The current issue and full text archive of this journal is available at www.emeraldinsight.com/0144-3577.

htm

An agency theory perspective on supply chain quality management

Xingxing Zu
Department of Information Science and Systems, Morgan State University, Baltimore, Maryland, USA, and

Supply chain quality management 423

Received 28 October 2009 Revised 29 October 2010 Accepted 23 March 2011

Hale Kaynak
Department of Management, Marketing and International Business, The University of Texas-Pan American, Edinburg, Texas, USA
Abstract
Purpose The purpose of this paper is two-fold: to examine two approaches buying rms 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 rms 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, rms 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 conict, risk aversion of suppliers, length of relationship, and task characteristics can be expected to inuence how rms 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 rms 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 rm 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 rms increasingly rely on extended networks of suppliers to produce and deliver products and services to customers, it becomes increasingly difcult 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 rst version of this paper.

International Journal of Operations & Production Management Vol. 32 No. 4, 2012 pp. 423-446 q Emerald Group Publishing Limited 0144-3577 DOI 10.1108/01443571211223086

IJOPM 32,4

424

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 exibility (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 rms 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 dened the concept of supply chain quality management (SCQM) to identify critical themes in this area (Robinson and Malhotra, 2005); explored the potential benets 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 benets of extending current rm-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, rms 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 benet 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 rms supply network because a network is likely to consist of suppliers whose products are of varying importance to the buying rm, whose QM capabilities differ, or who have different histories with the rm (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 rms can utilize to manage supplier quality and examining how the factors inherent in a relationship with suppliers inuences 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 rms 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 inuence buying rms 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 nally 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 rms 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 nished products cannot be good if the supplied materials and parts are poor. When a rm 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 certication 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 rm-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 signicantly over recent years. From a theoretical perspective, researchers have dened 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

Supply chain quality management 425

IJOPM 32,4

426

(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 rms, 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; nchez-Rodr guez and Kaynak and Hartley, 2008; Lin et al., 2005; Lo et al., 2007, 2009; Sa nez-Lorente, 2004; Sila et al., 2006; Sroufe and Curkovic, 2008; Tan et al., 1998; Mart 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 nal consumer in terms of quality through the joint denition 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 identied which specic 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 conrmed the positive synergy of QM and SCM, and they have answered questions about the efcacy 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 rms 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 conicts 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 . efciency 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 difcult or expensive to verify whether agents have appropriately performed the delegated work (i.e. moral hazard).

This problem also arises when it is difcult 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 efcient 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 rm 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 rms 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 rm versus rm (Ketchen and Hult, 2007), so rms are working to increase customer satisfaction and gain competitive advantage by nding 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 rms 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 qualication and certication, 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

Supply chain quality management 427

IJOPM 32,4

428

in understanding the use of management mechanisms for SCQM and the attributes of supply chain relationships. The assumptions and prescriptions of agency theory t 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 benets. 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 rms cannot constantly monitor the process at suppliers sites, which is usually difcult or expensive to do so, suppliers may conceal their difculties 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 certication, 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

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 certication 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 certication 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 benet (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 rms 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 benecial buyer-supplier relationships for long-term supply needs Primary purpose is to create a capable supplier base and leverage the benet of supply management

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

Supply chain quality management 429

Source: aAnderson and Oliver (1987), Chen et al. (2004), Curkovic and Handeld (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)

Table I. Outcome-based versus behavior-based SCQM approachesa

Quality inspection is used to judge the quality of products, based on buyer-specied quality characteristics, delivered by suppliers. In a supply chain contract, buyer inspection policies are typically combined with penalties and rewards to motivate suppliers to provide the desired quality (Reyniers and Tapiero, 1995). Close inspection of the quality of incoming materials and parts is typically executed to reduce the number of defects entering the process (Gitlow et al., 1989; Starbird, 2001).

IJOPM 32,4

430

Behavior-based approaches are intended to address supplier processes rather than outcomes (Anderson and Oliver, 1987; Zsidisin and Ellram, 2003). Robinson and Malhotra (2005) propose that SCQM is process-centric and involves coordination and integration of the business processes of both buyer and supplier to measure, analyze and improve quality of products, services and processes so as to create value and achieve higher customer satisfaction. Open communication and improved information sharing, monitoring the progress and actions of suppliers, and closer relationships with suppliers all motivate suppliers to make a greater effort to improve their internal processes, which in turn leads to better quality performance (Eisenhardt, 1989; Forker et al., 1997; Kaynak and Hartley, 2008; Lin et al., 2005; Zsidisin and Ellram, 2003). Behavior-based SCQM approaches include supplier quality certication, supplier quality audit, supplier process management, and supplier quality development, all of which focus on improving the supplier behaviors and processes in managing quality. Supplier quality certication is commonly demanded in supplier selection so that buyers can ascertain that suppliers have established the appropriate QM systems to deliver the quality desired by buyers (Huang and Keskar, 2007). Supplier quality audit is used to assess compliance and effectiveness of suppliers quality systems, i.e. determining whether suppliers are following agreed upon processes and procedures expected by buyers (Karapetrovic and Willborn, 2000; Saunders, 1994). Supplier process management is an approach intended to improve the abilities of suppliers to satisfy the needs and expectations of buyers by promoting the implementation of QM systems in supplier facilities (Zsidisin and Ellram, 2003). Supplier quality development makes a long-term, planned, strategic effort to improve supplier capabilities for quality assurance and improvement. The objective is to create a capable supplier base and leverage the benet of supply management (Robinson and Malhotra, 2005; Yeung, 2008; Zsidisin and Ellram, 2003). Supplier process management is focused on improving the internal process of suppliers; supplier quality development, on the other hand, is concerned more with strategic initiatives aiming at sustaining benecial buyer-supplier relationships for long-term supply needs (Yeung, 2008; Zsidisin and Ellram, 2003). 4. Decisions on SCQM approaches Agency theory proposes that agents tend to engage in self-serving, opportunistic behavior when opportunities arise (Ekanayake, 2004). To ensure that agents act in the interests of principals, management mechanisms (e.g. structures, procedures, information systems, monitoring, performance evaluation, rewards, and penalties) are needed to help principals constrain opportunistic behavior by reducing opportunities and increasing incentives for not engaging in such behavior (Ekanayake, 2004). Accordingly, rms apply decision criteria based on the alignment of different management mechanisms with attributes of the principal-agent relationship and the underlying contracting environment (Anderson, 1985; Demski, 1980; Eisenhardt, 1989; MacCrimmon and Wehrung, 1986). Governance structures are appropriate when they provide adequate safeguards and controls over agents without increasing bureaucratic complexity and unnecessary costs (Holcomb and Hitt, 2007). In SCQM, the choice between outcome-based and behavior-based approaches is particularly important when determining whether buying rms can effectively manage supplier quality. On the one hand, outcome-based approaches are routine practices and relatively easy to apply, but they may not be strong enough to exert control over a suppliers risky,

