How can supply quality risk be counteracted by
supply quality management practices?
Faculty of Economics and Business, University of Groningen
Master Thesis: MSc Technology Management
Author: Mark Bisseling
Student number: S1920774
E-mail: markbisseling@outlook.com
ABSTRACT
This study provides a framework to detect and counteract supply quality risk (SQR) associated with out-sourcing. Especially when firms compete on quality, counteracting SQR is of major importance to maintain a good business performance. Most previous studies on risk in supply chains address delivery disruptions. As such, while quality risk related to supplied components pose real problems for firms, there is a lack of knowledge on assessing and managing this type of supply risk. First, a literature study is conducted to de-velop a definition of SQR, identify sources that indicate the extent of SQR present, define various supplier quality management practices (SQMPs) which could counteract SQR, and define factors which might serve as drivers respectively barriers to the implementation of SQMPs. Second, a case study is conducted at three companies within the food machinery industry to refine the measurement of these concepts and test their relationships. The results indicate that the various SQR sources differ with regards to the severity of SQR which they entail. Furthermore, opposing popular literature, not all SQMPs are utilized equally to counter-act SQR. As SQR is higher, a larger number of SQMPs is utilized and these SQMPs are more strategic and focused on relationship building. This is the first empirical study which links various sources of SQR to specific SQMPs. By addressing these issues and outlining future research directions this research is a con-tribution to supply risk theory. The framework developed in this paper can aid buying managers in decision making on how to assess and manage SQR. This is vital for food machinery manufactures, as well as for other industries facing SQR or companies which compete on quality.
Keywords: Supply Quality Risk, Supply Quality Management Practices, Outsourcing, Supply Chain
CONTENT
1. INTRODUCTION 1
2. LITERATURE REVIEW AND THEORETICAL MODEL 2
2.1 Business performance 2
2.2 Supply Quality Risk (SQR) 2
2.3 Supply quality management practices (SQMPs) 4
2.4 Drivers and barriers of SQMPs 5
2.5 Theoretical model 6 3. METHODOLOGY 7 3.1 Research sample 7 3.2 Research instrument 8 3.3 Data analysis 8 4. RESULTS 9 4.1 First stage 9 4.2 Second stage 11
5. DISCUSSION AND CONCLUSION 14
5.1 Theoretical implications 14
5.2 Managerial implications 15
5.3 Limitations and directions for future research 15
5.4 Conclusion 16
APPENDIX I: QUESTIONNAIRES FIRST STAGE APPENDIX II: QUESTIONNAIRES SECOND STAGE
APPENDIX III: QUANTATIVE DATA FIRST STAGE INTERVIEWS
1. INTRODUCTION
Despite the fact that outsourcing production can pose supply quality risk (SQR) for firms (which can nega-tively affect a firm’s business performance), little is known about SQR. First, there is little understanding on what SQR is and what sources of SQR exist. Second, it is unclear which supply quality management practices (SQMPs) can be applied to counteract SQR to maintain a high business performance, and what barriers and drivers of counteracting SQR through SQPMs exist. In this research these issues are investi-gated. Supply quality is defined as the conformance to the required specifications and functionality, posed by the buying firm. Non-conformance of a supplied component, can lead to supply quality issues. Supply quality issues can have detrimental effects on the buying firm, with a cascading effect throughout the sup-ply chain. In this line of reasoning, SQR is defined as the potential occurrence of quality issues associated with a supplied component, in which its outcome leads to significant delays in customer deliveries, can result in long-term production downtimes at customer site, or can cause consumer safety threats. SQMPs are defined as the practices associated with managing the supply function in order to improve the quality of the supplied components, which could increase the overall business performance of a firm.
Although the ways in which risk in supply chains can be counteracted have been investigated by various studies (e.g. Zsidisin, 2003a; Srinivasan et al., 2011), the knowledge about this topic remains limited. Most studies focus on how to manage supply disruptions which e.g. occur in case of environmental disasters, and do not address ‘everyday’ risk such as SQR (Tse and Tan, 2011, Tse at al., 2011, Kleindorfer and Saad 2005). As a result, although quality issues related to outsourced components pose real problems for firms (Zsidisin, 2003b; Pfohl et al., 2011: Wu et al., 2006), there is a lack of understanding in managing this SQR. First, there is insufficient understanding of what SQR is and what kind of SQR sources exist. Second, although literature has indicated that SQR can be counteracted by SQMPs (Tse and Tan, 2011), little is known on which SQMPs are suitable to counteract which SQR source. By addressing these issues this re-search contributes to a fuller theoretical understanding of what SQR is and how it can be managed. In addi-tion, this study is of high practical relevance since this research is beneficial for companies which compete on quality, but have outsourced the production of many components which they cannot produce competi-tively themselves. Although these companies can face increased SQR, which needs to be managed in order to remain competitive,little is known on how they should approach this issue. This study contributes to business practices as it provides a framework to detect SQR by different SQR sources, and how these SQR sources can be counteracted by specific SQMPs.
In order to answer the research questions, a literature study is combined with a case study. Interviews are conducted with multiple respondents at three companies within the food machinery industry. This industry is especially suited for this research, as quality issues evolving from SQR can have dramatic consequences further up in the supply chain (i.e. for end consumers).
2. LITERATURE REVIEW AND THEORETICAL MODEL
The aim of this research is to clarify what SQR is, what sources of SQR exist, and which SQMPs can be applied to counteract SQR to maintain a high business performance. First, an explanation is given why SQR can have a negative influence on the business performance. Second, a literature review is performed to improve the understanding of what SQR is, and what sources of SQR exist. Third, the SQMPs which can be used to counteract SQR are described. Finally, the various barriers and drivers for counteracting SQR through SQMPs are identified.
