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Supply
chain quality
management
Xingxing Zu
Department of Information Science and Systems, Morgan State University,
Baltimore, Maryland, USA, and
Hale Kaynak
Department of Management, Marketing and International Business,
The University of Texas-Pan American, Edinburg, Texas, USA
423
Received 28 October 2009
Revised 29 October 2010
Accepted 23 March 2011
Abstract
Purpose The purpose of this paper is two-fold: to examine two approaches buying firms can utilize
to manage supplier quality; and to investigate the ways in which factors inherent in supply chain
relationships affect the use of these approaches in supply chain quality management.
Design/methodology/approach Drawing on agency theory, this paper proposes a conceptual
framework that relates the underlying factors of a supply chain relationship to the use of quality
management approaches. Two types of approaches, outcome-based and behavior-based, are discussed
in terms of their focuses, purposes, and methods. Propositions are developed about the effects of these
factors on the decisions buying firms make about supply chain quality management.
Findings This study suggests that rather than relying on one generic supply chain quality
management approach for all suppliers, firms need to choose different management mechanisms for
different suppliers based on the salient attributes of individual suppliers and their relationships with the
buyers. Five types of agency-based factors are discussed. These factors information asymmetry, goal
conflict, risk aversion of suppliers, length of relationship, and task characteristics can be expected to
influence how firms design and manage their quality management systems for supply chains.
Practical implications A better understanding of the distinction between outcome-based and
behavior-based approaches helps managers evaluate which approach is best suited to managing the
quality of their suppliers. The propositions pertaining to the key factors provide managers with some
guidelines about the critical conditions they should consider when building their firms supply chain
quality management system.
Originality/value Having an effective quality management system of a supply chain is essential
for maintaining a smooth supply of high quality products and services to customers. However, little is
known about how a firm should design this supply chain quality management system. The paper
addresses this gap by applying agency theory to examine the two essential approaches to managing
supplier quality and to explore the critical factors that should be taken into account when considering
the appropriate approaches for different suppliers.
Keywords Quality management, Supply chain management, Suppliers, Agency theory
Paper type Research paper
1. Introduction
As firms increasingly rely on extended networks of suppliers to produce and deliver
products and services to customers, it becomes increasingly difficult to control what
happens in supply chains outside their boundaries with respect to the quality
The authors would like to thank Jiju Antony for his helpful comments and suggestions on the
first version of this paper.
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of supplied materials. Note, for instance, the recent recalls of products ranging from
autos to toys to drugs and food. These recalls emphasize the need to pay close attention
to quality management (QM) issues in supply chains (Roth et al., 2008). The focus
on supply chain management (SCM) research and practices today is zeroing in on
innovation, agility, and flexibility (Ketchen and Hult, 2007; Magretta, 1998), but the
recalls are continual reminders of the vital importance of supplier quality, a strategic
necessity for achieving customer satisfaction and sustainability (Kuei et al., 2008;
Sroufe and Curkovic, 2008). The lack of an effective QM system in a firms supply
chain network increases the risks of supply chain disruption and may cause serious
damage to its operation, its business performance, and its public image (Hendricks and
Singhal, 2008; Roth et al., 2008).
The increasing importance of managing quality in supply chains has ignited research
interest in this subject. Already a body of research has defined the concept of supply
chain quality management (SCQM) to identify critical themes in this area (Robinson and
Malhotra, 2005); explored the potential benefits of applying well accepted QM principles
and methodologies such as total quality management in a supply chain context (Lee and
Whang, 2005); and investigated the relationship between QM and SCM practices and
their effects on organizational or supply chain performance (Flynn and Flynn, 2005;
Kaynak and Hartley, 2008; Park et al., 2001; Sroufe and Curkovic, 2008; Yeung, 2008).
Prior studies have argued for the potential benefits of extending current firm-based QM
principles and practices into the supply chain context, but the answers to questions
about how to achieve effective SCQM are far more complicated than applying QM within
a single organization. Traditionally, firms employ such approaches as regulations,
contracts and quality inspection to control the quality of supplied materials and parts,
but these tactics alone are neither sustainable nor effective in the long run (Roth et al.,
2008). Firms may also need to establish cooperative relationships with suppliers for QM
and improvements. These cooperative relationships benefit not just both parties but the
whole supply chain (Flynn and Flynn, 2005; Kaynak and Hartley, 2008; Park et al., 2001).
