SUPPLY CHAIN STRUCTURE, PRODUCT RECALLS AND FIRM PERFORMANCE: INVESTIGATING RECALL DRIVERS AND RECALL FINANCIAL PERFORMANCE RELATIONSHIPS

Abstract

This dissertation is a two-essay study on globalization, sourcing structure and product quality and firm performance in global supply chain management. In the first essay, using a unique archival dataset on firms and their suppliers, the role of supply chain strategies in contributing to product safety and quality, as assessed through product recalls are investigated. The second essay investigates the relationship between product recalls and firm performance. Moreover, the moderating effects on the recall-profitability relationship of supply chain as well as recall management strategies are investigated . Essay 1 investigates how a number of supply chain strategies contribute to product recalls. In particular, I examine how the make or buy decision (i.e., outsourcing), the decision to concentrate the supply base (i.e., use few vs. several suppliers), the use of foreign suppliers (i.e., offshoring), and the extent of global operations, contribute to product recalls. The subject area of product quality and safety failures leading to product recalls is important because product recalls can have a major, negative impact on firm performance. For example, in the event of a product recall, replacement orders may need to be shipped, new suppliers may need to be found and vetted, and marketing expenditures may need to be made to counter negative publicity from the recall. Applying key theories in operations and supply chain management, I find that firms vary greatly in recall propensity and that these variations are related to heterogeneity in outsourcing, offshoring, and supply base concentration. In the second essay, I revisit the recall-performance relationship. First, I investigate the relationship between product recalls and profitability. Firms may choose to try to avoid product recalls by increasing their expenditures on product quality and inspection services. Or, on the other hand, they may emphasize short term profitability by reducing production and inspection costs, thereby increasing the risk of incurring a product recall. Since firms are expected to balance production and quality inspection costs against the costs associated with product recalls in order to maximize profit performance, the recall-profitability relationship is not clear, a priori. I further investigate the moderating effect of global operations, supply base structure and recall strategies on the relationship between product recalls and profit margins. My theory-based research suggests a curvilinear recall-profit relationship and that this relationship depends on key global supply chain practices and recall management strategies.