self-interested behavior regarding quality. On the other hand, behavior-based approaches demand substantial investments and often have long lead-times before returns are realized. But at the same time they may offer potential long-term benets to a business. Next, we examine how key agency-based factors can inuence buyers decisions on the use of SCQM approaches. These factors, summarized in Table II, are information asymmetry, goal conict, risk aversion, length of relationship, and task characteristics. 4.1 Information asymmetry In a principal-agent relationship, information asymmetry refers to a situation when one party in the relationship has more or better information than the other. This asymmetry creates an imbalance of power in transactions and causes adverse selection and moral hazard problems (Eisenhardt, 1989). When principals cannot observe the behavior of its agents, it cannot perfectly evaluate their capabilities for performing required tasks, thus making it possible for agents to exert a high or low level of effort in secret. This secrecy is a problem especially when it comes to non-programmable tasks (Ekanayake, 2004). Information about agent behavior is critical for restraining opportunistic behaviors because information lets principals know what agents are actually doing, and agents, of course, will realize that they cannot deceive the principals (Eisenhardt, 1989). Difculty and costs of collecting information about agent behavior are thus a major concern in determining what is appropriate for managing the agency relationship (Eisenhardt, 1989; Rungtusanatham et al., 2007). QM is management by fact, and it requires the systematic collection and analysis of timely and correct quality-related data and information so that quality problems can be identied early and actions can be taken to rectify them (Hackman and Wageman, 1995). In SCQM, it is important that buyers gather and analyze information about the capabilities and performance of their suppliers. With this kind of information, they will be able to verify whether their suppliers can deliver the anticipated quality and whether their quality control and management operations are appropriate (Kaynak and Hartley, 2008). This knowledge can help buying rms control false claims by suppliers about their QM ability. Compared to collecting data within an organization, collecting data from suppliers is more difcult and costly, especially when there is no agreement between a buying rm and its suppliers about sharing quality-related information. A suppliers quality performance and capability can be reected in two aspects: product quality and process quality. Process quality shows suppliers process variability and has an inuence on product quality (Sousa and Voss, 2002).
Agency-based factors Information asymmetry Goal conict Risk aversion of a supplier Length of relationship Task characteristics Task programmability of a supplier Outcome measurability Outcome uncertainty Outcome-based approaches High High Low Short Low Easy Low Behavior-based approaches Low Low High Long High Difcult High

Supply chain quality management 431

Table II. Agency-based factors and SCQM approaches

IJOPM 32,4

432

Information about both types of quality performance is important for understanding supplier capability in quality control and management. Buying rms usually can have information about suppliers product quality because they can check quality of the products delivered by their suppliers through inspection, a typical provision in purchase contracts. However, not all suppliers are obligated or willing to share real-time internal process quality data with buyers, unless there is such a provision in the contract. Thus, in the context of SCQM, information asymmetry is concerned more with whether buyers can have access to information about suppliers process quality performance and capability, such as suppliers internal process quality data, their quality control procedures, and their quality improvement programs and the results of these programs. When suppliers are reluctant to share their own internal quality data with buyers or they provide false information (i.e. information asymmetry is high), buyers have to resort to outcome-based approaches to manage supplier quality. These approaches rely on quality-related contractual provisions and inspection of delivered products. The problem with this approach is that only nal product quality can be assessed and there is no control over how suppliers achieve quality and some hidden quality problems may not be detected. On the other hand, when suppliers are willing to share their internal quality data with buyers, buyers will have the information necessary to accurately assess suppliers QM ability and behaviors, and they will be able to conduct this assessment in a relatively cost-efcient manner. In conditions characterized by low information asymmetry, i.e. the information disparity between two parties is not great, behavior-based approaches are preferable to outcome-based approaches (Rungtusanatham et al., 2007). When there is open communication and cooperation between two parties, buyers are able to observe and assess suppliers actual behaviors in managing quality, thus making buyers more amenable to investing in behavior-based approaches such as providing technical assistance to suppliers; offering training programs to supplier staffs; or involving suppliers in design and production teams. These practices are intended to help suppliers improve their ability to deliver high quality products and services consistently, thereby reducing the risk of quality failure stemming from the source (Flynn and Flynn, 2005; Robinson and Malhotra, 2005). It can be expected that such efforts in supplier QM and improvement will receive more positive responses and results from cooperative suppliers. Thus, we propose that: P1. When buying rms perceive low information asymmetry between them and suppliers (when suppliers are willing to share their internal quality data with the buying rms), buyers tend to rely more on behavior-based approaches than outcome-based approaches to managing supplier quality.