But establishing these relationships requires substantial resources and long-term
commitments from both parties, though it may be neither realistic nor necessary to make
such investments in all the suppliers that comprise a firms supply network because a
network is likely to consist of suppliers whose products are of varying importance to the
buying firm, whose QM capabilities differ, or who have different histories with the firm
(Forker et al., 1997). Thus, a critical question for buyers is: how should they arrange their
QM strategies and tactics toward different suppliers so that the quality of all suppliers
can be effectively managed.
In this study we seek to answer the above question by exploring the SCQM approaches
buying firms can utilize to manage supplier quality and examining how the factors
inherent in a relationship with suppliers influences the use of these approaches. We
examine SCQM approaches through the lens of agency theory, a well-developed theory
for examining buyer-supplier relationships and the relevant governance mechanisms for
supply chain effectiveness (Ketchen and Hult, 2007; Rungtusanatham et al., 2007). This
study contributes to research in SCQM by providing theoretical arguments for
understanding how buying firms make decisions on QM approaches under different
supply chain conditions.
We begin this discussion with a review of the current understanding and research
about SCQM. Next, we introduce agency theory and its assumptions and then highlight
the relevance of agency theory to SCQM. Then, from an agency theory perspective, we
categorize SCQM practices into two groups: outcome-based and behavior-based
approaches. We then examine the factors that may influence buying firms use of
appropriate approaches for managing supplier quality. Relevant propositions are
derived that relate the agency-based factors in buyer-supplier relationships to the
SCQM approaches. Drawing on the conceptual framework of this paper, we finally
discuss the implications for research and practice in SCQM and offer a synthesis of
critical questions that could form an agenda for future research in this area.
2. Supply chain quality management
Traditional QM focuses primarily on internal process control and improvement, and this
focus emanates typically from an internal supply perspective on integrating the
enterprise and unifying all organizational functions such as marketing, design,
materials, purchasing, manufacturing, and management. These functions are allocated
for the most part to individual firms within a supply channel (Robinson and Malhotra,
2005). However, because a companys output is only as good as its inputs (Forker et al.,
1997), the quality of finished products cannot be good if the supplied materials and parts
are poor. When a firm purchases goods and services from suppliers, unpredictable
events may occur anywhere in the process of acquisition, delivery, and use. The
possibility of unexpected events injects an element of uncertainty into the whole process
that can compromise an organizations ability to produce quality products and achieve
its business goals. Quality-related risks exist in supply chains commonly because
suppliers fail to maintain capital equipment, to comply with regulations or quality
standards, to deliver parts and materials that conform to quality standards, to protect
against damage in transit, and to maintain a safe work environment at the supplier site
(Tapiero and Kogan, 2007; Zsidisin and Ellram, 2003). Supplier quality problems or
even a suspicion of quality problems can cause delays, and if quality problems are not
caught in time, they are likely to result in costly recalls later on (Sodhi and Lee, 2007).
Extant research on QM has recognized that supplier QM is a key element in QM
implementation. The literature has suggested a variety of practices to manage supplier
quality, such as maintaining a small number of key suppliers, providing technical
support to suppliers, involving suppliers in product design and process improvement,
and requiring suppliers certification of quality standards (Flynn et al., 1995; Hackman
and Wageman, 1995; Kaynak, 2003). However, as the understanding of supply chain
changes from simply a purchasing function to a strategic resource that can improve
competitiveness through strategic initiatives that involve collaboration with upstream
and downstream parties (Yeung, 2008), traditional QM, which is focused on
intra-organization improvement, lacks a system view of the supply chain network
and thus has a limited impact on managing the entire supply networks quality
(Robinson and Malhotra, 2005; Romano and Vinelli, 2001). Robinson and Malhotra
(2005) suggest that strategic QM of a supply chain needs to be chain-centered rather than
firm-centered as it typically is in the intra-organizational perspective of traditional QM.
