Internal Proactive Learning or External Technology Acquisition: ICT-Enabled Promotion in Assembly Operations

Abstract

Recently, leading manufacturers have started adopting information and communication technologies (ICTs) to assist operators in capturing assembly operational errors. These manufacturers choose to develop internal ICTs and decide whether to implement proactive experiential learning to continuously improve the rate of recognizing assembly operational errors, or acquire external ICTs from third-party technology providers that increase the rate of recognizing assembly operational errors but fail to achieve experiential learning. These two ICT adoption models may cause different effects on assembly operations, which subsequently affects manufacturers’ profitability. However, there is a limited body of relevant research that focuses on this topic. Hence, our study aims to bridge this gap by examining a manufacturer’s decisions for the ICT adoption, internal experiential learning, and subsequent pricing strategy. First, we reveal that it is sometimes beneficial for the manufacturer to forgo ICTs rather than adopt ICTs. This is because the lower recognition capability leads to a weaker scale effect, reducing the positive effect of ICTs on operational error losses. Next, we find that even if the internal learning effect is stronger, the manufacturer may still choose to acquire external ICTs. Moreover, as the operational error loss increases, the manufacturer or third-party technology provider may sometimes invest less in ICTs. Further, our results show that the ICT adoption benefits consumer surplus and social welfare, and external ICTs sometimes generate more social welfare but less consumer surplus than internal ICTs. Additionally, we find that the ICT adoption changes the relationship between the assembly operational accuracy and product demand. Following the ICT adoption, our study offers invaluable insights to managers on how ICTs can yield better assembly operational outcomes.