Modularity, outsourcing, and inter-firm learning

for the DRUID Summer Conference 2000 June 15-17, 2000 Rebild, Denmark Modularity refers to the scheme by which interfaces share among components in a given product architecture are specified and standardized to allow for greater reusability and commonality sharing of components among product families. One of the characteristics of modular products is the standard interfaces shared among components, sub-systems, and systems. When interfaces shared among the components or modules within a system become standardized, outsourcing decisions can be made accordingly with respect to a firm’s long-term strategic planning of its new product development, manufacturing, and supply chain management activities. Interface management of product architectures defines and selects suppliers with whom the components are outsourced from, and how a firm should organize its knowledge stock, investment, and resource allocation issues. However, delegating complete design and manufacturing responsibility to suppliers with first generation product architectures without well-defined system specifications leads to poor performance of the overall system. The case of a modular windshield wipers controller outsourced by Chrysler Jeeps shows that the extent to successful outsourcing is dependent upon the degree of supplier-buyer cooperation in solving technical problems, especially in designing first generation product architectures, leading to increased inter-firm learning. The case also shows that the failure of one technological solution was the catalyst for increased supplier-buyer interdependence, more interactive problem solving and mutual learning, and hence the subsequent financial benefits gained from the new technological approach.