The body of research on the synergy of QM and SCM has grown significantly over
recent years. From a theoretical perspective, researchers have defined the concept of
SCQM (Robinson and Malhotra, 2005), compared the differences in the ways operations
managers and supply chain managers approach QM (Foster and Ogden, 2008),
and proposed various frameworks for SCQM with critical dimensions
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(Kuei et al., 2008; Roth et al., 2008). Moreover, a large number of studies have, via surveys
and case studies, empirically investigated the relationship between QM and SCM and
their impact on performance. For example, from the viewpoint of buying firms, a group
of survey studies examined whether and how buyers implementation of QM practices
particularly those supplier-related QM practices affect their quality, operational,
business, and supply chain performance (Flynn and Flynn, 2005; Forker et al., 1997;
Kaynak and Hartley, 2008; Lin et al., 2005; Lo et al., 2007, 2009; Sanchez-Rodrguez and
Martnez-Lorente, 2004; Sila et al., 2006; Sroufe and Curkovic, 2008; Tan et al., 1998;
Yeung, 2008). Several other case studies explored how quality is managed in the supply
chain context (Prado-Prado, 2009; Romano and Vinelli, 2001; Wong and Fung, 1999).
Romano and Vinelli (2001), for instance, conducted a case study in a textile-apparel
company. They compared different QM practices in two different kinds of supply
networks: traditional and coordinated. Their study found that in a broader, more
coordinated supply network, the whole supply network could improve its ability to meet
the expectations of the final consumer in terms of quality through the joint definition and
co-management of quality practices. From the viewpoint of suppliers, a study by Park
et al. (2001) examined whether QM practices differed among a common buyers suppliers
whose performance is rated as either high, or medium, or low, and it identified which
specific practices contributed to the differences they found. Several other studies have
investigated how buyer-supplier relationships affect the effectiveness of QM in supply
chains (Fynes and Voss, 2002; Fynes et al., 2005; Lai et al., 2005). Generally speaking,
previous studies have confirmed the positive synergy of QM and SCM, and they have
answered questions about the efficacy of integrating QM with SCM and what practices
to apply in SCQM. One critical question that has not been fully answered in the literature
is: how should buying firms implement QM practices to effectively manage the quality
of all those different suppliers in its entire supply network? This study begins answering
this question.
3. Agency theory and SCQM
3.1 An overview of agency theory
Agency theory is concerned with agency relationships. Two parties have an agency
relationship when they cooperate and engage in an association wherein one party (the
principal) delegates decisions and/or work to another (an agent) to act on its behalf
(Eisenhardt, 1989; Rungtusanatham et al., 2007). The important assumptions
underlying agency theory are that:
.
potential goal conflicts exist between principals and agents;
.
each party acts in its own self-interest;
.
information asymmetry frequently exists between principals and agents;
.
agents are more risk averse than the principal; and
.
efficiency is the effectiveness criterion (Eisenhardt, 1989; Ekanayake, 2004;
Rungtusanatham et al., 2007).
Two potential problems stemming from these assumptions may arise in agency
relationships: an agency problem and a risk-sharing problem. An agency problem appears
when agents goals differ from the principals and it is difficult or expensive to verify
whether agents have appropriately performed the delegated work (i.e. moral hazard).
This problem also arises when it is difficult or expensive to verify that agents have the
expertise to perform the delegated work (i.e. adverse selection) that they claim to have.
A risk-sharing problem arises when principals and agents have different attitudes
towards risk that cause disagreements about actions to be taken (Eisenhardt, 1989;
Jensen and Meckling, 1976; Ross, 1973; Rungtusanatham et al., 2007).
In order to resolve agency and risk-sharing problems in principal-agent relationships,
agency theory prescribes two formal (and ideal) types of management mechanisms to
govern these relationships (Rungtusanatham et al., 2007). One is outcome-based
management mechanism. With this mechanism both principals and agents can observe
outcomes, and the principals reward agents based on measured performance outcomes
(Ekanayake, 2004). The outcome-based management mechanism emphasizes results
regardless of how the agents achieve them (Choi and Liker, 1995). The other
management mechanism is behavior-based. When this mechanism is taken, principals
can use behavior controls to monitor agents behaviors and efforts which otherwise are
unknown to the principals. The behavior-based management mechanism emphasizes
tasks and activities in agents processes that lead to the outcomes of the agents
(Eisenhardt, 1989; Ekanayake, 2004). Accordingly, a critical issue in agency theory is
determining which management mechanism, outcome-based or behavior-based, is more
efficient in managing agency relationships under varying levels of outcome
uncertainty, risk aversion, information and other variables (Eisenhardt, 1989, p. 60).
