Monday, February 6, 2012

The Impact of New Product Introduction on Plant Productivity in the North American Automotive Industry
INSEAD Working Paper 2012/15/TOM revised version of 2011/14/TOM

Product launch - an event when a new product debuts for production in a plant - is an important phase in product development. But launches disrupt plant operations; hence quick and efficient launches are critical from the perspective of both the new product and the productivity of existing manufacturing processes. Using plant-level data from years 1999-2007 for the North-American automotive industry, we empirically study productivity losses in plants hosting product launches. Using a methodology akin to an event study, we estimate an average productivity drop of 15% at the plant level that can be attributed to the launch event. We identify several ways to mitigate the decrease in productivity. Product exibility in the body shop is critical for mitigating the productivity loss. Furthermore, we find that a plant's past experiences with product launches as well as with manufacturing similar products (specifically, on the same platform as the launch-product) mitigate the productivity losses even further. However, there are subtle differences in the accrued learning with these two types of experiences- whereas the positive impact of platform- experience persists over time, the learning accrued with launching other products in the same plant decays more quickly. In summary, our results suggest that launching products in flexible plants with appropriate platform experience can together recover approximately $28.5 million per year per launch-plant in lost productivity.