2.1 Business performance
When not counteracted, the emergence of SQR can have a negative impact on the firm’s business perfor-mance (Tse et al., 2011). To start with, SQR can have a negative influence on Time-to-Market (or on time delivery) because supply quality issues can disrupt the internal production process of the buying firm, which in turn leads to a delayed delivery to their customers (Fynes and Voss, 2002). Second, SQR can lead to poor quality-in-use at the end-customer because of potential quality failures (Fynes and Voss, 2002). Both will have a negative influence on the customer satisfaction (Flynn at al., 1997). Poor customer satis-faction in turn will lead to a loss of business or customer goodwill (Zsidisin et al., 2000; Fynes and Voss, 2002).
2.2 Supply Quality Risk (SQR)
According to several researchers the magnitude of supply risk can be captured by two quantifiable measures: the probability of occurrence and the consequences of the occurrence (Yates and Stone 1992; Mitchell 1995; Zsidisin et al. 2004; Harland et al. 2003). However, assessing a risk is not simply a calcula-tion that involves the probabilities and consequences of tangible quantifiable assets, as intangible assets like reputation, status and authority can also be damaged (Harland et al. 2003; March and Shapira, 1987). Therefore, a qualitative framework to detect SQR by including SQR sources is presented in this research. To develop this framework, the subdivision of Zsidisin (2003a) is adopted, supplemented with literature related to SQR. Zsidisin performed seven in-depth case studies which suggest that supply management professionals perceive sources of supply risk in terms of component, market, and supplier characteristics. “Component characteristics” relate to the impact that the component itself can have on the purchasing firm’s supply risk (Zsidisin, 2003a). “Market characteristics” relate to impact the market can have on the purchasing firm’s supply risks (Zsidisin, 2003a). “Supplier characteristics” relate to the impact that a cer-tain supplier can have on the purchasing firm supply risk (Zsidisin, 2003a). This subdivision is used for the sources for SQR. Each source is briefly discussed in the following paragraphs.
Component sources- Overall, the literature perceives two component characteristics which are SQR sources: component complexity and frequent design changes. First, complexity of the component increases the SQR because the probability of non-conformance of the purchased component is higher (Kaufmann and Carter, 2006; Mitchel, 1995). Second, frequent design changes can lead to more SQR (Noordewier et al. 1990; Stump, 1995), because SQR can become prevalent when suppliers may be unable to make those de-sign changes as well as production process modifications, to meet buying firms’ requirements (Zsidisin at. all., 2000).
Market sources- The existing literature indicates that two market characteristics are sources of SQR: global sourcing and supplier scarcity. First, global sourcing causes SQR because when culture differences and communication issues occur, the probability of not conforming to the quality requirements increases (Tse and Tan, 2011; Tse et al. 2011; Zsidisin, 2003a). Second, when supplier scarcity exist, the SQR increases as single sourcing, as well as a lack of alternative suppliers, can cause a risk for the buying firm (Kraljic, 1983; Pfohl et al. 2011).
and Tan (2011), an accredited quality management system (such as the ISO series) reduces the non-conformance of components. Third, the existence of a quality focus within suppliers’ plants reduces SQR (Zsidisin et al., 2000), because a culture that embraces quality principles (training, continuous improve-ment) will lead to less quality issues (Ahire et al., 1996; Choi and Liker, 1995). Fourth, when the supply chain of the purchased components is containing sub-tier suppliers, SQR increases as the buying company has less visibility in potential quality issues (Tse and Tan, 2011; Tse et al., 2011). Fifth, the supplier’s lim-ited knowledge of the product application and market requirements can influence the SQR, since detailed understanding of the product application and the market requirements are needed in order to achieve high quality (Krause and Ellram, 1997; Monczka et al., 1998; Theodorakioglou et al., 2006). A summary of the SQR sources is presented in Table I.
Table I: SQR Sources
2.3 Supply quality management practices (SQMPs)
SQMPs can be used to counteract the SQR sources and to decrease the possible negative influence of SQR on business performance (Tse and Tan, 2011; Lo and Yeung 2006). SQMPs are defined as the practices associated with managing the supply function in order to improve the quality of supplied components,
Source Type Description Reference
Component Sources
Component Complex-ity
Technical complexity of the purchased component makes it harder to conform to customer requirements, thus resulting in a higher SQR.
Kaufmann and Carter (2006); Mitchel (1995)
Frequent product design changes
Frequent changes in design and requirements leads to a higher chance of non-conformance to customer requirements and therefore brings higher SQR.
Noordewier et al. (1990); Zsidisin et al. (2000); Stump (1995)
Market Sources
Global sourcing Sourcing from non-domestic countries brings a higher probabil-ity of qualprobabil-ity issues due to culture differences and communica-tion problems.
Tse and Tan (2010); Tse et al. (2011); Zsidisin, (2003a) Supplier scarcity The dependences on a single supplier could make it harder to
force the supplier to focus on the optimum required quality.
Kraljic (1983); Pfohl et al. (2011)
Supplier Sources
Lack in required capa-bilities and competences
The disability of the supplier to deal with the high quality standards required by the buyer.
Theodorakioglou et al. (2006), Pfohl et al. (2011)Lee and Billington (1993)
Non-existence of a Quality management system
The absence of an accredited quality management system (such as ISO series) at the supplier can increase the supply quality risk.
Tse and Tan (2011)
Non-existence of a Quality focus
Culture of embracing quality improvement: the more present, the less quality risk.
Ahire et al. (1996); Choi and Liker (1995); Zsidisin et al. (2000)
Sub-tier suppliers When the supply chain of the purchased components contains multiple-tier suppliers, visibility in quality preservation be-comes harder, thus more risk.
Tse and Tan (2011); Tse et al. (2011)
Limited knowledge of the product application and market require-ments
Limited knowledge of the supplier, in the buyers final product, the exact use of the product and the essential market require-ments, can lead to poor quality.
which will increase the overall business performance (Lo and Yeung, 2006). Lo and Yeung (2006), indicat-ed that the SQMPs can be classifiindicat-ed in three main areas: supplier selection, supplier development and sup-plier integration.