4.2 Goal conict Goal conicts between principals and agents trigger problems in their relationships because agents are self-interested. They can be counted on to attempt to exert less effort (moral hazards) and claim, explicitly or otherwise, higher capabilities and skills than they actually have (adverse selection) (Eisenhardt, 1988; Ekanayake, 2004; Jensen and Meckling, 1976). When no goal conict exists in an agency relationship, agents will behave as expected whether their behavior can be monitored or not (Eisenhardt, 1989). Thus, it is important to align agents goals with those of the principals (Ekanayake, 2004). As goal conict is reduced, a principals costs associated

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 conict as well (Zsidisin and Ellram, 2003). Reducing goal conict, or increasing goal congruence, is considered critical for success in exchange relationships (Luo, 2002). Goal congruence benets supply chain relationships by encouraging cooperation between rms, 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 denitions that support nal customer quality (Mangiameli and Roethlein, 2001). Joint denitions and co-management of goals by buyers and suppliers in strong partnerships improve the ability of supply chain networks to meet the expectations of nal 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 rms perceive a low level of goal conict with their suppliers, they tend to rely more on behavior-based approaches than outcome-based approaches to managing supplier quality.

Supply chain quality management 433

4.3 Risk aversion In essence, risk aversion is about settling for a lower prot to avoid the risk of an uncertain return, or, in other words, being willing to pay more to avoid risks (Hilton, 1989; Pratt, 1964; Starbird, 1994). In SCQM, suppliers level of risk aversion is related to their attitudes toward risk that may cause quality-related problems with products supplied to buyers. From the suppliers standpoint, reducing quality-related risk implies increased material and labor costs and demands them to make more investments in QM. For instance, they need to select better but more expensive materials over lower quality cheaper materials, add quality control personnel, invest in quality improvement programs, and so on. As suppliers have control over the quality of their products, they will deliver the product quality that maximizes their expected return. Suppliers attitudes toward quality-related risk will inuence their behavior in QM and thus the quality of the products they provide to buyers (Starbird, 1994). Suppliers who are more risk averse are likely to invest in QM practices and related preventative activities to reduce the risk of quality problems and failure, and to improve their capability of providing better quality to customers. The suppliers of low risk aversion are likely to slack off their product and process QM. Agency theory suggests that the degree of risk aversion of agents affects a principals intention to transfer risks to agents. When the level of agents risk aversion decreases or principals become more risk averse, it is easier to transfer risk to agents and outcome-based control is preferred (MacCrimmon and Wehrung, 1986). Suppliers who have a low level of risk aversion toward quality are more likely to produce defective products due to limited quality control. When dealing with these suppliers, it is more appropriate and important to control product quality with outcome-based approaches

IJOPM 32,4

434

that use inspection of incoming lots (typically via acceptance sampling) and reject those that do not meet the quality requirements specied 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 rms 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.

4.4 Length of relationship Previous cooperation experience between supply chain partners nurtures a climate of trust, openness, and condence (Holcomb and Hitt, 2007). Agency theory postulates that when principals and agents engage in long-term relationships, principals will learn more about agents and thus be able to assess agent behavior more readily. This capability makes behavior-based approaches more attractive than outcome-based approaches, whereas in a short-term relationship, information asymmetry between principal and agent is greater, thereby making outcome-based approaches more appropriate than behavior-based approaches (Eisenhardt, 1989). In strategic SCM, rms build long-term relationships with key suppliers through repeated ties or interactions, and these allow buyers access to information about the reliability and performance of suppliers, which help to reduce information asymmetries, increase awareness of specialized capabilities, and establish a basis for trust (Holcomb and Hitt, 2007). When buyers trust suppliers and believe that they can rely on suppliers to meet their obligations and suppliers will act fairly when the possibility for opportunism arises, the risk of adverse selection is reduced and the level of collaboration is improved (Holcomb and Hitt, 2007). Collaboration and integration with suppliers are key elements of establishing an effective QM system in supply chains (Robinson and Malhotra, 2005). Building long-term relationships with a small number of suppliers is essential to maximizing the suppliers contribution to quality performance (Flynn et al., 1995). Successful relationships encourage suppliers to become involved in the product or service design process improvement efforts, which in turn lead to improved quality of products and services (Flynn et al., 1995; Fynes et al., 2005; Kaynak and Hartley, 2008). From the suppliers standpoint, a stable relationship promotes their commitment to the level of quality expected by buyers, especially when suppliers perceive a certainty of supplying to a buying rm for an extended period (Lai et al., 2005). This certainty reduces the chances of moral hazard that can arise when suppliers skimp on quality assurance and improvement efforts. We thus propose that:

P4.

When buying rms and suppliers have long-term cooperative relationships, buyers tend to rely more on behavior-based approaches than outcome-based approaches to managing supplier quality.

Supply chain quality management 435

4.5 Task characteristics The attributes of tasks delegated to agents inuence the use of management mechanisms in agency relationships. Because the nature of work involved in QM is tied to the products, services, and/or processes, the characteristics of production and services performed by suppliers are expected to inuence the approaches buying rms choose for managing supplier quality. Three aspects of task characteristics are discussed here: task programmability, outcome measurability, and outcome uncertainty. Task programmability refers to the extent that buyers can specify appropriate agent behavior in advance, and behavior parameters dened up front ease the task of measuring that behavior (Eisenhardt, 1989). The more programmable the tasks principals delegate to agents, the more easily agents work can be observed and the more readily buyers can assess the behavior of their agents (Eisenhardt, 1988; Rungtusanatham et al., 2007; Stroh et al., 1996). When information about agents behavior can be obtained easily, behavior-based approaches are preferable (Eisenhardt, 1989). A standard product with a routine task environment implies high task programmability because the required production process can be precisely dened, whereas a unique product implies low task programmability (Keebler, 2001). When purchasing standard products from suppliers, it is easy for buyers to know what the production process should be and to evaluate whether suppliers are managing quality as they should. It is thus easier to apply behavior-based approaches on suppliers, such as monitoring suppliers processes, performing quality audits, or offering technical assistance and guidance. These approaches can help buyers stipulate suppliers behavior toward their desired performance level (Eisenhardt, 1989; Van Ackere, 1993). On the other hand, when suppliers offer unique, differentiated products, buyers usually lack the production-process knowledge necessary to monitor and assess suppliers QM efforts. And, suppliers of specialized products may be more reluctant to share the production process information with the buyers. When this happens, buyers need to rely on outcome-based approaches to managing supplier quality. Therefore, we propose that: P5a. When buying rms perceive that task programmability of suppliers is high, they tend to rely more on behavior-based approaches than outcome-based approaches to managing supplier quality. Another task-related factor is outcome measurability, which is concerned with how easily outcomes of a task can be measured, both in terms of the difculty of measuring or the difculty of measuring within a practical length of time (Eisenhardt, 1989). For the tasks that have outcomes difcult to measure, behavior-based approaches are preferable, whereas when the difculty of measuring outcomes is reduced, outcome-based approaches are preferred (Anderson, 1985; Eisenhardt, 1989). Accurate denition and measurement of quality is fundamental in achieving quality. To measure quality, we must rst dene what we mean by quality. Quality gurus have strongly suggested if rms are to provide products or services that customers want, it is essential to explicitly identify and assess customer requirements (Hackman and Wageman, 1995). Quality indicators and metrics need to be determined based on critical-to-customer characteristics.

