceived usefulness of the technology, and user demographics. External factors such as customer mandates and firm nationality have also been found to affect technology use. In this stream of research, one external factor of potential influence – supply chain management – remains conspicuously absent. In a recent study my co-author and I use data from industry to (a) develop rationales for a relationship between the extent of use of manufacturing technologies and supply chain management; and (b) offer data-based verification and insights on the nature and management of this relationship. Results suggest that the extent of use of specific manufacturing technologies increases or declines depending on the specific supply chain management practice in use. The findings raise interesting implications for managers and scholars.
Reduced internal use of technologies would imply a gradual loss of experiential capital. Confronted with a suddenly hostile ex-supplier turned competitor, re-building that capital may prove to be a difficult and onerous task. A particularly disquieting feature in the results was the observed decline in the internal use of design technologies in the presence of high outsourcing and strengthened supplier ties. Industry trends in electronics, plastics and machine tools reflect this reality. When the design technology core hollows out, little remains besides branding and distribution capabilities. History shows that such capabilities can be and are rapidly being acquired, witness the recent joint venture between struggling 3COM Corporation in Marlborough, Massachusetts, and the Chinese telecom challenger Huawei Technologies, and the acquisition of the RCA brand by the Huizhou-based TCL Corporation.
A troubling thought is that escalating relational supply chain management (RSCM) may encourage incremental creep in outsourcing that goes unnoticed by management. While the explicit strategy may be one of ‘insourcing’ of critical items, closer ties with key suppliers persistently nudge the buyers towards an implicit ‘outsourcing’ profile, eventually reducing in-house manufacturing and lowering the extent of use of internal manufacturing technologies. Since this would happen incrementally, we call it insidious, perceiving a real danger that (a) such movement may not be formally recognised by management until too late in the day, and (b) a disconnect will gradually develop between intended strategy and technology use decisions. Such unplanned and unnoticed declines could happen for a variety of reasons, but are at times ascribed to a phenomenon generally termed ‘the vicious cycle of outsourcing’. Simply put, outsourcing manufacture of a group of products increases the fixed cost/unit for the remaining products being manufactured in-house. The cost differential between external and internal manufacturing options naturally increases for the remaining products, encouraging further outsourcing in bits and pieces by cost-reduction driven lower management, and the spiral continues until ‘hollowing out’ occurs. The gradual nature of this process underscores the danger of the cycle activating without the knowledge of top management, thus subverting management’s formal insourcing-outsourcing strategy. Decision makers would need to monitor in-house technology use carefully to ensure that manufacturing tasks do not unintentionally ‘seep’ out to the supply base.
There are gains to be had from collaborative RSCM, and a company may decide to take these gains and not advance further in its supplier relationship building programme. Nortel saw potential in obtaining Motorola’s capabilities in wireless communications technologies, but did not pursue a supply alliance because it feared that there would be high level of overlap in skills and competitive capabilities. However, such policies of limited RSCM have to be competitively feasible. We researched the literature for further suggestions for practical consideration:
. Identify and understand your technology core or near core technology – in line with recommendations offered in previous studies.
. Protect your technology core by actions such as patenting, maintaining a pilot process in-house for prototyping and testing key technologies. Aerospace OEMs are considering patenting all outsourced current and future designs, and special care is required in countries with weak intellectual property law enforcement.
. Depute technological personnel to supplier plants to maintain and upgrade buyer absorptive capacity.
. Foster closer alliances with distributing channels and end customers to protect replacement markets and raise entry barriers for forward integration by suppliers – in line with past prescriptions.
. Invest in equity with key suppliers.
. Be careful in developing asset specificity with key suppliers. We support this recommendation with industry best practice. Toyota shares information selectively and insists that supplier technical personnel work on new parts in Toyota’s own ‘design in’ rooms, in close consultation with Toyota’s engineers.
. Include self-learning as an explicit goal in RSCM programs. Relationships should be evaluated on the new knowledge they bring in, and not inevitably on their contribution to immediate cost savings.
Source: Das, A. and Nair, A. 2010. The use of manufacturing technologies – An external influence perspective. International Journal of Production Research, 48(17), 4977-5006.