RENEE MONTAGNE, host:
One of the lessons of the contaminated pet food crisis is that dozens of competing brands of dog and cat food are manufactured at the same plant in Canada.
In fact, many of the products you buy are made by just a handful of factories. It's called concentrated manufacturing. And joining us to talk about that is Eric Johnson of the Tuck School of Business at Dartmouth. Good morning.
Mr. ERIC JOHNSON (Professor of Operations Management, Tuck School of Business at Dartmouth): Good morning.
MONTAGNE: Give us a quick definition and some more examples of what this concentrated manufacturing is.
Mr. JOHNSON: Well, this is one of the outcomes of global outsourcing. And what we see in almost every industry is a collection of large firms producing everything from the consumer electronics to the clothes you wear to the toys your kids play with. The companies aren't names that Americans would recognize, but they are well known in each of the respective industries, and they provide what we call manufacturing services to lots of brands that we buy everyday.
MONTAGNE: For instance?
Mr. JOHNSON: Let's take a walk down the aisle at Wal-Mart. If you head into the toy section and you're buying yourself a Hot Wheels car. It might be made by Mattel but it, more likely, it was made by Zindart. They make cars for Hasbro(ph). And Mattel, they'd make figurines for Hallmark(ph).
Take a walk then over to electronics aisle and you were buying yourself a new game playing station. Likely, it was made by Flextronics, not by Microsoft. Same thing down the cell phone aisle, same thing offered in the apparel aisle. So it's really everywhere you go.
MONTAGNE: Has there been anything similar recently to this contaminated pet food? This, an example of the downside of this concentrated manufacturing?
Mr. JOHNSON: Well, the interesting thing from a business side is that this concentrated manufacturing has lots of upsides, biggest being that the backend manufacturers have economies of scale. What that means is they can produce at very low cost because they're producing at very high volumes, so it makes our cell phones cheaper and all that good stuff.
The downside is that there is more risk if, one, something happens, something that would disrupt supply and end up disrupting supply for many different players.
MONTAGNE: And has it happened?
Mr. JOHNSON: Certainly. You know, when you look into the automotive supply chain, you'll find, for example, everyone uses more or less the same suppliers for seats. Toyota had a supplier a few years ago that had a fire and, you know, shut down its facility and was shutting down at their facility as in - it's not so uncommon.
MONTAGNE: Of course, for the consumer, concentrated manufacturing appears to mean that there are fewer choices than people even realize?
Mr. JOHNSON: Yeah. I mean, when you buy a laptop, you know, you often see different brands on that laptop computer. But the reality is there's only two or three really significant laptop manufacturers in the world now. And they're not the names that are on the front of your laptop.
MONTAGNE: This sounds like a form of monopoly that would impact competition. But what you're also saying as it seems like something that would give economies of scale, so therefore, it's a positive for consumers.
Mr. JOHNSON: Yeah. And then there's still plenty of competition for these what we call manufacturing service providers. They don't have the brand name that would command their own presence in large western economies. And so they produce for those who do and there's a lot of competition back there.
MONTAGNE: Eric Johnson is a professor of operations management at the Tuck School of Business at Dartmouth. Thanks very much.
Mr. JOHNSON: Thank you.
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