Product Recalls and Supply Base Innovation

Fan Zou (), Yan Dong (), Sining Song () and Manus Rungtusanatham ()
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Fan Zou: Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802
Yan Dong: Moore School of Business, University of South Carolina, Columbia, South Carolina 29208
Sining Song: Haslam College of Business, University of Tennessee, Knoxville, Tennessee 37916
Manus Rungtusanatham: Schulich School of Business, York University, North York, Ontario M3J 1P3, Canada

Manufacturing & Service Operations Management, 2023, vol. 25, issue 5, 1931-1946

Abstract: Problem definition : Suppliers are increasingly involved in innovation activities that contribute to a firm’s product quality and introduce risks to firms’ quality control, leading to quality failures and recalls. This quality trade-off suggests the possibility of a nonlinear relationship between supplier innovation and product recalls, which is the focus of this research. Recall literature focuses on firms’ internal drivers of recalls, whereas anecdotal evidence increasingly points to the role of external drivers, such as suppliers. We contribute to the literature by examining supplier innovation as an external driver leading to recalls via quality and risk spillovers. Methodology/results : We collect and assemble a unique panel data set of consumer product recalls from firms and their supply bases (i.e., first tier suppliers). We estimate econometric models to examine the nonlinear relationship between supply base innovation, measured by research and development (R&D) intensity of the supply bases, and the likelihood of product recalls. We find a quadratic (i.e., U-shaped) relationship between the probability of recalls and supply base R&D intensity. We also find that this nonlinear relationship is critically related to three specific sources of risk: radicalness of supplier innovation, technological distance between firms and their suppliers, and complexity of supply base. Managerial implications : Our findings suggest that firms should be mindful of the quality trade-offs in encouraging supplier innovation to reduce product recalls. Further, to minimize recall risks, firms should better evaluate and manage the risks associated with external supplier knowledge that is novel and different and closely work with global suppliers to reduce coordination challenges in knowledge transfer and integration.

Keywords: product recall; innovation; supply chain; empirical research (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:25:y:2023:i:5:p:1931-1946

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