The Lead Factory Concept: Benefiting from an Efficient Knowledge Transfer

This paper analyses the effectiveness of knowledge transfer between research and development (R&D) and intra-firm production units. Specifically, two distinct network structures are compared: the lead factory concept and traditional networks of R&D and production. Based on an analytical two-stage decision model for prototype and serial production, we highlight relevant factors that determine the relative advantages and disadvantages of the lead factory concept in comparison to a traditional network structure. In particular, the lead factory concept is more cost-efficient than the traditional network if there are a high number of production plants, the adaptation costs for implementing the transferred prototype from the lead factory to the plant are low, the manufacturing costs for the prototype are high, and the manufacturing processes are not highly specific or knowledge intensive.