Supplier selection includes practices for selecting a supplier by evaluating his ability to provide the re-quired quality products (Lo et al., 2001; Saraph et al., 1989; Hahn et al., 1990; Curkovic and Handfield, 1996; Landeros et al., 1995). According to Tse and Tan (2011), supplier selection practices can counteract SQR. Examples of supplier selection practices are: select the supplier based on how they integrate quality throughout their daily activities, select the supplier on having a reliable quality assurance systems, etc.
Supplier development includes practices to identify, measure and improve supply quality, and assist the continuous improvement on operations at the supplier site (Hahn et al., 1990; Krause and Ellram, 1997; Krause et al., 2000; Lascelles and Dale, 1990; Trent and Monczka, 1999; Ellram, 1995; McCutcheon and Stuart, 2000; Monczka et al., 1998; Stuart, 1997). Supplier development practices can help to counteract SQR, as they help suppliers to deal with high quality standards required by their buyers (Theodorakioglou et al., 2006). Examples of supplier development practices are: supplier evaluation, provide technical assis-tance, provide training for the supplier, etc.
Supplier integration includes practices for joint efforts conducted by both buyer and supplier to improve quality continuously (Ellram, 1995; Monczka et al., 1998; Stuart, 1997; McCutcheon and Stuart, 2000; Trent and Monczka, 1999). Supplier integration practices can counteract SQR as supplier integration can help to share the SQR with the supplier and to mutually perform actions to reduce SQR(Tse at al., 2011). Examples of supplier integration practices are: involving the supplier in development activities, actions that foster a good relation, perform supply base reduction, etc.
2.4 Drivers and barriers of SQMPs
Although, the SQMPs can counteract SQR (Tse and Tan, 2011), they are not necessarily implemented in business practice (e.g. Lascelles and Dale, 1989; Galt and Dale, 1991). It is important to understand which drivers and barriers exist to perform selection, development and integration practices. The drivers and bar-riers mentioned in literature are discussed.
reducing costs by selecting low cost suppliers (Lee et all., 2003). A high quality supplier might not be the one with the lowest costs of components (Verma and Pullman, 1998).
Competitive pressures, such as the ever-increasing quality levels, are a driver for a firm to perform supplier development (Hahn et all., 1990; Krause and Ellram, 1997). Instead of accepting the product quality that it receives from its supply base, the proactively buying firm demands higher levels of quality and is willing to work jointly with suppliers to achieve the specified quality levels (Krause and Ellram, 1997). However, not all the suppliers are willing to cooperate. The lack of buying firm’s power or credibility, is an important reasons for a supplier to be reluctant to participate in supplier development efforts (Lascelles and Dale, 1989; Galt and Dale, 1991).
Supplier integration can bring competitive advantages, including the increase of the quality performance of supplied components (Frohlich and Westbrook, 2001; Lo and Yeung, 2006). Nevertheless, several barriers for supplier integration exist. According to Stuart (1993), management commitment must be present for supplier partnership, required for supplier integration. Harland et al. (2007) indicate that lack of strategic alignment, the firm size (small firms are less likely to adopt new technologies), lack of awareness of poten-tial benefits and lack of motivation to invest, serve as the main barriers for supplier integration practices. Finally, Van der Vaart and Van Donk (2004) show that the type of suppliers resources is an important bar-rier to supply chain integration, because if different buyers are served by means of shared resources, inte-grative practices are hard to attain.
2.5 Theoretical model
Building upon the aforementioned concepts, a theoretical model is developed in Figure 1. SQR, as a poten-tial result of outsourcing, will generally have a negative impact on the business performance of the buying firm, if not counteracted (1). SQMPs in turn, can be used to counteract the SQR (2) and generally will have a positive influence on the business performance (3).
Fig 1. The theoretical model
3. METHODOLOGY
An explorative study is conducted based on two stage interviews at three organizations in the food machin-ery industry. In the first stage, interviews are performed to explore how SQR is perceived in practice and what sources of SQR exits. In the second stage, the respondents are asked how the sources of SQR - identi-fied in the first stage - can be counteracted by SQMPs and what the drivers and barriers are to perform SQMPs. In this section research sample, research instrument and data analysis method are discribed.
3.1 Research sample
The research sample consists of employees at three manufacturing companies of food processing machin-ery. The choice for investigating food processing machinery companies, is because of quality issues in this industry can have three major consequences: (1) they can influence the end consumer safety directly as some components of the machine are in direct contact with the end consumer product (2) they can lead to significant delays in customer deliveries (quality issues can disrupt the buyers production process easily) (3) they can result in long-term production downtimes at customer site (given that it takes relatively much time and effort to solve quality issues for these machines due to the complexity the machines). In the end, this can lead to loss of business and customer goodwill, because companies compete on quality in this in-dustry. Three manufacturing firms of food processing machinery are chosen, see Table II for the company descriptions. All companies operate in a global competitive market and outsource a significant part of its production.
Ten informants across the three companies are interviewed. In line with the recommendations by Dubois and Araujo (2007), multiple respondents are used in order to capture a variety of perceptions and meanings, which are vital to understand complex business relationships. The functional positions of these respondents are presented in the last column of Table II. The interviews with the respondents were conducted face-to-face, were taped and transcribed.
Table II: Research sample Company name No.