IJOPM 32,4

436

In managing supplier quality, it is critical that both buyers and suppliers have a reliable way to dene and measure the quality of products and services delivered. Buying rms 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 dened 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 dene the quality attributes they expect from suppliers in measurable terms, it becomes easy to dene 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 difcult to measure, buying rms 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 certication, auditing supplier processes, and offering assistance to control and improve suppliers processes are preferable. Thus, we propose that: P5b. When buying rms perceive that the anticipated quality attributes of delivered products from suppliers are difcult 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 inuenced 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 certication 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 rms 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 rms 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-ts-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 signicant 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-specic evidence showing how rms 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 eld, 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 elds including marketing, human resource management, organizational studies, and information systems. The identied scales that are most relevant to the theoretical meaning of agency-based factors in an SCQM context are presented in Table III.

Supply chain quality management 437

IJOPM 32,4

Construct Information asymmetry

Meaning in SCQM context The degree to which buying rms perceive that suppliers share internal quality data and performance (Carr and Kaynak, 2007; Eisenhardt, 1989; Flynn and Flynn, 2005; Robinson and Malhotra, 2005; Rungtusanatham et al., 2007)

Relevant measurement in literature

438

Table III. Construct operationalization for agency-based factors

Buyer-supplier information sharing (Cai et al., 2010; Carr and Kaynak, 2007): perceived, multi-item scale Buyer decision-making uncertainty about its suppliers due to lack of information (Gao et al., 2005): perceived, multi-item scale Supplier condential information sharing (Doney and Cannon, 1997): perceived, two-item scale Two-stage shared values measure Goal conict The degree to which buying rms perceive that suppliers disagree on goals (Morgan and Hunt, 1994): difference and strategies for quality (Eisenhardt, between responses to two items Frequency of disagreement and overall 1989; Robinson and Malhotra, 2005; level of perceived conict (Hinds and Romano and Vinelli, 2001; Mortensen, 2005; Lusch, 1976; Rungtusanatham et al., 2007; Zsidisin Wilkinson, 1981): perceived, multi-item and Ellram, 2003; Zsidisin and Smith, scale 2005) Goal congruence (Jap, 1999, 2001): perceived, multi-item scale Managerial risk propensity/aversion by The degree to which buying rms Risk aversion boldness of behaviors, tendency to make perceive that suppliers are willing to toward quality take the risk of having quality-related quick decisions, tendency to take highrisks risk projects (Gilley et al., 2004; problems or potential failures in their Kocabasoglu et al., 2007; Menon et al., products (Eisenhardt, 1989; 1997; Miller, 1988; Sitkin and Weingart, Rungtusanatham et al., 2007; 1995): perceived, multi-item scale Zsidisin and Ellram, 2003; Zsidisin and Smith, 2005) Number of years doing business with Length of The duration of buyer-supplier suppliers (Buvik and Halskau, 2001; relationship relationships (Eisenhardt, 1989; Buvik and Haugland, 2005; Kotabe et al., Heide and Stump, 1995; Zsidisin 2003): single item, objective measure and Smith, 2005) (reported by respondents) Standardization and clarity of processes Task The degree to which buying rms and procedures in tasks, job programmability perceive that they know about responsibility and results (Goodale et al., supplier production procedures and 2008; Stroh et al., 1996): perceived, multitechniques (Eisenhardt, 1989; Zsidisin item scale and Smith, 2005) Process predictability in terms of project outcomes and progress (Nidumolu and Subramani, 2003): perceived, multi-item scale Possibility and easiness of measuring Outcome The degree to which buying rms whether intended goals are met measurability perceive how easily they can measure the quality of products delivered by the (Goodale et al., 2008; Kirsch, 1996): perceived, multi-item scale supplier (Beamon, 1999; Eisenhardt, 1989; Rungtusanatham et al., 2007) Buyer monitoring ability of suppliers opportunistic behavior (Morgan et al., 2007): perceived, multi-item scale (continued )

Construct Outcome uncertainty

Meaning in SCQM context The degree to which buying rms perceive that uncontrollable variations can happen that affect the quality of products delivered by suppliers (Eisenhardt, 1989; Reed et al., 1996; Rungtusanatham et al., 2007; Sitkin et al., 1994; Zsidisin and Smith, 2005)

Relevant measurement in literature Objective measures of environment uncertainty based on industry information (Eisenhardt, 1988) Environmental uncertainty issues affecting the market for the product line (Celly and Frazier, 1996): perceived, vepoint semantic differential scale Demand uncertainty and product churning (Claycomb et al., 2002): perceived, multi-item scale

Supply chain quality management 439

Table III.