When making this decision, managers must consider the trade-off between:
.
the costs of acquiring the information necessary for monitoring the agent
behavior; and
.
the costs of measuring outcomes and transferring risk to agents (Eisenhardt,
1989; Rungtusanatham et al., 2007).
3.2 Relevance of agency theory for SCQM
In a supply chain relationship the buying firm acts like a principal that delegates the
authority of production and/or services to the supplier, the supplier being the agent, so
both parties are engaged in an agency relationship (Starbird, 2001; Zsidisin and Ellram,
2003). Along with the delegation of production and services, the responsibility of
maintaining satisfactory quality of the supplied products and services is also delegated
to suppliers, so buying firms need to ensure that suppliers provide products and/or
services that conform to the quality requirements stipulated in the supply contracts.
Moreover, competition these days is becoming supply chain versus supply chain rather
than firm versus firm (Ketchen and Hult, 2007), so firms are working to increase
customer satisfaction and gain competitive advantage by finding ways to improve the
whole supply chain, from suppliers to end consumers. Strategic QM of supply chains not
only ensures the quality of supplies, but also enhances the capabilities of suppliers QM.
Managing supplier quality, then, involves frequent, continuous interactions between
buying firms and their suppliers in tackling such various issues as negotiating
contractual provisions related to quality requirements and rewards, penalties and
inspection policies, specifying requirements on the suppliers quality qualification
and certification, and collaborating on product design and process improvement (Flynn
and Flynn, 2005; Kaynak and Hartley, 2008; Kuei et al., 2008; Robinson and Malhotra,
2005; Starbird, 2001). A well-developed agency theory is thus particularly useful
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in understanding the use of management mechanisms for SCQM and the attributes of
supply chain relationships.
The assumptions and prescriptions of agency theory fit naturally with the issues
inherent in SCQM. In the process of managing supplier quality, buyers in agency relations
are, as we have pointed out, faced with potential problems. By their nature, buyers expect
suppliers to provide good quality and to improve the quality of supplied products and/or
services, but suppliers may be reluctant to invest substantially in quality, especially if
they perceive that buyers are reaping all the benefits. The difference in interests between
buyers and suppliers will result in the two parties concerning themselves only with their
self-interests. At this point moral hazard and adverse selection problems are likely to arise.
When buying firms cannot constantly monitor the process at suppliers sites, which is
usually difficult or expensive to do so, suppliers may conceal their difficulties in delivering
the quality demanded by buyers (i.e. adverse selection) and slight efforts to control and
improve the product and process quality as expected (i.e. moral hazard) (Starbird, 2003;
Swink and Zsidisin, 2006). Furthermore, buyers and suppliers may have different
attitudes toward risks associated with quality failures, especially those that occur after
sales to end consumers, a situation that will result in risk-sharing issues between buyers
and suppliers. Thus, when making decisions about how to manage supplier quality
performance, buyers need to assess the nature of their buyer-supplier relationships in
order to select the appropriate management mechanism.
3.3 Outcome-based versus behavior-based approaches for SCQM
Organizations apply various management practices (e.g. rewards and penalties,
inspection, supplier training, supplier auditing, supplier certification, supplier
involvement, and so on) to manage supplier quality. According to agency theory, SCQM
practices can be categorized as outcome-based approaches or behavior-based approaches.
Table I draws on literature in QM, SCM, and agency theory to present a summary of these
approaches in terms of their focus of management, purposes, and methods.