Em-ployees
Revenue (€)
Product type Country of origin
Function of interviewees
Company A: Dairy Machinery
240 80 mln. Integrated processing and filling lines (dairy, juice, food and pharma-ceutical processing)
Netherlands Strategic Buyer Strategic Buyer Operational Buyer Quality Manager Quality Manager Supply Chain Manager Production Manager (1) (2) (3) (4) (5) (6) (7) Company B: Meat Machinery
100 100 mln. Integrated systems for the red meat industry (deboning and trim-ming,, food service and bacon processing)
Netherlands Purchasing Manager Production Director (8) (9) Company C: Poultry Machin-ery
1,000 330 mln. In-line poultry pro-cessing systems (for each stage in the pro-cess)
Netherlands Strategic Buyer (10)
3.2 Research Instrument
To test the research framework, semi-structured interviews are conducted in two stages. In the first stage investigation takes place on how respondents define SQR, and what SQR sources they perceive as most important. First open questions are asked to assess the definition of SQR. Second, in order to comprehend what SQR actually is and what SQR sources exist, questions are asked regarding the SQR sources found in literature. The respondents could complement these with additional SQR sources. Third, quantitative data is collected to strengthen the conclusions regarding what SQR is and how it can be measured. Quantitative data was collected by asking the respondents to rank each SQR sources based on a Likert 5 point scale. A score of 1 means that the SQR source not at all indicates SQR, while 5 means that the SQR source very much indicates SQR. An overview of the questions applied in the first stage is provided in Appendix I.
In the second stage, the respondents are asked how theSQR sources can be counteracted by SQMPs and what the barriers and drivers are to engage in SQMPs. During these interviews multiple cases are discussed in which outsourced components entailed high SQR. For each case, the respondents are asked to identify the essential SQMPs suitable to counteract the SQR sources. Second, all the essential SQMPs developed by Lo and Yeung (2006) were discussed. The respondents could also add other SQMPs which they deemed appropriate. Third, the respondents is asked why, or why not SQMPs are implemented in order to access the main drivers and barriers to apply SQMPs. An overview of the questions of in the second stage is pro-vided in Appendix II.
3.3 Data analysis
order to indicate which respondent(s) support this quote, the number of each respondent is added (see last column of Table II). Hence, this number indicates which functional positions supports this quote. When multiple numbers are added, the number which is bold is the original respondent who mentioned the quote. The other numbers indicate the respondents who mentioned statements similar to this quote.
The quantitative data is analysed by calculating the mean score, which indicates how much each SQR source relates to SQR. The higher the score, the higher the SQR for a given SQR source. Two inter-rater reliability tests were performed to assess the validity of this data. Inter-rater reliability explains the degree of agreement among the respondents. First, the Pearson correlation coefficient is calculated to assess the average level of agreement for the total group of respondents. Second, Fleiss' kappa factor is calculated to assess the reliability of agreement between the respondents, regarding the score of each SQR source.
In the second stage, the various SQR sources are linked to specific SQMPs, the barriers and drivers are investigated which are influencing this linkage. For both, again the analytical generalisation technique de-scribed by Mitchell (1983) is used.
4. RESULTS
This section presents the first and second stage results.
4.1 First stage SQR definition
The respondents almost uniformly defined SQR associated with three potential quality issues:
First, a potential quality issue which endangers the safety of the end consumer is perceived as the most important SQR related to outsourcing. “When quality issues endanger the safety of the end consumer the results are disastrous for the business performance as it can lead to high claims, image damage and loss of customer business and goodwill (1)(2)(3)(5)(6)(7)(9).”
Second a potential quality issue which results in business interruptions for the customer is perceived as the second most important SQR. “When production at a customer site stops, this can lead to productivity loss which can be very costly for our customer. In this case the customer satisfaction will decrease, which can lead to loss of customer business and goodwill (1)(2)(5)(6)(7)(8)(9).”
In sum, the results show that the SQR definition derived from the literature is fundamentally the same as how SQR is defined in practice. Therefore, no refinement of the initial SQR definition is needed.
SQR Sources
Most respondents mention that the SQR sources identified in the literature review indicate significant SQR. An overview of the SQR sources is provided in Table III, in which the SQR sources are presented in terms of importance.
The quantitative data from the ranking is added to Table III in the last column. This column shows the mean score of the importance of each SQR source. The closer to the maximum (five), the more SQR is faced when the SQR source is present. Scores between four and five indicate high SQR sources. Scores between three and four indicate medium SQR sources. Scores lower than three indicate low SQR sources. In Appendix IIIa a total overview of all the scores is presented.
To validate the quantitative data, two inter-rater reliability tests were performed. First the Pearson correla-tion coefficient is calculated (ρ = 0.67), which indicates the average level of agreement for the total group of respondents. According to Cohen, J. (1988), a correlation between 0.5 and 1.0 is a strong positive corre-lation which means that the average level of agreement between the respondents is high. Second, the Fleiss' kappa factor is calculated (κ=0.23) which indicates the reliability of agreement between the respondents for each SQR source. More specifically, this factor explains the extent to which respondents agree with each other on the importance scores of each SQR source. Landis and Koch (1977) provide a universally accept-ed table for interpreting κ values and indicate that a value between 0.21-0.40 can be notaccept-ed as a fair agree-ment. The reason that there is not a stronger agreement in the case, is caused by the fact that some sources have a high dispersion in scores. Therefore, the reliability number Pi –which explains the extent to which
the respondents agree on every SQR source importance score– is added in the fourth column of Table III. Compared to the rest, the reliability number of the SQR source: ‘Non-existence of a quality management system at supplier’ (0.18) and ‘Supplier scarcity’ (0.27) are relatively low. For more information regarding both inter-rater reliability calculations see Appendix IIIb/c.
Furthermore, the respondents almost uniformly mentioned one additional SQR source: A critical compo-nent for the buyer’s system. Critical compocompo-nents are defined as compocompo-nents which add value to the func-tion of the machine. “A critical component for food processing machinery is a component which is in direct contact with the product for the end consumer (product contact part). Outsourcing criticalcomponents is very risky because quality issues related to these components can directly influence the end consumer safe-ty (1)(2)(3)(4)(5)(6)(7)(8)(9).” Since almost all respondents identified this SQR source, it is added to the list of SQR sources.
