Just in Time, Quality Management, Supply Chain Management, and Business Performance: A Structural Analysis

Just in time, quality management, and supply chain management are three philosophies firms have used to respond to competitive forces and enhance business performance. They are also complementary strategies that can be used as part of an integrated strategy to streamline material flows, reduce waste, and improve product quality, while satisfying market demands for shorter lead times, increased responsiveness, and lower cost. This study proposes and tests a structural equation model that relates just in time, quality management and supply chain management practices with a firm’s supplier management practices and identifies their relationships with business performance. Results indicate that while just in time, supply chain management, and quality management strategies are mutually supportive, quality management alone has a direct impact on business performance. INTRODUCTION Firms have in recent years adopted just in time (JIT), quality management, and supply chain management practices in an attempt to respond to competitive pressures. The elimination of waste espoused by the just in time philosophy, the customer and continuous improvement focus of the quality management movement, and the integration of buyers’ and suppliers’ decision-making processes called for by supply chain management advocates, have each been promoted as ways to improve product quality, reduce lead times, increase responsiveness, and reduce product cost. While the foci and motivation of the three philosophies differ, the three are not mutually exclusive. For example, one of the goals of the just in time approach, which places substantial emphasis on supplier relationships, is to elicit quality improvements accruing from small lot production, while supply chain management seeks improvements in quality and materials management by bringing together buyers and suppliers early in the product development process. While there is support for the notion that manufacturing excellence requires the use of multiple, complementary practices and strategies (e.g., Schonberger, 1986, 1990, Rehder, 1989), there is little empirical evidence to support it. Sakakibara et al. (1997) suggested that the impact of the JIT approach on performance is largely a function of the required strategic infrastructure, which includes a focus on quality management and the integration of the JIT philosophy into a broader strategic framework. Nakamu ra et al., (1998) suggested that improving manufacturing performance requires a strategy that embraces elements of both JIT and quality management philosophies. Flynn et al., (1995a) demonstrated that quality management and just in time practices were mutually supportive and that there were synergies attributable to their combined use. Tan et al., (1998) suggested that rationalizing the supplier base must occur in conjunction with efforts to improve quality to achieve benefits in business performance. This study extends prior research by developing a structural equation model that integrates JIT and quality management with efforts to manage the supply chain, and to identify the impact each has on each other and on a firm’s business performance. JIT, QUALITY MANAGEMENT, SUPPLY CHAIN MANAGEMENT, AND PERFORMANCE The use of the JIT practices has been consistently shown to be associated with reductions in inventory (e.g., Callen, et al., 2000, Droge and Germain, 1998, Fullerton and McWaters, 2001, Germain and Droge, 1998, Huson and Nanda, 1995, Nakamura et al., 1998), improvements in quality (e.g., Fullerton and McWaters, 2001, Lawrence and Hottenstein, 1995, Nakamura et al., 1998), and improvements in throughout performance (e.g., Flynn et al., 1995a, Fullerton and McWaters, 2001, Lawrence and Hottenstein, 1995, Nakamura et al., 1998). Studies have also shown that the use of JIT is associated with improved business performance. In particular, improvements in both financial (Callen et al., 2000, Fullerton and McWatters, 2001, Germain and Dröge, 1998, Germain et al., 1996, Huson and Nanda, 1995, Mia, 2000), and market performance (Germain et al., 1996, Germain and Dröge, 1998) have been attributed to the use of JIT methods. The quality management literature contains several studies identifying relationships between the underlying Vijay R. Kannan, Keah Choon Tan The First International Conference on Electronic Business, Hong Kong, December 19-21, 2001. dimensions of quality management and performance. Customer satisfaction (Anderson et al., 1995, Flynn et al., 1995), product quality (Ahire et al., 1996, Dow et al., 1999), as well as broader measures of manufacturing performance (Flynn et al., 1995b, Samson and Terziovski, 1999), have been shown to be positively associated with quality focused strategies. Studies have also demonstrated a positive relationship between the use of quality management methods and various measures of financial and market based performance (Handfield et al., 1999, Kannan et al., 1999, Powell, 1995). While no evidence exists of the impact on performance of integrated supply chains, in which purchasing, manufacturing, and logistics are fully integrated, evidence does exist of the impact of logistics and purchasing specific supply chain management practices. From a logistics perspective, inter-firm coordination (Stank and Lackey, 1997, Stank et al., 1999, Fawcett and Clinton, 1996), functional integration (Stank and Lackey, 1997), a customer focused logistics strategy (Fawcett and Clinton, 1996, Stank and Lackey, 1997), and the management of logistics as an integrated activity (Fawcett and Clinton, 1996) have all been shown to be positively associated with operational performance. From a purchasing perspective, supplier development (Scannell et al., 2000), supplier partnerships (Scannell et al., 2000, Groves and Valsamakis, 1998), supplier involvement (Vonderembse and Tracey, 1999), and strategic sourcing (Narasimhan and Jayaram, 1998) all positively impact the buying firm’s operational performance. In addition, supplier partnerships (Tan et al., 1998), supplier development (Curkovic et al., 2000) and supply chain flexibility (Vickery et al., 1999) have been shown to be positively impact the buying firm’s business performance. LINKING PARADIGMS While JIT, quality management, and supply chain management can independently impact a firm’s performance, they can also be elements of an integrated strategy aimed at improving performance by coordinating the strategies and objectives of supply chain members. To test this proposition, the following model is proposed: Figure 1. Proposed Structural Model The underlying premise of the model is that efforts to improve quality, lead time performance, and thus business performance requires a coordinated effort to improve the efficiency of material flows, focus on quality, and drive out waste throughout the supply chain. While individual strategies can impact performance, synergies exist by implementing them in a mutually supportive manner. Suppliers are a crucial element of any manufacturing strategy. Their commitment to coordinating material flows, providing quality inputs, and supporting the strategic needs of the supply chain will impact the buyer’s performance. This implies that buyers will pay attention to how they select and assess suppliers, and that evaluation criteria will be directly impacted by internal quality, supply chain management, and just in time strategies. METHODOLOGY A review of the literature and interviews with practitioners were carried out to identify appropriate indicators of supply chain management, quality management, just in time, and supplier management. Ten indicators of commitment to supply chain management, ten criteria used to select and evaluate suppliers, eight indicators of the importance of just in time principles, and thirteen quality management practices were identified (Appendix 1). Five point Likert scales were developed for each item that sought information on the importance of the item to the responding firm. Five commonly used measures of financial, market, and product performance were also identified. For each, a five point Likert scale was developed that sought information on the performance of the responding firm relative to that of its major competitors (Appendix 1). A survey instrument was developed based on the constructs described above. It was developed so as to achieve a high degree of content validity and to reduce the risk of common method bias. The instrument was pretested by thirty senior purchasing and materials managers, and where necessary changes made. The revised instrument was mailed to senior purchasing and materials managers in North America and Europe that were identified from National Association of Purchasing Management (NAPM) and American Production and Inventory Control Society (APICS) membership lists. Efforts were made to target respondents familiar with their organizations' supply chain management, operations, and quality efforts, and who could make meaningful judgments regarding relative firm performance. Five hundred and fifty six usable surveys were returned. Tests indicated that responses from North America and Europe were homogeneous and could thus be combined thus. Tests also indicated the absence of non-response bias. Responding firms varied in size from ten to two hundred thousand employees (median = 250), and had annual sales of between $ 20,000 and $ 30 billion (median = $ 30 million). Three hundred and seventy nine of the responses received (68%) indicated the use of supplier chain management practices. Subsequent analysis is based on these responses. Supply Chain Management