With regard to the operationalization of research variables, we should address several issues. First, because the propositions in this study, with the exception of P4, focus on the perceptions of buyers, perceptual measures of agency-based factors should be used. The literature supports the notion that managers understanding and interpretations of the environment lead to their decisions and subsequent actions (Lant et al., 1992; Thomas et al., 1993). Second, most of the measures for agency-based factors presented in Table III were not developed in an SCQM context, thus, future empirical research should adapt them to this context. Third, some of the measures are not direct measures of agency-based factors but are proxy measures for them. For example, a close look at the items in the scale of buyer decision-making uncertainty about its suppliers due to lack of information (Goa et al., 2005) reveals that the scale can be used as a proxy measure for information asymmetry. Likewise, risk propensity can be used as a proxy measure of risk aversion because it forms a continuum from risk averse (Kocabasoglu et al., 2007, p. 1143). Fourth, P4 must be tested in a way that considers the nature of the accumulation of experiences at a decreasing rate. Thus, a non-linear transformation of length of relationship (the natural logarithm of length of relationship) may be necessary (Buvik and Haugland, 2005; Kotabe et al., 2003). This study also implies that research on SCQM needs to take a system view of supply chain networks. Buying rms must effectively control the quality performance of all their suppliers because the quality of the nal product is the product of all inputs. Effective QM on one dyad of a buyer-supplier relationship may not indicate the success of the whole SCQM system. Accordingly, assessment of SCQM effectiveness needs to take all suppliers performance into account to evaluate how well the rms apply QM practices along the entire chain. In addition, as rms use differentiated approaches for different suppliers, future research can assess the conguration of an SCQM system and the contextual factors that inuence this conguration, taking into consideration the fact that different rms face different operating and market environments. Contextual factors that may be relevant to this study in agency theory and QM literature include technology uncertainty (Stump and Heide, 1996), environmental dynamism (Li and Simerly, 1998), maturity of the QM systems (Flynn and Flynn, 2005; Sila, 2007), competition intensity, and existing level of monitoring (Banker et al., 1996). This study also has important implications for managerial practice of SCQM. Having an effective QM system in a supply chain is a necessary condition for a rms survival and success. To build an effective SCQM system, managers must understand the advantages and disadvantages of different SCQM approaches.

IJOPM 32,4

440

Outcome-based approaches are routine procedures in supplier QM and are relatively easy to implement. However, when this type of SCQM approach is employed, buyers cannot determine how the quality is achieved. Then, the optimal level of quality that can be achieved is subject to the existing capability of the supplier and the strictness of contractual provisions and inspection. Thus, the weakness of this approach is that the potential risk of quality failure lurks in products, services, and processes. On the other hand, behavior-based approaches focus on ensuring that supplier processes are stable, capable, and reliable. This focus is intended to reduce the sources of risk that threaten quality, particularly by improving suppliers capability for enhancing quality. The application of behavior-based approaches, however, demands long-term investment and efforts by all parties. Thus, the constraints of nancial and human resources may make the use of behavior-based approaches for an entire set of suppliers unrealistic. This is a dilemma for managers who face crucial decisions about how to set up an SCQM system in the supply chain network so that the quality of all suppliers can be effectively controlled. The group of agency-based factors discussed in this study can serve as a guideline for managers who want to customize SCQM approaches for individual suppliers according to the suppliers unique characteristics. When rms decide whether to invest in the behavior-based approaches for a specic supplier, there are several critical factors that should be taken into consideration. The propositions in this study link governance choices to the attributes of individual buyer-supplier relationships and related contracting environment so that differentiated management mechanisms can be used for different suppliers. Factors such as information asymmetry, goal conict, risk aversion, and length of relationship take into account the conditions of power and interests inherent in the buyer-supplier relationship while others relating to task characteristics task programmability, outcome measurability and outcome uncertainty address the nature of work that is delegated to the supplier. To improve customer satisfaction, rms are placing greater emphasis on the quality of their supply chains. However, little is known about how rms should design their SCQM systems. Drawing on agency theory, this paper offers a conceptual framework to address this question. It applies agency theory to study SCQM because, in its essence, managing supplier quality entails interactions between buyers and suppliers. There are other theories that offer insightful logic for research on SCQM. Resource dependence theory, for example, may help researchers investigate how rms manage quality when they are forced to rely on certain suppliers in product or service delivery of strategic importance. Institutional theory could be used to investigate how suppliers respond to the pressure for QM and improvement applied by buyers. In this regard, it would be illuminating to examine the role power plays in these circumstances. Application of organizational theories to the study of SCQM practices is particularly valuable for the development of the QM eld. Theory-guided research will not only help researchers develop a deeper understanding of SCQM issues, it will also provide practitioners with valid guidelines for improving their business practices so that they reap the benets effective SCQM offers.
References Anderson, E. (1985), The salesperson as outside agent of employee: a transaction cost analysis, Marketing Science, Vol. 4, pp. 234-54. Anderson, E. and Oliver, R. (1987), Perspectives on behavior-based versus outcome-based sales force control systems, Journal of Marketing, Vol. 51 No. 4, pp. 76-88.

