High technological and high product/service quality is included as critical criteria in supplier selection decision in this study. Product/service technology and quality are perceived to be the most important attributes, followed by cost and delivery performance.
As commonly shared among SCM scholars, technological capability management is highly evolving. In an era characterised by rapid technological advancement and product development, selection of suppliers needs to be done based on their technological capability to cope with short and medium term product development life cycle. Furthermore, providing technological support to manufacturers (Ellram, 1990; Lehmann and O‟Shaughnessy, 1974) and being involved in product development have gradually become more essential tendencies in supply chain management (Shin, Collier and Wilson, 2000).
However, having high quality products and technology alone will not guarantee business success if the product delivery performance is below par. Therefore, supplier product quality must also be carefully considered in the supplier selection decision as all these influencing factors are interrelated. Supplier quality mainly relates to product quality and capability to meet organisational requirements. Within the purchasing strategy, the standard of quality has always been something that plays a critical role (Dickson, 1966; Waber et al., 1991). Dickson (1966) mentioned that three factors which include: (1) the quality standards being met, (2) the ability to deliver the product punctually, and (3), the history of performance are the most essential deciding factors in supplier choice. In their study, Schonberger and Gilbert (1983) stated that over 50% of issues with the standard of
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goods, as highlighted by numerous businesses, may be down to the poor quality of the manufacturing materials supplied. The quality of the product has to meet customers‟ needs in the very least or even exceed the customer expectation level in order to gain and win the customers‟ trust for the product or goods. Taking this into account, this study includes high technological and quality product/service as a factor of supplier selection. In today's competitive operating environment
For Lewis in one of the
Given the above discussion and to address the research question one, the following hypothesis is posed:
H1: High product quality and technology are positively related to the supplier selection.
The interrelation of the criterion high quality of technology and product/service with the price of these criteria is what has an influence on the supplier selection. Thus the sub hypothesis (H1a) was developed based upon the argument that follows.
Comparing products within the same category or standard in the current economic climate is made more intense by the continuous capacity to improve research and retrieval of information. Businesses and clients begin to make international enquiries about pricing. Enterprises of manufacturers that have a production of similar products with a decreased content of technique have incredibly large requirements for the price of spare parts and raw materials. This is a result of the pressure involved within the competitive market. Raw materials of high standard as well as spare parts are sought out by businesses that produce goods of a high technique content where the costs do not differ.
A direct effect is had on the quality of goods, market reputation, product profits to firms and the evidence of product cost setting; by the development of the content of product technique. In upgrading the product technique standard, a significantly higher price of product is made achievable.
However, as the cost of the raw material could increase its quality level, this proves that the supplier selection decision not only depends on the price but also on the quality level of the raw material (Emre Alptekin and Gülfem Işıklar Alptekin (2009).
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The standard of spare parts and raw materials directly affects the product standard of the company, impacting further on the reputation, market occupancy within the industry and the quantity of future orders. The standard of the raw materials and spare parts is also likely to impact upon the repairs and production, returns and recalls following sales alongside the potential law-influenced predicaments for the companies. These elements with the occurrence probability of a low significance will greatly impact upon market survivals and the corporate continuity of operation.
The companies have significantly large space of setting price products of a high quality standard. Subsequently, it can form the underlying ground of for receiving increased profits from sales, development of technique and corporate growth. Leading businesses will uphold the partner relationship with suppliers of spare parts and raw materials with differing cost and standards (Shu, T.S. Chen and B. L MacCarthy, 2007).
Xia and Wu (cited in Wang and Che 2007), stated that a lot of manufacturers maintained that suppliers proposing the most reduced unit costs were not always able guarantee the best service performance or highest quality and technology standard. They highlighted the fact that supplier evaluation can aim to make a decision that contains multiple objectives of the most reduced price, highest quality and best service performance (Wang and Che 2007). The production of low priced, high quality goods without a well-chosen supplier is virtually impossible (Charles A. Weber, John R. Current and W.C. Benton 1991.)
Quoting Anderson and Narus (p.5) value is “the worth in monetary terms of the economic, technical, service, and social benefits a customer firm receives in exchange for the price it pays for a quality product and services offering”. Then again, a lot of consumers consistently consider price as a representation of the standard of product quality (Scitovszky, 1945). This is due to the fact that they maintain the belief that in order to manufacture a better quality product, a higher cost is required, which definitely results in an increased sale price. In accordance to Anderson and Narus‟ analysis, the managerial phenomenon that can be drawn is as follows: (1) in a marketing environment where hearsay or „word-of-mouth‟ is insignificant, increased costs must be determined by heightened standards of quality. On the other hand, reduced prices within this market do
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not have to be determined by a lower standard of quality. (2) If it impacts by diffusing the rate of demand, it may be that increased prices work alongside either higher or lower quality standards.
In terms of products/services and the pricing factor, high quality products/services are commonly associated with high prices. Most organisations seek to acquire high quality products/services but many are not willing to spend large amount of money to finance the purchase. In some extreme cases, organisations are willing to forgo quality at the expense of cheaper products which contribute higher profit margin for the companies. However, in the long run, such a procurement strategy may work against them because cheaper products with lower quality may require additional maintenance costs and result in higher incidents of customer complaints. The interrelation between price and quality are some of the trade-offs that purchasing managers have to decide on during the supplier selection process (Dickson, 1966).
Taking the above discussion into account the following hypotheses are posed to address research question two:
H1a: There is a significant positive relationship amongst high product/service quality and price; the relationship has an influence on supplier selection.
H1b: There is a significant positive relationship between high technology quality and supplier delivery performance; the relationship has an influence on supplier selection.
As mentioned before, the interrelation of the criterion high quality of technology and product/service with the delivery performance of these criteria is what has an influence on the supplier selection. Thus the sub hypothesis (H1b) was developed based upon the further argument that follows.
Generally, the process of selection of the supplier and assessment of it was primarily formulated around the choice of the cheapest supplier, with a disregard towards any other significant elements like those linked to production breaks, delayed delivery times and a poor standard of products ( Aretoulis, G. N et. al,. 2010).
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The good quality of products and services from the supplier will help to improve the delivery services to the customer. Suppliers who can maintain their product quality are not likely to encounter too many reworks or return products ,thus they will be able to concentrate on the improvement of delivery performance and may also reduce the manufacturing lead-time due to a proper quality management arrangement, resource planning and delivery schedule.
Furthermore, (Kannan and Tan (2002), concluded from their survey that a positive correlation is found between the supplier product quality and delivery performance. Suppliers ability to deliver high quality products on time, signals that the suppliers are capable of meeting the delivery and meet the quality standards as required.