Table III: Overview of the SQRsources
4.2 Second stage
Linking the SQR source to SQMPs (counteracting)
In Table IV, an overview of the different SQPMs which could counteract the various SQR sources accord-ing to the respondents, is presented. The linkage between the SQMPs and the SQR source is based on im-portant quotes supporting this linkage. In Appendix IV an overview of all these quotes is presented.
Besides the developed framework, the interviews result in four main outcomes. First, the results show that more SQMPs are used to counteract the SQR when the latter is high. Second, integrative practices seem especially beneficial for dealing with high SQR. Some respondents mentioned: “Integration is intensive and expensive and therefore a conscious choice. But it is not necessarily the best strategy for every compo-nent. It is only beneficial when the products are really complex and critical and really add value to the function of the machine (4)(8)(10)”. Third, the higher the SQR, the more strategic the SQMPs become. When strategic practices are performed, the supplier will focus on meeting critical business needs and is more likely to agree to supply conform the critical recruitments. Specifically, the respondents indicated that early involvement of the supplier in the development process, is a good strategic method for the exclusion of supply quality issues. Fourth, when higher SQR is faced, the more SQMPs are performed which empha-size a good relationship. The respondents indicate that fostering a good relation with the supplier, will lead to a better understanding of the business requirements and to a more effective communication.
SQR Source Importance
mean
Pi
High Supplier has limited knowledge of product application and market requirements 4.8 0.80
Critical component for buyer’s system 4.8 0.64
Supplier lacks the required abilities and competences 4.5 0.40
Non-existence of a quality focus at supplier 4.5 0.40
Complex components 4 0.44
Medium Frequent product design changes 3.6 0.47
Sub-tier supply chain 3.3 0.36
Non-existence of a quality management system at supplier 3.2 0.18
Global source 3.1 0.49
Table IV: The SQMPs for counteracting the supply quality risks
SQR Source Supplier Selection SQMPs Supplier Development SQMPs Supplier Integration SQMPs High Supplier has limited
knowledge of product application and market requirements
Supply quality culture: Having sufficient design and technical capabilities to ensure quality (1)(2)(4)(7)(8)
Direct involvement: Providing suppliers with sufficient tech-nical assistance (1)(4)(6(9)(10) Buyer supplier interaction: We
proved training for the supplier (3)(4)(6)(8)(9)(10), Inviting suppliers to company activities (1)(2)(6)(7)(8)(9).
Strategic aspect: Involving supplier in product design and development activities (5)(9)(10)
Buyer supplier relationship: foster on keeping up a good relation (1)(6)(9)
Critical component
for buyer’s system Supplier quality system: Having a reliable quality assurance system (2)(3(7)(8)(9)
Direct involvement: Providing suppliers with sufficient tech-nical assistance (4)(6)(9)(10) Buyer supplier interaction:
Inviting suppliers to company activities(1)(6)(9)
Strategic aspect: Involving supplier in product design and development activities (1)(8)(9)(10)
Buyer supplier relationship: foster on keeping up a good relation (1)(2)(5)(6)(9)(10)
Non-existence of a quality focus at supplier
Supply quality culture: Integrat-ing quality throughout the daily activities(1)(3)(4)(6)(7)(9), Willingness to work toward continuous improve-ment(1)(2)(6).
Supplier quality system: Having a reliable quality assurance system (2)(4)(7)(9)
Direct involvement: Supplier evaluation(1)(2)(3)(9), Provid-ing performance feedback (3)(8)(9).
Supplier lacks the required abilities and competences
Supply quality culture: Integrat-ing quality throughout the daily activities (1)(4)(8) Having sufficient design and technical capabilities to ensure quali-ty(1)(2)(3)(4)(6)(7)(10)
Direct involvement: Supplier evaluation (1)(7)(9)
Non-existence of a quality management system at supplier
Supplier quality system: Having a reliable quality assurance system (1)(2)(3)(4)(6)(9)(10)
Component complexi-ty
Supply quality culture: Having sufficient design and technical capabilities to ensure quality (1)(8)(9)
Direct involvement: Providing suppliers with sufficient tech-nical assistance (1)(3)(5)(9)(10)
Strategic aspect: Involving supplier in product design and development activities (3)(5)(10)
Medium Frequent product design changes
Operational aspect: Updating operational information contin-uously (1)(2)(7)(8)(9)(10)
Sub-tier supply chain Supplier quality system: Having
a reliable quality assurance system (2)(4)(8)(9)(10)
Global source Supply quality culture: Integrat-ing quality throughout the daily activities (3)(6)(8)(9)(10)
Low Supplier scarcity Buyer supplier relationship: Offering long term contracts (1)(5)(6)
Drivers & Barriers
For all practices, a driver respectively a barrier, is the knowledge and expertise needed for some SQMPs. For example, when the internal technical knowledge is limited regarding an outsourced component, it is hard to provide technical assistance; “Because we outsource al lot, the manufacturing knowledge is disap-pearing at our company, without the appropriate knowledge and expertise it is hard to provide technical assistance (1)(5)(8)”. Moreover, when selecting a new supplier or evaluating an existing supplier, specific knowledge and expertise is needed to determine whether they have a sufficient quality culture and a proper quality management system. If this knowledge is not present within the company, knowledge from other disciplines or external sources are needed to counteract the SQR. Yet, when the knowledge and expertise is lacking, it can be a barrier to perform the SQMPs.
When companies compete on quality and the quality of outsourced components is crucial -as in the food machinery industry- this drives a company to emphasize quality early in the supplier selection process. Most respondents mentioned: “Because we compete on quality, emphasizing quality in the supplier selec-tion process should be a precondiselec-tion for selecting a supplier (1)(4)(8)(9)(10)”. Still, there is an important barrier for not emphasizing quality in the selection process: the company goal. When a company aims to reduce the cost price of the machine, the suppliers price is most decisive when selecting a supplier. Alt-hough quality may still be perceived as important, they may not select the supplier which is leading in qual-ity (has the best qualqual-ity focus or best qualqual-ity management system).