The outcome-based approaches are more concerned with reducing the detrimental
effects of supply-risk events than with reducing the likelihood of a detrimental event
(Zsidisin and Ellram, 2003). In the process of managing supplier quality, the most direct
approach for buyers to assess suppliers quality performance is to inspect incoming
materials and parts for defects. Other measures of supplier quality performance can
include number of rejects, production stoppages due to poor quality, rework in dollars or
hours, scrap generated during material use, customer complaints, acceptable material
without deviation and warranty costs resulting from failures (Chen et al., 2004). Buyers
also can assess supplier quality performance via qualitative measures including
problem resolution ability, technical ability, corrective action response, and new product
development support (Chen et al., 2004). Two typical outcome-based approaches are
quality-related contractual provisions and quality inspection of products and services
delivered by suppliers. Contractual provisions for quality in purchasing contracts set
explicit quality requirements for suppliers and include rewards for better quality,
penalties for poor quality, and rules for inspecting quality, which can affect the
operational policies and performance of buyers, suppliers, and their relationships
(Starbird, 2001). The desired level of quality performance can be communicated and
determined through provisions for quality in contracts (Reyniers and Tapiero, 1995;
Starbird, 1994, 2001; Tagaras and Lee, 1996; Tsay et al., 1998).
Issues
Outcome-based approaches
Focus of
The quality of products and/or
management services delivered by suppliers
Purpose
Control the quality of delivered
products and/or services
Methods
Contractual provisions for quality
Quality requirements
Rewards for quality
Penalties for quality failures
Inspection policies
Quality inspection
Inspect delivered products and/
or services
Choose from no inspection,
sampling inspection, to 100 percent
inspection
Passive quality control
Behavior-based approaches
Suppliers efforts in QM and improvement
Ensure that suppliers can meet the quality
requirements and improve their ability to do so
Supplier quality certification
Used as a criterion of supplier selection to
ensure that suppliers have established the
appropriate QM system to deliver the quality
desired by buyers
Typical certification standards include ISO9000
series, TS16949 in the automotive industry, or
AS9100 in the aerospace industry
Supplier quality audit
Assess compliance and effectiveness of the
suppliers quality systems
Identify faults or non-conformance at supplier
sites for a negotiating lever (compliance audit)
Identify areas for improvement for mutual
benefit (performance/value-added audit)
Supplier process management:
Promote the implementation of QM systems at
supplier facilities
Focused on suppliers internal operational
practices
Primary purpose is to improve the suppliers
ability to satisfy the needs and expectations of
buying firms
Supplier quality development:
A long-term, planned, strategic effort to
improve supplier capabilities in quality assurance
and improvement
Focused on strategic initiatives aiming at
sustaining beneficial buyer-supplier relationships
for long-term supply needs
Primary purpose is to create a capable supplier
base and leverage the benefit of supply
management
Source: aAnderson and Oliver (1987), Chen et al. (2004), Curkovic and Handfield (1996), Eisenhardt
(1989), Flynn et al. (1994, 1995), Forker et al. (1997), Forza and Filippini (1998), Gitlow et al. (1989),
Huang and Keskar (2007), Karapetrovic and Willborn (2000), Kaynak (2003), Kaynak and Hartley
(2008), Lin et al. (2005), Reyniers and Tapiero (1995), Robinson and Malhotra (2005), Saunders (1994),
Starbird (1994, 2001), Tagaras and Lee (1996), Terziovski et al. (2003), Tsay et al. (1998), Yeung (2008)
and Zsidisin and Ellram (2003)
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Table I.
Outcome-based versus
behavior-based SCQM
approachesa
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Outcome-based approaches
Behavior-based approaches
Information asymmetry
Goal conflict
Risk aversion of a supplier
Length of relationship
Task characteristics
Task programmability of a supplier
Outcome measurability
Outcome uncertainty
High
High
Low
Short
Low
Low
High
Long
Low
Easy
Low
High
Difficult
High
Table II.
Agency-based factors
and SCQM approaches
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When buying firms perceive low information asymmetry between them and
suppliers (when suppliers are willing to share their internal quality data with
the buying firms), buyers tend to rely more on behavior-based approaches
than outcome-based approaches to managing supplier quality.
with risks of moral hazard and adverse selection are also reduced, and behavior-based
management mechanism becomes more attractive than outcome-based mechanism
(Demski, 1980; Eisenhardt, 1989).
