An agency theory perspective on

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
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 current issue and full text archive of this journal is available at
www.emeraldinsight.com/0144-3577.htm
The authors would like to thank Jiju Antony for his helpful comments and suggestions on the
rst version of this paper.
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chain quality
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Received 28 October 2009
Revised 29 October 2010
Accepted 23 March 2011
International Journal of Operations
& Production Management
Vol. 32 No. 4, 2012
pp. 423-446
qEmerald Group Publishing Limited
0144-3577
DOI 10.1108/01443571211223086
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 insupplychains 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 QMprinciples
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 howto achieve effective SCQMare far more complicated than applying QMwithin
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 fromboth 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 QMcapabilities differ, or who have different histories with the rm
(Forker et al., 1997). Thus, a critical question for buyers is: howshould they arrange their
QM strategies and tactics toward different suppliers so that the quality of all suppliers
can be effectively managed.
Inthis studywe seekto answer the above questionbyexploringthe SCQMapproaches
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
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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 QMfocuses 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 QMof 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
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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 rms, a group
of survey studies examined whether and howbuyers implementation of QMpractices
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-Rodr guez and
Mart nez-Lorente, 2004; Sila et al., 2006; Sroufe and Curkovic, 2008; Tan et al., 1998;
Yeung, 2008). Several other case studies explored howquality 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 QMpractices 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: anagencyproblemanda risk-sharingproblem. Anagencyproblemappears
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).
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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).
Inorder to resolve agency andrisk-sharingproblems 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 mechanismboth 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, fromsuppliers to end consumers. Strategic QMof 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
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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 t naturally with the issues
inherent inSCQM. Inthe process of managing supplier quality, buyers inagency 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 hazardandadverse selectionproblems are likelytoarise.
When buying rms cannot constantly monitor the process at suppliers sites, which is
usuallydifcult or expensive todo so, suppliers mayconceal their difculties indelivering
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
problemresolution ability, technical ability, corrective action response, and newproduct
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).
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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).
Issues Outcome-based approaches Behavior-based approaches
Focus of
management
The quality of products and/or
services delivered by suppliers
Suppliers efforts in QM and improvement
Purpose Control the quality of delivered
products and/or services
Ensure that suppliers can meet the quality
requirements and improve their ability to do so
Methods Contractual provisions for quality Supplier quality certication
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
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
Source:
a
Anderson 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
approaches
a
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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 qualityof products, services andprocesses so as to create value andachieve
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
SCQMapproaches 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 qualitysystems,
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,
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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-termbenets 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 lowlevel 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 knowwhat 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).
QMis 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 Outcome-based approaches Behavior-based approaches
Information asymmetry High Low
Goal conict High Low
Risk aversion of a supplier Low High
Length of relationship Short Long
Task characteristics
Task programmability of a supplier Low High
Outcome measurability Easy Difcult
Outcome uncertainty Low High
Table II.
Agency-based factors
and SCQM approaches
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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 bylowinformation 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
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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 andHitt, 2007). Behavior-basedapproaches for managingsupplier
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.
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. Fromthe suppliers standpoint, reducing quality-related risk implies
increased material and labor costs and demands themto 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
Supply
chain quality
management
433
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 specializedcapabilities, andestablishabasis for trust (Holcomband
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
(HolcombandHitt, 2007). Collaborationandintegrationwithsuppliers are keyelements 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:
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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.
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 QMis tied
to the products, services, and/or processes, the characteristics of production and services
performed bysuppliers are expectedto 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 taskof measuringthat 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;
Rungtusanathamet 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 fromsuppliers, it is easy for buyers to knowwhat the production process should
be andto evaluate whether suppliers are managing quality as theyshould. It is thus easier
to apply behavior-based approaches on suppliers, such as monitoring suppliers
processes, performing qualityaudits, or offeringtechnical assistance andguidance. These
approaches can help buyers stipulate suppliers behavior toward their desired
performance level (Eisenhardt, 1989; Van Ackere, 1993).
Onthe other hand, whensuppliers offer unique, differentiatedproducts, 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 howeasily
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 inachievingquality. To measure quality, we must
rst dene what we meanbyquality. Qualitygurus have stronglysuggestedif 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.