Supplier development practices require a lot of effort and resources. In addition, top management support is crucial in performing these practices. Some respondents mentioned: “The best way to perform supplier development is to involve multiple disciplines within the company. However resources need to be available. Top management support for arranging this resources is essential for setting up these practic-es(1)(2)(4)(5)”. Therefore, when the top management supports the supplier development practices, this is a driver to get started with these practices. On the other hand, when top management support is lacking (e.g. when they identified other priorities), this forms a barrier.
intensive and firms do not want to integrate with a large amount of suppliers. Still, some respondents indi-cated that focussing on your current network and performing supply base reduction is not always sensible. This is for competitive reasons (i.e. pressing suppliers for cost reductions) or because companies want to innovate (i.e. sourcing suppliers with specific knowledge for a certain innovation or new developments). “With new product developments we want to look outside our current supply network to let suppliers com-pete on price with each other, or to find suppliers which have specific knowledge useful for developing innovations together. Therefore for some suppliers we try to limit some integration practices (8)(10)”. Thus, the need to make use of market competition or to be innovative, may result in companies that want to expand its supply network frequently. Not focussing on a small permanent supply network may form a barrier for supplier integration.
5. DISCUSSION AND CONCLUSION
This paper contributes to literature and business practice by gaining a better understanding of what SQR is, and how and when it can be counteracted by SQMPs. Through a literature study a definition of SQR is developed, the sources of SQR are defined, the various SQMPs which could counteract SQR are identified, and factors which might serve as drivers, respectively barriers, to the actual implementation of SQMPs to counteract SQR are presented.
These concepts are investigated by performing multiple case studies in the food machinery industry. The results indicate support for the definition of SQR and the list of SQR sources is refined. In addition, the various SQR sources are linked to SQMPs resulting in a framework to counteract SQR (Table IV). Now the theoretical and practical implications are discussed of these findings, suggestions for further research are provided and the main conclusions are presented.
5.1 Theoretical implications
This study has several implications for theory and business practices. First, this research is an addition to existing literature on SQR by defining what SQR is and what SQR sources exist. Such insights are current-ly lacking, as the existing literaturefocuses on other types of supply disruptions, and does not address ‘eve-ryday’ risk such as SQR (Tse and Tan, 2011, Tse at al., 2011).
Third, this study intends to contribute to literature by investigating the drivers and barriers of SQMPs. The research complement prior studies which address drivers and barriers regarding buyer-supplier manage-ment practices (e.g. Lascelles and Dale, 1989; Harland et al., 2007).
5.2 Managerial implications
The intention of this pater to provide useful insights for buying managers who want to detect and counter-act the SQR they are facing. The overview of SQR sources presented in this paper are useful to detect SQR when selecting new suppliers, as well as to detect SQR in an established supplier network.
Moreover, the developed framework (Table VI) can be beneficial for practitioners in managing SQR. The framework indicates which SQMPs are beneficial to counteract specific SQR sources. When supply quality issues can have detrimental effects on the purchasing firm, this framework shows the essential SQMPs to counteract SQR. This is vital for food machinery manufactures, as well as for other industries facing SQR and for industries in which companies compete on quality.
Finally, the knowledge regarding the drivers and barriers for performing SQMPs can provide input for buy-ing managers to overcome the barriers for successfully implementbuy-ing SQMPs and to establish conditions (i.e. drivers) which promote SQMPs. This study indicates that buying managers facing these risks should acquire the right expertise and knowledge needed to perform these practices. For some practices multiple disciplines (e.g. engineering, quality department) need to be involved to make the practices successful. Moreover, purchasing managers need to gain top management support to attain the required resources.
5.3 Limitations and directions for future research
This study has several limitations and offers several directions for future research. First, a limitation of this study might be the restricted number of cases investigated and the relatively small amount of units in-volved. This can influence the validity of the conclusions especially regarding which SQMPs are beneficial for which SQMPs because this part is not strengthened with quantitative data. However, in-depth knowledge is obtained from this research sample showing useful results. More extensive research with a larger research sample, based on objective data, will be beneficial for strengthening the conclusions.
Second, various SQR sources occurring at the same time is not addressed in this research. As such, this research does not cover how the SQR sources jointly impact the level of SQR faced by a company. Future research should investigate the effect of various SQR sources occurring at the same time.
research within industries with different business circumstances to validate a broader application of the framework.
Finally, based on the results I would suggest additional research on two SQR sources. Disagreement exists among: ‘Non-existence of a quality management system at supplier’ and ‘Supplier scarcity’. First, the non-existence of standard internationally accepted quality management system certificates (such as ISO) at the supplier, does not influence the SQR a company is facing (Lo and Yeung, 2006). Nonetheless the presence of a quality management system in general -one that assures good quality at the supplier- seems to reduce the SQR faced, but more investigation to support this. Second, although it is clear that supplier scarcity brings several supply risks (delivery reliability, price etc.), more investigation is needed to understand its influence on SQR.
This investigation raised some questions for future research as well. First, it remains interesting for future research to investigate SQR from a dyadic buyer supplier relationship approach. This study looked only at one side of the buyer-supplier dyad: the buying firm respondents’ perceptions. A dyadic study of the buy-ing firms and their suppliers would provide balance and insight into how suppliers perceive the SQMPs to counteract SQR. Likewise, how effective are the buying firms SQMPs and what is the actual effect on the business performance? How much effort does the buying firm actually take to make these efforts effective?
Moreover, the question remains if SQR can be counteracted by risk sharing or by risk shifting. In this re-search a framework is created for risk reduction by using SQMPs. A full risk avoidance my not be realistic for some SQR sources. Counteracting SQR by risk sharing or risk shifting is interesting to explore in future research.
