John V. Gray

Decay, Shock, and Renewal: Operational Routines and Process Entropy in the Pharmaceutical Industry

In this study, we examine decay in adherence to operational routines over time. Our empirical setting is the worldwide pharmaceutical industry, and we focus on operational routines used to maintain product quality. Based on an analysis of longitudinal data from U.S. Food and Drug Administration FDA inspections, we find that the tendency of operational routines to decay is widespread. Our results also illustrate that FDA inspections act as external renewals that halt decay in adherence to routines. In addition, manufacturing plants are found to vary significantly in their level of decay. Using data on mergers and acquisitions affecting these plants, we find that mergers appear to cause decay in adherence to routines. However, acquisitions appear to serve as renewals and halt such decay. Based on our overall findings, we present theoretical implications for research in organizational routines and practical insights for companies and regulatory authorities.

The Influence of Cost and Quality Priorities on the Propensity to Outsource Production

Outsourcing of production has escalated over the past decade due to unprecedented competition and worldwide access to low-cost labor markets. This article examines how cost and quality priorities—two key attributes of manufacturing strategy—influence a manufacturers propensity to outsource. By doing so, we bridge the existing gap between research on manufacturing strategy and firm boundaries. We develop a theory-based model that links a manufacturers cost and quality priorities to its plans to outsource production. Our empirical analyses, based on survey data obtained from 867 manufacturing business units, control for firm-specific factors previously shown to impact outsourcing, including asset specificity, uncertainty, and current capabilities in cost and quality. We found that the competitive priority placed on cost played an integral role in sourcing decisions, while, surprisingly, conformance quality priorities did not. The cost result is consistent with our expectations and observations in practice. The significant effect of cost priority on outsourcing shows that any theory of firm boundaries that fails to consider competitive priorities is incomplete. The finding regarding quality, which was counter to our expectations, may partially explain why there is an emergence of so many nonconforming products associated with outsourcing. Taken together, our results provide theoretical insights for future research into how manufacturing managers can improve their decision making on outsourcing production.

Towards a unifying theory of management standard implementation

Purpose – The purpose of this paper is to develop an integrated theoretical framework of the interrelation of the key success factors in the process of standards implementation. Design/methodology/approach – Extensive case study work was carried out in ten American plants that had adopted ISO 9001 and or ISO 14001. First, within-case analysis captures the uniqueness of the implementation processes at each plant and leads to construction of the causal maps. Next, cross-case comparison identifies the key factors and the relationship between them, resulting in the theoretical framework. Findings – The key factors affecting implementation effectiveness include focus on internal improvement, top management support, design of the system around existing processes, use of information technology, positive employees’ attitude, and employees’ usage of the system. The resulting framework suggests three alternative pathways to effective implementation of standards: (i) incentives pathway, i.e., by providing the right ...

Colocation Still Matters: Conformance Quality and the Interdependence of R&D and Manufacturing in the Pharmaceutical Industry

This study investigates the conformance quality benefits of colocating manufacturing with research and development R&D activities. Findings from a panel data set of U.S.-based pharmaceutical plants over a 13-year period reveal that colocation of manufacturing and R&D relates to better conformance quality, on average, across the entire sample. We find that these benefits of colocation persist throughout the time period we study 1994-2007, which is surprising, given the rapid development of information and communication technologies during that time. These benefits are particularly enhanced for manufacturing plants operating with processes that involve a high level of tacit process knowledge and that belong to large firms. Our findings highlight the importance of matching organizational design with process and firm characteristics in settings involving knowledge interdependence. They also highlight the continued value of physical proximity through geographical colocation between manufacturing and R&D activities to achieve desired quality outcomes. This paper was accepted by Serguei Netessine, operations management.

Managing Quality in Outsourced Production: Construct Development and Measurement Validation

There exists a large body of academic and practitioner literature that has led to a deep understanding of the practices and behaviors necessary to manage quality within a firms own factory walls. However, the literature on the effectiveness of the approaches used by buyers to manage the quality of outsourced production is surprisingly scant. In this paper, the authors develop and evaluate scales that are necessary for academic research on the management of production outsourced to contract manufacturers (CMs). They use the existing empirical, analytical, and practitioner literature to generate and define relevant constructs. They develop new scales where necessary and adapt existing scales where possible to measure these constructs. They then follow a two-stage approach to assess their reliability and validity. In the first stage, the authors follow a rigorous item-sorting process to refine these scales. In the second stage, they employ factor analyses using data collected from 123 buyers and 100 CMs to formally assess multiple forms of reliability and validity; they find that most of their scales exhibit good psychometric properties and can be used for research. The authors conclude the paper with some suggestions for research on managing quality in outsourced production.

