Design Rules Volume 2 : Chapter 18—Logistical Platforms and Modular Production Networks

The purpose of this chapter is to understand how technology contributed to the emergence and evolution of modular production networks between 1980 and the present. In a modular production network, the activities needed to create a functioning system (for example, a personal computer) are distributed across many autonomous firms linked by modular interfaces. I begin by describing how, in the 1970s and 1980s, new digital technologies codified and standardized information flows between design and production for many products. Codified interfaces were then combined with the Internet and logistical platforms—software programs and organizational policies that coordinated flows of goods between different firms. This trio of technologies made it possible to divide previously interdependent step processes into modular subsets of tasks and allocate the modules to different firms according to the cost and quality they offered.Modular production networks are coordinated and synchronized via logistical platforms. A logistical platform knits together the far flung members of a modular production network by coordinating the flow of goods. The platform itself consists of software programs supplemented by platform rules and ongoing management to address bottlenecks and exceptions.Unlike standards-based platforms, most logistical platform sponsors do not control unique visible information. Hence, they must compete on the basis of efficiency and customer satisfaction. I use standard microeconomic theory to explain how firms capture value in these settings, and show how the theory can be operationalized using the financial measure return on invested capital (ROIC).Technologies that shape organizations perforce affect the location of jobs, working conditions, and labor standards. The quest for low cost and high ROIC by lead firms in modular production networks has resulted in the movement of manufacturing (and some service) jobs from high-wage countries with effective labor standards to low-wage countries with ineffective labor standards. At the end of the chapter, I discuss the impact of this migration on workers in different parts of the world, especially China