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, Vol. 39, pp. 920-48. Beamon, B.M. (1999), Measuring supply chain performance, International Journal of Operations & Production Management, Vol. 19, pp. 275-92. Benneyan, J.C. (1998), Use and interpretation of statistical quality control charts, International Journal for Quality in Health Care, Vol. 10 No. 1, pp. 69-73. Buvik, A. and Halskau, O. (2001), Relationship duration and buyer inuence in just-in-time relationships, European Journal of Purchasing & Supply Management, Vol. 7 No. 2, pp. 111-19. Buvik, A. and Haugland, S.A. (2005), The allocation of specic assets, relationship duration, and contractual coordination in buyer-seller relationships, Scandinavian Journal of Management, Vol. 21 No. 1, pp. 41-60. Cai, S., Jun, M. and Yang, Z. (2010), Implementing supply chain information integration in China: the role of institutional forces and trust, Journal of Operations Management, Vol. 28, pp. 257-68. Carr, A. and Kaynak, H. (2007), Communication methods, information sharing, supplier development and performance: an empirical study of their relationships, International Journal of Operations & Production Management, Vol. 27, pp. 346-70. Celly, K.S. and Frazier, G.L. (1996), Outcome-based and behavior-based coordination efforts in channel relationships, Journal of Marketing Research, Vol. 33, pp. 200-10. Chen, C.C., Yeh, T.M. and Yang, C.C. (2004), Customer-focused rating system of supplier quality performance, Journal of Manufacturing Technology Management, Vol. 15 No. 7, pp. 599-606. Choi, T. and Liker, J. (1995), Bringing Japanese continuous improvement approaches to US manufacturing: the roles of process orientation and communications, Decision Sciences, Vol. 26, pp. 589-620. Claycomb, C., Droge, C. and Germain, R. (2002), Applied product quality knowledge and performance: moderating effects of uncertainty, International Journal of Quality & Reliability Management, Vol. 19, pp. 649-71. Curkovic, S. and Handeld, R. (1996), Use of ISO 9000 and Baldrige award criteria in supplier quality evaluation, Journal of Supply Chain Management, Vol. 32 No. 2, pp. 2-11. Demski, J. (1980), A simple case of indeterminate nancial reporting, working paper, Stanford University, Stanford, CA. Doney, P.M. and Cannon, J.P. (1997), An examination of the nature of trust in buyer-seller relationships, Journal of Marketing, Vol. 61 No. 2, pp. 35-51. Eisenhardt, K.M. (1988), Agency and institutional explanations of compensation in retail sales, Academy of Management Journal, Vol. 31, pp. 488-511. Eisenhardt, K.M. (1989), Agency theory: an assessment and review, Academy of Management Review, Vol. 14, pp. 57-74. Ekanayake, S. (2004), Agency theory, national culture and management control systems, The Journal of American Academy of Business Cambridge, Vol. 4 Nos 1/2, pp. 49-54. Flynn, B.B. and Flynn, E.J. (2005), Synergies between supply chain management and quality management: emerging implications, International Journal of Production Research, Vol. 43 No. 16, pp. 3421-36. Flynn, B.B., Schroeder, R.G. and Sakakibara, S. (1994), A framework for quality management research and an associated measurement instrument, Journal of Operations Management, Vol. 11, pp. 339-66.

Supply chain quality management 441

IJOPM 32,4

442

Flynn, B.B, Schroeder, R.G and Sakakibara, S. (1995), The impact of quality management practices on performance and competitive advantage, Decision Sciences, Vol. 26, pp. 659-92. Forker, L.B., Mendez, D. and Hershauer, J.C. (1997), Total quality management in the supply chain: what is its impact on performance?, International Journal of Production Research, Vol. 35, pp. 1681-701. Forza, C. and Flippini, R. (1998), TQM impact on quality conformance and customer satisfaction: a causal model, International Journal of Production Economics, Vol. 55, pp. 1-20. Foster, S.T. and Ogden, J. (2008), On differences in how operations and supply chain managers approach quality management, International Journal of Production Research, Vol. 46, pp. 6945-61. Fynes, B. and Voss, C. (2002), The moderating effect of buyer-supplier relationships on quality practices and performance, International Journal of Operations & Production Management, Vol. 22, pp. 589-613. Fynes, B., Voss, C. and de Burca, S. (2005), The impact of supply chain relationship quality on quality performance, International Journal of Production Economics, Vol. 96, pp. 339-54. Gao, T., Sirgy, M.J. and Bird, M.M. (2005), Reducing buyer decision-making uncertainty in organizational purchasing: can supplier trust, commitment, and dependence help?, Journal of Business Research, Vol. 58, pp. 397-405. Garvin, D.A. (1987), Competing on the eight dimensions of quality, Harvard Business Review, Vol. 65 No. 6, pp. 101-9. Gilley, K.M., McGee, J.E. and Rasheed, A.A. (2004), Perceived environmental dynamism and managerial risk aversion as antecedents of manufacturing outsourcing: the moderating effects of rm maturity, Journal of Small Business Management, Vol. 42 No. 2, pp. 117-33. Gitlow, H., Gitlow, S., Oppenheim, A. and Oppenheim, R. (1989), Tools and Methods for the Improvement of Quality, Irwin, Boston, MA. Goodale, J.C., Kuratko, D.F. and Hornsby, J.S. (2008), Inuence factors for operational control and compensation in professional service rms, Journal of Operations Management, Vol. 26, pp. 669-88. Hackman, J.R. and Wageman, R. (1995), Total quality management: empirical, conceptual, and practical issues, Administrative Science Quarterly, Vol. 40, pp. 309-42. Heide, J.B. and Stump, R.L. (1995), Performance implications of buyer-supplier relationships in industrial markets: a transaction cost explanation, Journal of Business Research, Vol. 32 No. 1, pp. 57-66. Hendricks, K.B. and Singhal, V.R. (2008), The effect of supply chain disruptions on shareholder value, Total Quality Management, Vol. 19 Nos 7/8, pp. 777-91. Hilton, R. (1989), Risk attitude under random utility, Journal of Mathematical Psychology, Vol. 33, pp. 206-22. Hinds, P. and Mortensen, M. (2005), Understanding conict in geographically distributed teams: an empirical investigation, Organization Science, Vol. 16, pp. 290-307. Holcomb, T.R. and Hitt, M.A. (2007), Toward a model of strategic outsourcing, Journal of Operations Management, Vol. 25, pp. 464-81. Huang, S.H. and Keskar, H. (2007), Comprehensive and congurable metrics for supplier selection, International Journal of Production Economics, Vol. 105, pp. 510-23. Jap, S.D. (1999), Pie-expansion efforts: collaboration processes in buyer-supplier relationships, Journal of Marketing Research, Vol. 36 No. 4, pp. 461-75.

