Local assembly units in the motor components industry: A case study of exhaust manufacture

Abstract

This paper explores the conditions under which motor component manufacturers may choose to supply car assembly plants through decentralised production in local assembly units (LAUs). The analysis is based on a case study of the decision to supply motor exhausts through an LAU where demand from the OEM company is sequenced. The case suggests that local assembly may result in significant efficiency gains. However, most of these gains flow to the OEM company, while most of the costs of local assembly flow to the component supplier. This finding emphasises the importance of trust and collaboration within supplier relationships, but suggests that significant possibilities for opportunistic recontracting may exist after the establishment of the LAU. Both supplier and OEM company should consider these possibilities when making the initial investment decision.

Citation

Millington, A.I., Millington, C.E.S. and Cowburn, M. (1998), "Local assembly units in the motor components industry: A case study of exhaust manufacture", International Journal of Operations & Production Management, Vol. 18 No. 2, pp. 180-194. https://doi.org/10.1108/01443579810193302