It can be assumed that buyers and suppliers are distinct organizations capable of
some degree of cooperation, but they also have partial goal conflict as well (Zsidisin and
Ellram, 2003). Reducing goal conflict, or increasing goal congruence, is considered
critical for success in exchange relationships (Luo, 2002). Goal congruence benefits
supply chain relationships by encouraging cooperation between firms, promoting the
common interests of supply chain partners, reducing the probability of opportunism,
decreasing the need for formal contractual arrangements, and lowering the cost of
monitoring (Holcomb and Hitt, 2007). Behavior-based approaches for managing supplier
quality are built upon cooperation and commitment, which are nurtured in an exchange
environment of goal congruence. Strong, mutual supply chain partnerships help solidify
the intangible characterization of quality and create definitions that support final
customer quality (Mangiameli and Roethlein, 2001). Joint definitions and
co-management of goals by buyers and suppliers in strong partnerships improve the
ability of supply chain networks to meet the expectations of final consumers (Romano
and Vinelli, 2001). Shared quality goals align the efforts of both buyers and suppliers in
matters of QM and improvement. Thus, we propose that:
P2.
When buying firms perceive a low level of goal conflict with their suppliers,
they tend to rely more on behavior-based approaches than outcome-based
approaches to managing supplier quality.
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that use inspection of incoming lots (typically via acceptance sampling) and reject those
that do not meet the quality requirements specified in the contract. Also, it is easier for
buyers to get low risk-averse suppliers to agree on more strict inspection policy. For
suppliers who are more risk averse, it becomes increasingly expensive to pass risk to
these suppliers, and then behavior-based approaches become more appealing
(Eisenhardt, 1989). Those suppliers are more likely to apply strict quality control
procedures and invest in QM practices to improve their process and product quality so
that they can reduce the proportion of defective goods going into each delivered lot and
deliver better quality products to buyers (Starbird, 1994). Under these conditions,
behavior-based approaches to managing supplier quality, especially supplier process
management and supplier quality development practices, are more effective in
managing supplier quality than outcome-based approaches because risk-averse
suppliers are more willing to cooperate with buyers to improve their QM capabilities so
as to reduce their risk of quality problems and failures. Therefore, we propose that:
P3.
When buying firms perceive that suppliers have a high level of risk aversion
toward quality-related problems and failures, they tend to rely more on
behavior-based approaches than outcome-based approaches to managing
supplier quality.
P4.
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In managing supplier quality, it is critical that both buyers and suppliers have a reliable
way to define and measure the quality of products and services delivered. Buying firms
need to know what quality attributes to measure so that they can accurately gauge the
product quality of delivered goods. At the same time, suppliers want to know what quality
characteristics buyers want and what quality level is expected so that they can arrange
their production accordingly.
Quality is multi-dimensional (Sousa and Voss, 2002). Garvin (1987) proposes eight
critical dimensions of quality: performance, features, reliability, conformance, durability,
serviceability, aesthetics, and perceived quality. Not all quality dimensions can be
objectively defined as quantitative metrics because some quality attributes are subjectively
determined. Others, like durability for instance, cannot be directly measured at the time
buyers receive delivery. When buyers can define the quality attributes they expect from
suppliers in measurable terms, it becomes easy to define them explicitly in contracts and
directly inspect for them. In these circumstances, outcome-based approaches are preferred
to managing supplier quality. However, when purchased products possess quality
attributes that are indistinct and difficult to measure, buying firms need to ensure that
suppliers are reliable and capable of maintaining the stable, functional processes to deliver
desired quality. In these circumstances, such behavior-based approaches as requiring
quality certification, auditing supplier processes, and offering assistance to control and
improve suppliers processes are preferable. Thus, we propose that:
P5b. When buying firms perceive that the anticipated quality attributes of
delivered products from suppliers are difficult to measure, they tend to rely
more on behavior-based approaches than outcome-based approaches to
managing supplier quality.
Outcome uncertainty refers to uncontrollable variations in outcomes of agent behavior,
which may happen as a consequence of government policies, economic climate,
competitor actions, and technological change, and other things that might affect their
outcome. Someone will have to bear the risks of these uncontrolled variations
(Eisenhardt, 1989). Outcome-based approaches transfer risks to agents (Eisenhardt,
1989). When outcome uncertainty is low, the costs of shifting risk to agents are low, so
outcome-based approaches become more attractive than behavior-based approaches.