Jap, S.D. (2001), Perspectives on joint competitive advantages in buyer-supplier relationships, International Journal of Research in Marketing, Vol. 18 Nos 1/2, pp. 19-35. Jensen, M. and Meckling, W. (1976), Theory of the rm: managerial behavior, agency costs, and ownership structure, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-60. Karapetrovic, S. and Willborn, W. (2000), Quality assurance and effectiveness of audit systems, International Journal of Quality & Reliability Management, Vol. 17 No. 6, pp. 679-703. Kaynak, H. (2003), The relationship between total quality management practices and their effects on rm performance, Journal of Operations Management, Vol. 21, pp. 405-35. Kaynak, H. and Hartley, J.L. (2008), A replication and extension of quality management into the supply chain, Journal of Operations Management, Vol. 26, pp. 468-89. Keebler, J.S. (2001), Measuring performance in the supply chain, in Mentzer, J.T. (Ed.), Supply Chain Management, Sage, Thousand Oaks, CA, pp. 411-36. Ketchen, D.J. Jr and Hult, G.T.M. (2007), Bridging organization theory and supply chain management: the case of best value supply chains, Journal of Operations Management, Vol. 25, pp. 573-80. Kirsch, L.J. (1996), The management of complex tasks in organizations: controlling the systems development process, Organization Science, Vol. 7 No. 1, pp. 1-21. Kocabasoglu, C., Prahinski, C. and Klassen, R.D. (2007), Linking forward and reverse supply chain investments: the role of business uncertainty, Journal of Operations Management, Vol. 25, pp. 1141-60. Kotabe, M., Martin, X. and Domoto, H. (2003), Gaining from vertical partnerships: knowledge transfer, relationship duration and supplier performance improvement in the US and Japanese automotive industries, Strategic Management Journal, Vol. 24 No. 4, pp. 293-316. Kuei, C.H., Madu, C.N. and Lin, C. (2008), Implementing supply chain quality management, Total Quality Management, Vol. 19 No. 11, pp. 1127-41. Lai, K.H., Cheng, T.C.E. and Yeung, A.C.L. (2005), Relationship stability and supplier commitment to quality, International Journal of Production Economics, Vol. 96, pp. 397-410. Lant, T.K., Milliken, F.J. and Batra, B. (1992), The role of managerial learning and interpretation in strategic persistence and reorientation: an empirical exploration, Strategic Management Journal, Vol. 13 No. 8, pp. 585-608. Lee, H.L. and Whang, S. (2005), Higher supply chain security with lower cost: lessons from total quality management, International Journal of Production Economics, Vol. 96, pp. 289-300. Li, M. and Simerly, R.L. (1998), The moderating effect of environmental dynamism on the ownership and performance relationship, Strategic Management Journal, Vol. 19 No. 2, pp. 169-79. Lin, C., Chow, W.S., Madu, C.N., Kuei, C.H. and Yu, P.P. (2005), A structural model of supply chain quality management and performance, International Journal of Production Economics, Vol. 96 No. 3, pp. 355-65. Lo, C.K., Yeung, A.C.L. and Cheng, T.C.E. (2009), ISO 9000 and supply chain efciency: empirical evidence on inventory and account receivable days, International Journal of Production Economics, Vol. 118, pp. 367-74. Lo, V.H.Y., Yeung, A.H.W. and Yeung, A.C.L. (2007), How supply quality management improves an organizations quality performance: a study of Chinese manufacturing rms, International Journal of Production Research, Vol. 45, pp. 2219-43. Luo, Y.D. (2002), Contract, cooperation, and performance in international joint ventures, Strategic Management Journal, Vol. 23 No. 10, pp. 903-19.

Supply chain quality management 443

IJOPM 32,4

Lusch, R.F. (1976), Sources of power: their impact on intra-channel conict, Journal of Marketing Research, Vol. 13, pp. 382-90. MacCrimmon, K. and Wehrung, D. (1986), Taking Risks: The Management of Uncertainty, The Free Press, New York, NY. Magretta, J. (1998), Fast, global, and entrepreneurial: supply chain management, Hong Kong style, an interview with Victor Fung, Harvard Business Review, Vol. 76 No. 5, pp. 102-14. Mangiameli, P. and Roethlein, C.J. (2001), An examination of quality performance at different levels in a connected supply chain: a preliminary case study, Integrated Manufacturing Systems, Vol. 12, pp. 126-33. Menon, A., Jaworski, B.J. and Kohli, A.K. (1997), Product quality: impact of interdepartmental interactions, Journal of the Academy of Marketing Science, Vol. 25, pp. 187-200. Miller, D. (1988), Relating Porters business strategies to environment and structure: analysis and performance implications, Academy of Management Journal, Vol. 31, pp. 280-308. Morgan, N.A., Kaleka, A. and Gooner, R.A. (2007), Focal supplier opportunism in supermarket retailer category management, Journal of Operations Management, Vol. 25, pp. 512-27. Morgan, R.M. and Hunt, D.D. (1994), The commitment-trust theory of relationship marketing, Journal of Marketing, Vol. 58, pp. 20-38. Nidumolu, S.R. and Subramani, M.R. (2003), The matrix of control: combining process and structure approaches to managing software development, Journal of Management Information Systems, Vol. 20 No. 3, pp. 159-96. Park, S., Hartley, J.L. and Wilson, D. (2001), Quality management practices and their relationship to buyers supplier ratings: a study in the Korean automotive industry, Journal of Operations Management, Vol. 19, pp. 695-712. Prado-Prado, J.C. (2009), Continuous improvement in the supply chain, Total Quality Management & Business Excellence, Vol. 20 No. 3, pp. 301-9. Pratt, J. (1964), Risk aversion in the small and in the large, Econometrica, Vol. 66, pp. 122-36. Reed, R., Lemak, D.J. and Montgomery, J.C. (1996), Beyond process: TQM content and rm performance, Academy of Management Review, Vol. 21, pp. 173-202. Reyniers, D.J. and Tapiero, C.S. (1995), The delivery and control of quality in supplier-producer contracts, Management Science, Vol. 41 No. 10, pp. 1581-9. Robinson, C.J. and Malhotra, M.K. (2005), Dening the concept of supply chain quality management and its relevance to academic and industrial practice, International Journal of Production Economics, Vol. 96, pp. 315-37. Romano, P. and Vinelli, A. (2001), Quality management in a supply chain perspective, strategies and operative choices in a textile-apparel network, International Journal of Operations & Production Management, Vol. 21, pp. 446-60. Ross, S.A. (1973), The economic theory of agency: the principals problem, American Economics Review, Vol. 63 No. 2, pp. 134-9. Roth, A.V., Tsay, A.A., Pullman, M.E. and Gray, J.V. (2008), Unraveling the food supply chain: strategic insights from China and the 2007 recalls, Journal of Supply Chain Management, Vol. 44 No. 1, pp. 22-39. Rungtusanatham, M., Rabinovich, E., Ashenbaum, B. and Wallin, C. (2007), Vendor-owned inventory management arrangements in retail: an agency theory perspective, Journal of Business Logistics, Vol. 28 No. 1, pp. 111-35.

