The Impact of Modular Production on the Dynamics of Supply Chains

Abstract

The principle of modular production has been applied internally by companies since the 1960's. Innovative companies in various industries are now experimenting with application of the concept in a supply chain setting. Modular production makes it possible to further involve distributors and suppliers in the manufacturing process and create a new tier of suppliers in the automotive industry; that of the “zero‐level supplier”. Expected benefits of the increased integration in the inbound and outbound flow of goods are improved responsiveness to customers and increased efficiency. It can be questioned, however to what extent manufacturers can increase the amount of control over operational activities based on networking, as opposed to control based on ownership, without becoming an empty design and marketing company. This paper assesses the impact of the new model of modular production on the dynamics in supply chains as a whole and the consequences for individual players, based on innovative cases such as that of the SMART car.

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