Managing Quality in a Heterogeneous Contract Manufacturing Environment

The outsourcing of production is a prominent strategy across industries. While the strategy can have many benefits, the popular press reports numerous examples of quality issues originating with contract manufacturers (CMs). Observing these quality issues, multiple scholars call for the quality management (QM) literature to be extended to explicitly address the challenges of managing quality in an inter-organizational context. Additionally, QM researchers recognize the need to consider contextual contingencies for the effectiveness of specific QM practices. Responding to these calls, we focus on the potential contingent factor of CM heterogeneity (i.e. the degree of product and process diversity at the CM plant). We first test the direct relationship between CM manufacturing heterogeneity and CM quality conformance performance, as reported by the CMs customers, brand-owning firms. Next, we evaluate the effectiveness of multiple practices that these brand-owning firms can employ to mitigate the anticipated negative effect of heterogeneity on their CMs conformance quality. We utilize paired dyadic data on 106 contract manufacturing relationships in the food, drug, and medical device industries to test our hypothesized model. The results of our analysis reveal a negative association between heterogeneity at CM facilities and their conformance quality performance. Our results also identify cooperative relationships, contractual coordination provisions, and formal performance assessment programs as practices that brand-owning firms can employ to largely eliminate the negative impact of heterogeneity on CMs’ conformance quality performance

Contract Manufacturing and Quality Risk: Theory and Empirical Evidence

This paper investigates the relationship between contract manufacturing and quality risk — a term defined as the propensity of a manufacturing plant to operate out of compliance with required procedures. Contract manufacturing plants (hereafter, CM) are increasingly being used in many industrial sectors. While CMs have been anecdotally blamed for many recalls and other outgoing product quality failures, there is a neither a strong coherent theory in operations and supply chain management nor empirical evidence that considers whether and when CMs pose a differential quality risk in contrast to internal plants (IPs). By definition, CMs produce products to another firm’s specifications, whereas IPs make products to their own firm’s specifications. This basic difference between CMs and IPs potentially leads to systemic dissimilarities in their operational contexts. Drawing upon these contextual dissimilarities, we posit that, on average, CMs will operate with higher quality risk than IPs. Subsequently, we develop contingencies related to key factors that moderate the relationship between plant type (CM vs. IP) and quality risk. We test our hypotheses using a plant-level measure of process compliance based on Food and Drug Administration (FDA) inspection data on a sample of 152 plants classified as drug manufacturers by the FDA. In addition to finding moderate evidence of a first-order difference, we do find evidence that production experience and the intensity of external regulation serve as important contingencies regarding quality risk. We find strong evidence that among plants with low production experience, CMs operate with higher quality risk than IPs, but this difference is mitigated as CMs gain production experience. We also find that increased regulatory intensity seems to influence CMs to reduce quality risk more than it does IPs.

Organizational Non-Compliance: A Study of FDA-Regulated Industries

We consider how corporate culture affects regulatory compliance activities across functions within a firm and investigate the economic consequences of a weak compliance culture. We examine a group of publicly traded pharmaceutical companies over the period of 2003 to 2013 that are required to comply with the Security and Exchange Commission (SEC) financial reporting regulations and are subject to the requirements of the Food and Drug Administration (FDA) Good Manufacturing Practices (GMP). We rely on the internal control environment to identify the first channel through which a weak compliance culture affects both operational and financial non-compliance and document that firms with a “weak�? compliance culture, as reflected by internal control deficiencies, are more likely to have both FDA inspection failures (operational non-compliance) and accounting restatements (financial non-compliance). We also document a contemporaneous association between operational non-compliance and financial non-compliance, even after controlling for the internal control environment. We consider firm-level characteristics that will influence the development of the firm’s compliance culture, and find that the association between our non-compliance measures is stronger for firms with weaker shareholder rights. We also demonstrate economically meaningful implications of cross-functional non-compliance. We find when a firm has operational non-compliance that (1) the stock market reacts more negatively to accounting restatements and (2) the likelihood of CEO turnover following a restatement is higher. Taken together, we infer from our findings that the culture of integrity surrounding organizational non-compliance influences compliance behavior across the entire firm, and that compliance deficiencies generate considerable market and governance consequences for a firm and its managers.