Does Organizational Forgetting Affect Quality Knowledge Gained Through Spillover? – Evidence from the Automotive Industry

In the automotive industry, when firms develop quality knowledge at their suppliers to address quality issues, some of the knowledge can spill over to other firms that use the same suppliers. We investigate how organizational forgetting affects such quality gains obtained from spillover. We analyze the quality data of 191 suppliers who supply similar products to two distinct businesses: a car and a commercial vehicle manufacturer. A latent class analysis identifies that the spillover of quality knowledge is significant at 93 of the 191 shared suppliers. Spillover is more likely at shared suppliers when there are higher product and process commonality between the components supplied to the different buyers, but less likely when suppliers use multiple facilities to cater to the requirements of the different buyers. Further investigation of the retention of quality knowledge of 93 suppliers with significant spillover reveals that forgetting erodes the quality gains obtained from spillover by 19.09% annually. This effect is larger than the depreciation of quality gains obtained from working directly with suppliers (10.93%). Moreover, the impact of forgetting depends on where the quality knowledge is retained: the quality knowledge embedded in routines erodes faster than the quality knowledge embedded in technology or organizational members. Furthermore, the impact of forgetting on spillover depends on where the quality improvement initiatives are implemented: gains from initiatives in the output activities depreciate less than gains from efforts in the in-process activities. Our work provides managers guidance on managing the spillover of quality knowledge at suppliers.