5.4 Conclusion
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APPENDIX I: QUESTIONAIRES FIRST STAGE
General questions
1. How many employees does your business unit have? What is the annual sales revenue per year of your business unit? 2. Please fill in the business characteristics related to your business unit. Please elaborate on your answers.
a. What is your decoupling point? Make-to-order
Make to stock Mix of both
b. What would you define as your order winners? Flexibility / quality
Speed / Costs Mix of both
Other________________ c. What is your core production technology?
Flexible manufacturing Mass production Mix of both SQR definition
3. How would you define SQR?
4. Can you give several examples of components / suppliers where your business unit faces high SQR? Please elaborate why? SQR Sources
Please answer, to which extent each SQR source described below, is related to supply quality risk. Please give an explanation and
an example.
5. Is the complexity of outsourced components, related to SQR? ○ Not at all ○ Little ○ not little / not much ○ much ○ very much 6. Are frequent design changes to outsourced component, related to SQR?
○ Not at all ○ Little ○ not little / not much ○ much ○ very much 7. Is global sourcing of the outsourced products, related to SQR?
○ Not at all ○ Little ○ not little / not much ○ much ○ very much 8. Is supplier scarcity, related to SQR?
○ Not at all ○ Little ○ not little / not much ○ much ○ very much 9. Are poor supplier capabilities/competences, related to SQR?
○ Not at all ○ Little ○ not little / not much ○ much ○ very much
10. Is the non-existence of a quality management system at the supplier, related to SQR? ○ Not at all ○ Little ○ not little / not much ○ much ○ very much
11. Is the non-existence of a quality focus at a supplier, related to SQR? ○ Not at all ○ Little ○ not little / not much ○ much ○ very much 12. Is a multiple-tier supply chain of the outsourced component, related to SQR?
○ Not at all ○ Little ○ not little / not much ○ much ○ very much 13. Any other factors that are related to SQR that have not been mentioned yet?
APPENDIX II: QUESTIONAIRES SECOND STAGE
General open questions
1. How would you describe the general attitude of your organization towards managing SQR?
2. Can you indicate the important supply quality management practices to counteract each SQR source from the first stage? Case questions
3. Can you come up with a component where SQR is high? Can you briefly describe why this is a high risk case by explaining the potential consequences?
4. Can you name the SQMPs performed to deal with the SQR, in the situation of the case? SQMPs questions
5. Performs your company the SQMPs described below?
Please explain in detail why your company performs this practice, and if possible, explain why not?
Supplier selection
Construct 1: supplier quality culture
We select the supplier on how they integrate quality throughout their daily activities Why/why not? We select the suppliers based on the willingness to work toward continuous improvement Why/why not? We select the supplier having sufficient design and technical capabilities to ensure quality Why/why not? Construct 2: supplier quality system
We select the supplier on having a reliable quality assurance system Why/why not? We select the supplier on if he is able to control operations for ensuring quality Why/why not?
Supplier development
Construct 3: direct involvement
We inform the supplier of quality problems Why/why not?
We perform supplier evaluation Why/why not?
We provide performance feedback to the supplier Why/why not?
We provide the supplier sufficient technical assistance Why/why not?
We provide the supplier the necessary resources Why/why not?
We involve the supplier in purchasing Why/why not?
We foster the relation between supplier performance and long-term competitiveness Why/why not? Construct 4: credibility
We view the supplier as an extension of operations Why/why not?
We commit to allocate sufficient resources in supplier training Why/why not?
We review our purchasing policy regularly Why/why not?
Construct 5: purchasing practice
We emphasize quality in purchasing Why/why not?
We develop the purchasing requirement with the supplier Why/why not? We emphasize on a two-way communication with the supplier Why/why not? We set suppliers’ continuous improvement as a company goal Why/why not? Construct 6: buyer-supplier interaction
We provide supplier awards and certification Why/why not?
We provide training for the supplier Why/why not?
We inviting the supplier to company activities Why/why not?
Supplier Integration
Construct 7: strategic aspect
We are jointly setting up business strategies with the supplier Why/why not? We are aligning the supplier’s business direction to company mission Why/why not?
We are involving the supplier in planning process Why/why not?
We foster openness of communication with the supplier Why/why not?
We are involving the supplier in product design and development activities Why/why not?
We exchange operational information with the supplier Why/why not?
Construct 8: buyer-supplier relationship
We are involving the supplier in problem identification and prevention Why/why not?
We are offering the supplier long-term contracts Why/why not?
We foster on mutual trust with the supplier Why/why not?
We aim to create a win-win relationships with the supplier Why/why not?
We are jointly solving quality problems Why/why not?
We foster on keeping up a good relation Why/why not?
We are mutually sharing knowledge in quality improvement Why/why not?
We select our best partners for quality improvement Why/why not?
Construct 9: operational aspect
We are updating our operational information properly Why/why not?
We are mutually sharing design and marketing information Why/why not? Construct 10: alliance
We adjust the marketplace conditions with the supplier Why/why not?
We assist the supplier in potential high risk projects in quality improvement Why/why not?
We perform supplier base reduction Why/why not?
We are reducing the level of incoming goods inspection Why/why not?