Supply
chain quality
management
435
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 deliveredgoods. At the same time, suppliers want to knowwhat 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
objectivelydenedas quantitative metrics because some qualityattributes 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 productionprocesses
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
productionsystems (Forker et al., 1997) as well as bysuchexternal factors as frequencyof
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
(Wilsonet al., 1993). Qualitycerticationandaudit of suppliers helpensure that suppliers
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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 QMsystemin 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
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437
Construct Meaning in SCQM context Relevant measurement in literature
Information
asymmetry
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)
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
Goal conict The degree to which buying rms
perceive that suppliers disagree on goals
and strategies for quality (Eisenhardt,
1989; Robinson and Malhotra, 2005;
Romano and Vinelli, 2001;
Rungtusanatham et al., 2007; Zsidisin
and Ellram, 2003; Zsidisin and Smith,
2005)
Two-stage shared values measure
(Morgan and Hunt, 1994): difference
between responses to two items
Frequency of disagreement and overall
level of perceived conict (Hinds and
Mortensen, 2005; Lusch, 1976;
Wilkinson, 1981): perceived, multi-item
scale
Goal congruence ( Jap, 1999, 2001):
perceived, multi-item scale
Risk aversion
toward quality
risks
The degree to which buying rms
perceive that suppliers are willing to
take the risk of having quality-related
problems or potential failures in their
products (Eisenhardt, 1989;
Rungtusanatham et al., 2007;
Zsidisin and Ellram, 2003; Zsidisin
and Smith, 2005)
Managerial risk propensity/aversion by
boldness of behaviors, tendency to make
quick decisions, tendency to take high-
risk projects (Gilley et al., 2004;
Kocabasoglu et al., 2007; Menon et al.,
1997; Miller, 1988; Sitkin and Weingart,
1995): perceived, multi-item scale
Length of
relationship
The duration of buyer-supplier
relationships (Eisenhardt, 1989;
Heide and Stump, 1995; Zsidisin
and Smith, 2005)
Number of years doing business with
suppliers (Buvik and Halskau, 2001;
Buvik and Haugland, 2005; Kotabe et al.,
2003): single item, objective measure
(reported by respondents)
Task
programmability
The degree to which buying rms
perceive that they know about
supplier production procedures and
techniques (Eisenhardt, 1989; Zsidisin
and Smith, 2005)
Standardization and clarity of processes
and procedures in tasks, job
responsibility and results (Goodale et al.,
2008; Stroh et al., 1996): perceived, multi-
item scale
Process predictability in terms of project
outcomes and progress (Nidumolu and
Subramani, 2003): perceived, multi-item
scale
Outcome
measurability
The degree to which buying rms
perceive how easily they can measure
the quality of products delivered by the
supplier (Beamon, 1999; Eisenhardt,
1989; Rungtusanatham et al., 2007)
Possibility and easiness of measuring
whether intended goals are met
(Goodale et al., 2008; Kirsch, 1996):
perceived, multi-item scale
Buyer monitoring ability of suppliers
opportunistic behavior (Morgan et al.,
2007): perceived, multi-item scale
(continued)
Table III.
Construct
operationalization for
agency-based factors
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438
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 proxymeasures for them. For example, aclose lookat the items inthe scale of buyer
decision-makinguncertaintyabout its suppliers due to lackof information (Goa et al., 2005)
reveals that the scale canbe usedas a proxymeasure for informationasymmetry. Likewise,
risk propensity can be used as a proxy measure of risk aversion because it forms a
continuumfromriskaverse (Kocabasogluet al., 2007, p. 1143). Fourth, P4must be testedin
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.
Construct Meaning in SCQM context Relevant measurement in literature
Outcome
uncertainty
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;
Rungtusanathamet al., 2007; Sitkin et al.,
1994; Zsidisin and Smith, 2005)
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, ve-
point semantic differential scale
Demand uncertainty and product
churning (Claycomb et al., 2002):
perceived, multi-item scale Table III.
Supply
chain quality
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439
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 canbe usedfor different suppliers. Factors suchas 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 howsuppliers 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 SCQMpractices is particularly valuable for the development of the
QM eld. Theory-guided research will not only help researchers develop a deeper
understanding of SCQMissues, it will also provide practitioners with valid guidelines for
improving their business practices so that they reap the benets effective SCQM offers.
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Corresponding author
Hale Kaynak can be contacted at: halekaynak@gmail.com
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