Product Variety and Manufacturing Performance: Evidence from the International Automotive Assembly Plant Study

Abstract

This paper examines the effect of product variety on manufacturing performance, defined here as total labor productivity and consumer-perceived product quality. Using data from the International Motor Vehicle Program (M.I.T.) study of 70 assembly plants worldwide, the paper examines three dimensions of product variety, at fundamental, peripheral, and intermediate levels. The international sample reveals great variation in the distribution of each type of product variety in different regions, reflecting in part different strategies for variety. Furthermore, the impact of different kinds of product variety on performance varies, and is generally much less than the conventional manufacturing wisdom would predict. However, an intermediate type of product variety, here called parts complexity, was found to have a persistent negative impact on productivity. Finally, the study provides partial support for the hypothesis that management policies, in both operations and human resource areas, can facilitate the absorption of higher levels of product variety, i.e. that “lean production” plants are capable of handling higher levels of product variety with less adverse effect on total labor productivity than traditional “mass production” plants.