But when the level of uncertainty increases, it becomes increasingly expensive to shift
risk to agents. At this point behavior-based approaches become preferable to
outcome-based approaches (Eisenhardt, 1989). Delivery of quality in products and/or
services is, by nature, imbued with a degree of uncertainty because production processes
are inevitably affected by natural and unnatural disturbances, and thus the potential for
variability almost always exists (Benneyan, 1998; Shewhart, 1931).
Predictability of supplier product quality is influenced by the capabilities of suppliers
production systems (Forker et al., 1997) as well as by such external factors as frequency of
new product introduction (Claycomb et al., 2002). When the probability of quality
problems is high, either due to variability in suppliers production and delivery processes
or external disturbances and changes, behavior-based approaches are necessary and
more effective for reducing process variability and the chance of quality failures. In
essence, QM techniques are to identify the causes of quality problems so that process
variability can be reduced and consistent product and service quality can be delivered
(Wilson et al., 1993). Quality certification and audit of suppliers help ensure that suppliers
processes are both stable and appropriate. Supplier process management and supplier
quality development are proactive practices to reduce process variability and improve
suppliers process capability to deliver better quality. Thus, we propose that:
P5c. When buying firms perceive that the uncertainty of suppliers achieving
anticipated product quality is high, buyers tend to rely more on behavior-based
approaches than outcome-based approaches to managing supplier quality.
5. Discussion and conclusion
Recent research suggests that the synergy of QM and SCM practices is critical for a
successful supply chain (Flynn and Flynn, 2005; Robinson and Malhotra, 2005). Having
an effective QM system in a supply chain network is essential for maintaining a smooth
supply of high quality products and services to customers. The challenge is building an
effective SCQM system for the entire network. Constructing this system is a more
complicated endeavor than implementing QM within a single organization or working
with one supplier because often firms supply chain networks are comprised of different
suppliers with varying merits. With this variety of merits come characteristics that
differ from supplier to supplier, different relationships with buyers, different supply
contracts, and different products and services. A single management mechanism may
not be applicable to all suppliers; this is not a one-size-fits-all situation. Taking this
complexity into account, we suggest a differentiated view for managing supplier
quality. Drawing on agency theory, we categorize SCQM practices into outcome-based
and behavior-based approaches to help understand the management mechanisms
behind these practices. In the rest of this section, we offer significant implications of the
conceptual framework presented in this paper for research and practice, respectively.
We also suggest some directions for further research.
The literature on quality engineering often discusses outcome-based approaches
such as contracts and inspection policies, while QM literature is more oriented toward
behavior-based approaches and their effects on performance. We argue that both types
of approaches are essential to an effective SCQM system. Prior studies provide
case-specific evidence showing how firms use different QM approaches in their supply
chain networks (Prado-Prado, 2009; Romano and Vinelli, 2001; Wong and Fung, 1999).
A survey study investigating the propositions suggested earlier in this study will add
to the literature with large-scale empirical evidence that will help establish the most
effective way to implement SCQM in relation to agency-based factors. It will also
advance theory development of SCQM and provide generalizable guidelines that
practitioners can use to build effective SCQM systems.
Testing the propositions presented in this study will require operationalization of
the research variables. The literature discussed earlier and summarized in Table I can
be used by researchers to develop multi-item, multi-scale measures of outcome-based
and behavior-based approaches. While agency theory has been largely studied and
tested in different research streams, little operationalization of these factors has been
done in the operations management field, and few scales can be directly transferred to
a study of these factors in an SCQM context. To facilitate the process of empirical
testing, we conducted a literature search on empirical studies in several fields including
marketing, human resource management, organizational studies, and information
systems. The identified scales that are most relevant to the theoretical meaning of
agency-based factors in an SCQM context are presented in Table III.
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Table III.
Construct
operationalization for
agency-based factors
438
Construct
Outcome
uncertainty
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Table III.
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Banker, R.D., Lee, S., Potter, G. and Srinivasan, D. (1996), Contextual analysis of performance
impacts of outcome-based incentive compensation, Academy of Management Journal,
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Corresponding author
Hale Kaynak can be contacted at: halekaynak@gmail.com
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