444

 . (2004), Quality management practices in the nchez-Rodr guez, C. and Mart nez-Lorente, A Sa purchasing function: an empirical study, International Journal of Operations & Production Management, Vol. 24, pp. 666-87. Saunders, A.G. (1994), Supplier audits as part of a supplier partnership, The TQM Magazine, Vol. 6 No. 2, pp. 41-2. Shewhart, W.A. (1931), The Economic Control of Quality of Manufactured Product, D. Van Nostand and Co., New York, NY. Sila, I. (2007), Examining the effects of contextual factors on TQM and performance through the lens of organizational theories: an empirical study, Journal of Operations Management, Vol. 25, pp. 83-109. Sila, I., Ebrahimpour, M. and Brikholz, C. (2006), Quality in supply chains: an empirical study, Supply Chain Management: An International Journal, Vol. 11 No. 6, pp. 491-502. Sitkin, S.B. and Weingart, L.R. (1995), Determinants of risky decision making behavior: a test of the mediating role of risk perceptions and propensity, Academy of Management Journal, Vol. 38, pp. 1573-92. Sitkin, S.B., Sutcliffe, K.M. and Schroeder, R.G. (1994), Distinguishing control from learning in total quality management: a contingency perspective, The Academy of Management Review, Vol. 19, pp. 537-64. Sodhi, M.S. and Lee, S. (2007), An analysis of sources of risk in the consumer electronics industry, Journal of the Operational Research Society, Vol. 58, pp. 1430-9. Sousa, R. and Voss, C. (2002), Quality management re-visited: a reective review and agenda for future research, Journal of Operations Management, Vol. 20, pp. 91-109. Sroufe, R. and Curkovic, S. (2008), An examination of ISO 9000:2000 and supply chain quality assurance, Journal of Operations Management, Vol. 26, pp. 503-20. Starbird, S.A. (1994), The effect of acceptance sampling and risk aversion on the quality delivered by suppliers, Journal of the Operational Research Society, Vol. 45 No. 3, pp. 309-20. Starbird, S.A. (2001), Penalties, rewards, and inspection: provision for quality in supply chain contracts, Journal of the Operational Research Society, Vol. 52 No. 1, pp. 109-15. Starbird, S.A. (2003), The effect of coordinated replenishment on quality, Journal of the Operational Research Society, Vol. 54 No. 1, pp. 32-9. Stroh, L.K., Brett, J.M., Baumann, J.P. and Reilly, A.H. (1996), Agency theory and variable pay compensation strategies, Academy of Management Journal, Vol. 39, pp. 751-67. Stump, R.L. and Heide, J.B. (1996), Controlling supplier opportunism in industrial relationships, Journal of Marketing Research, Vol. 33, pp. 431-41. Swink, M. and Zsidisin, G. (2006), On the benets and risks of focused commitment to suppliers, International Journal of Production Research, Vol. 44, pp. 4223-40. Tagaras, G. and Lee, H.L. (1996), Economic models for vendor evaluation with quality cost analysis, Management Science, Vol. 42 No. 11, pp. 1531-43. Tan, K.C., Handeld, R.B. and Krause, D.R. (1998), Enhancing the rms performance through quality and supply base management: an empirical study, International Journal of Production Research, Vol. 36, pp. 2813-37. Tapiero, C.S. and Kogan, K. (2007), Risk and quality control in a supply chain: competitive and collaborative approaches, Journal of the Operational Research Society, Vol. 58, pp. 1440-8. Terziovski, M., Power, D. and Sohal, A.S. (2003), The longitudinal effects of the ISO 9000 certication process on business performance, European Journal of Operational Research, Vol. 146, pp. 580-95.

Supply chain quality management 445

IJOPM 32,4

446

Thomas, J.B., Clark, S.M. and Gioia, D.A. (1993), Strategic sensemaking and organizational performance: linkages among scanning, interpretation, action, and outcomes, The Academy of Management Journal, Vol. 36, pp. 239-70. Tsay, A.A., Nahmias, S. and Agrawal, N. (1998), Modeling supply chain contracts: a review, in Tayur, S. (Ed.), Quantitative Models for Supply Chain Management, Kluwer, Norwall, MA, pp. 299-336. Van Ackere, A. (1993), The principal/agent paradigm: its relevance to various functional elds, European Journal of Operational Research, Vol. 70 No. 1, pp. 83-103. Wilkinson, I. (1981), Power, conict, and satisfaction in distribution channels-an empirical study, International Journal of Physical Distribution & Materials Management, Vol. 11 No. 7, pp. 20-30. Wilson, R.F., Dell, L.D. and Anderson, G.F. (1993), Root Cause Analysis: A Tool for Total Quality Management, ASQ Quality Press, Milwaukee, WI. Wong, A. and Fung, P. (1999), TQM in the construction industry in Hong Kong: a supply chain management perspective, Total Quality Management, Vol. 10 No. 2, pp. 199-208. Yeung, A.C.L. (2008), Strategic supply management, quality initiatives, and organizational performance, Journal of Operations Management, Vol. 26, pp. 490-502. Zsidisin, G.A. and Ellram, L.M. (2003), An agency theory investigation of supply risk management, The Journal of Supply Chain Management, Vol. 39 No. 3, pp. 15-27. Zsidisin, G.A. and Smith, M.E. (2005), Managing supply risk with early supplier involvement: a case study and research propositions, Journal of Supply Chain Management, Vol. 41 No. 4, pp. 44-57. Corresponding author Hale Kaynak can be contacted at: halekaynak@gmail.com

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints