Authors: Robert Bray, Juan Serpa and Ahmet Colak
Publication: Management Science, Forthcoming
We explore the effect of supply chain proximity on product quality by merging four independent data sources from the automotive industry, collecting: (i) auto component defect rates, (ii) upstream component factory locations, (iii) downstream assembly plant locations, and (iv) product-level links connecting the upstream and downstream factories. Combining these four datasets allows us to trace the flow of 27,807 products through 529 supplier factories and 275 assembly plants. We estimate that increasing the distance between an upstream component factory and a downstream plant by an order of magnitude increases the component’s expected defect rate by 3.9%. We also find that shorter inter-factory spans are associated with more rapid product quality improvements, and that supply chain distance is more detrimental to quality when automakers: (i) produce early generation models or (ii) high-end products, (iii) when they buy components with more complex configurations, or (iv) when they source from suppliers who invest relatively little in research and development
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