An agency theory perspective on supply chain quality management

Abstract

PurposeThe purpose of this paper is two‐fold: to examine two approaches buying firms can utilize to manage supplier quality; and to investigate the ways in which factors inherent in supply chain relationships affect the use of these approaches in supply chain quality management.Design/methodology/approachDrawing on agency theory, this paper proposes a conceptual framework that relates the underlying factors of a supply chain relationship to the use of quality management approaches. Two types of approaches, outcome‐based and behavior‐based, are discussed in terms of their focuses, purposes, and methods. Propositions are developed about the effects of these factors on the decisions buying firms make about supply chain quality management.FindingsThis study suggests that rather than relying on one generic supply chain quality management approach for all suppliers, firms need to choose different management mechanisms for different suppliers based on the salient attributes of individual suppliers and their relationships with the buyers. Five types of agency‐based factors are discussed. These factors – information asymmetry, goal conflict, risk aversion of suppliers, length of relationship, and task characteristics – can be expected to influence how firms design and manage their quality management systems for supply chains.Practical implicationsA 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 firm's supply chain quality management system.Originality/valueHaving an effective quality management system of a supply chain is essential for maintaining a smooth supply of high quality products and services to customers. However, little is known about how a firm should design this supply chain quality management system. The paper addresses this gap by applying agency theory to examine the two essential approaches to managing supplier quality and to explore the critical factors that should be taken into account when considering the appropriate approaches for different suppliers.