A study of North American auto production over a seven-year period has demonstrated that overtime and increasing the number of factory-installed options are both positively associated with manufacturing-related recalls.

“If managers run an auto factory on consistent overtime, recalls stemming from manufacturing errors increase by more than 300 percent,” said co-author George Ball, assistant professor of operations and decision technologies at Indiana University.

“Such errors become even more prevalent when overtime is combined with high levels of variety,” Ball added.

According to the study, high levels of factory utilization translated to a recall cost of $167 million over seven years.

The study’s data set included production information from 32 auto plants, 80 unique models and a sample size of 232 car model years.

Three former General Motors executives have read the paper and attested to the veracity of its findings.

Overtime and Extra Options Lead to Recalls

In an overtime situation, a factory is either working its current staff extra hours or temporarily hiring an extra shift to increase capacity. Both cases are problematic.

In the authors’ words, “Personnel fatigue may prevent high quality assembly and inspection at high rates of utilization, and when in use, temporary staff may be less equipped to perform appropriate processes accurately.”

The study also demonstrated that adding four extra options to a production line can lead to two extra recalls, the equivalent of $46.2 million in additional costs over the same seven-year period. That figure is based on an average recall cost of $200 per car and an average of 10,000 cars per recall.

Auto Recalls Increasing

According to the National Highway Traffic and Safety Administration (NHTSA), the average number of automobile recalls per million registered vehicles has risen steadily, from 3.10 in the 1980s to 11.79 between 2000 and 2010. Each recall costs upwards of $20 million on average.

“While previous studies had focused on linking product recalls to financial costs and loss of market share, our intent was to identify operational characteristics of an assembly line such as overtime and variety and link them to future recalls,” said lead author Rachna Shah, associate professor of supply chain and operations at Indiana University.

“In designing the study, our objective was to fill a huge gap in existing research on one hand, and to provide actionable guidance to practicing managers, which could help reduce future recalls, on the other hand. Overtime and variety provide such managerial levers,” Shah added.

Increased Complexity Requires Increased Capacity

“The bottom line is that complexity causing variety on an assembly line requires commensurate levels of excess capacity to manufacture good quality products, and there are significant risks of working a production plant on sustained overtime over long periods of time,” the study concludes.

This conclusion is certainly timely, with increasing demand leading many US automakers to resort to overtime and additional shifts rather than expanding plant capacity—though there are exceptions.

The findings have important implications for managers, who are required to provide variety in their products while also being rewarded for efficiency, incentivizing them to run at high levels of utilization. The authors believe this is the first study to link operational variables to product recalls, particularly in the automotive industry.