APPENDIX III: QUANTATIVE DATA FIRST STAGE INTERVIEWS
A. Scores of importance SQR Sources
(1) S trate g ic B u y er (2 ) S trate g ic B u y er (3 ) Op era ti o n al Bu y er (4 ) Qu ali ty m an ag er (5 ) Qu ali ty M an ag er (6 ) S u p p ly C h ain m an . (7 ) M an ag er m an u fa ct . (8 ) S trate g ic B u y er (9 ) M an u fa ctu ri n g d irec t. (1 0 ) S trate g ic Bu y er (1 ) S trate g ic B u y er
Limited knowledge of application and market requirements 5 5 5 5 5 5 5 5 5 3 4,8
Critical component for buyer’s system 5 5 4 5 5 5 5 5 5 4 4,8
Supplier lacks the required abilities and competences 5 4 4 4 5 5 5 5 5 3 4,5
Non-existence of a quality focus at supplier 5 5 4 5 5 5 5 4 4 3 4,5
Complex components 5 5 3 3 5 5 5 3 3 3 4
Frequent product design changes 5 4 3 3 1 2 4 4 4 2 3,2
Sub-tier supply chain 3 4 3 4 4 4 4 4 3 3 3,6
Non-existence of a quality management system 4 3 3 3 4 4 3 4 3 2 3,3
Global source 4 3 3 3 3 4 3 3 3 2 3,1
Supplier scarcity 4 3 2 1 4 3 2 2 2 2 2,5
B. Pearson correlation coefficient calculation
(1) S trate g ic B u y er (2 ) S trate g ic B u y er (3 ) Op era ti o n al Bu y er (4 ) Qu ali ty m an ag er (5 ) Qu ali ty M an ag er (6 ) S u p p ly C h ain m an . (7 ) M an ag er m an u fa ct . (8 ) S trate g ic B u y er (9 ) M an u fa ctu ri n g d irec t. (1 0 ) S trate g ic Bu y er Strategic Buyer 1 0,63 0,56 0,37 0,18 0,30 0,64 0,40 0,67 0,35 Strategic Buyer 0,63 1 0,69 0,74 0,48 0,59 0,91 0,52 0,63 0,81 Operational Buyer 0,56 0,69 1 0,90 0,47 0,66 0,79 0,85 0,90 0,62 Quality manager 0,37 0,74 0,90 1 0,44 0,66 0,83 0,85 0,81 0,75
Quality Interim Manager 0,18 0,48 0,47 0,44 1 0,90 0,46 0,27 0,27 0,68
Supply Chain manager 0,30 0,59 0,66 0,66 0,90 1 0,66 0,45 0,47 0,73
Manager manufacturing 0,64 0,91 0,79 0,83 0,46 0,66 1 0,72 0,79 0,79
Strategic Buyer 0,40 0,52 0,85 0,85 0,27 0,45 0,72 1 0,92 0,61
Manufacturing director 0,67 0,63 0,90 0,81 0,27 0,47 0,79 0,92 1 0,64
Strategic Buyer 0,35 0,81 0,62 0,75 0,68 0,73 0,79 0,61 0,64 1
(Pearson correlation coefficient) ρ 0,67
C. Fleiss' kappa factor calculation 1 2 3 4 5 Pi
Limited knowledge of application and market requirements 0 0 1 0 9 0,80
Critical component for buyer’s system 0 0 0 2 8 0,64
Supplier lacks the required abilities and competences 0 0 1 3 6 0,40 Non-existence of a quality focus at supplier 0 0 1 3 6 0,40
Complex components 0 0 5 0 5 0,44
Frequent product design changes 0 0 4 6 0 0,47
Sub-tier supply chain 0 1 5 4 0 0,36
Non-existence of a quality management system 1 2 2 4 1 0,18
APPENDIX IV: IMPORTANT QUOTES FROM SECOND STAGE INTERVIEWS (1) Strategic Buyer (2) Strategic Buyer (3) Operational Buyer (4) Quality Manager (5) Quality Manager (6) Supply Chain Manager (7) Production Manager (8) Purchasing Manager (9 )Production Director (10) Strategic Buyer
1) Supplier has limited knowledge of product application and market requirements
Supplier selection (Supplier quality culture): We select the supplier having sufficient design and technical capabilities to ensure
ality
“We select suppliers based on how they connect with our product range, we make sure that they have sufficient knowledge”
(1) “Strategic purchasing must tackle this problem by selecting capable suppliers” (2) “It is convenient, when you selected suppliers who already have this knowledge” (4) “A good selection process should cover that the suppliers have the right capabilities to deal with this issue” (7)
“Select suppliers who have knowledge and experience in our market” (8)
Supplier development (Direct involvement): We provide the suppliers with sufficient technical assistance
“We provide the supplier with an overview of the necessary information regarding norms which the supplier should apply”
(1) “We provide the supplier with the necessary documents regarding the important guidelines related to our market. I visit
suppliers to transfer this kind of knowledge”
(4)(10)
“Our quality manager assists the supplier with this kind of issues” (6)
“We support the suppliers in understanding the process of making the components in accordance with the requirements” (9)
Supplier development (Buyer supplier interaction): We provide training for the supplier
“Educating your supplier is important in this case, as not many suppliers have experience in our market” (3)(8) “Supplier trainings are beneficial to clarify and transfer basic knowledge regarding the component and the important
market requirements”
(4) “Supplier training is a good method to transfer knowledge regarding important market requirements” (6) “We should assist them with developing a good way to produce the components” (9) “We developed training programmes to communicate the important requirements” (10)
Supplier development (Buyer supplier interaction): We invite the suppliers to company activities
“Creating awareness by inviting the supplier to our factory and showing the application of the component they supply” (1) “A good method is to bring the supplier to our factory so they know how our machine works and looks like” (2) “A food safety day will be a good possibility to invite our suppliers and learn them about the market requirements” (6) “Organizing a supplier day is a good method to let the supplier know how the industry works” (7)
“We invite the supplier to visit our customer” (8)
“Invite the suppliers to our company so they better understand our product” (9)
Supplier Integration (Strategic aspect): We are involving the supplier in design and development activities
“Most important is to involve your supplier early in the development process so they understand the functionality and the requirements of the component.”
(5)(9) “Developing the specifications together with the supplier and including the important industry requirements” (10)
Supplier Integration (Buyer supplier relationship): We foster on keeping up a good relation
“We focus on partnerships. Building a good relation by emphasising that the supplier has the same customer as we have”
(1) “Supplier Relation Management (SRM) meetings are important to discuss this topic. It is important to remain a good
relation”
(6) “Investigating in the relationship helps to reduce the risks. Suppliers better know what is important for our products and
what important market requirements exist in this industry.”
