Maintaining the quality focus in the business-to-business auction model

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  • SystemsResearchandBehavioralScienceSyst. Res.21, 651^661 (2004)DOI:10.1002/sres.545

    & ResearchPaper

    Maintaining the Quality Focus in theBusiness-to-Business Auction Model

    Mahmoud M. Yasin1, Andrew J. Czuchry2* and Paul E. Bayes3

    1Department of Management and Marketing, East Tennessee State University, Johnson City, Tennessee, USA2College of Business and College of Applied Science and Technology, East Tennessee State University,Johnson City, Tennessee, USA3Department of Accountancy, College of Business, East Tennessee State University, Johnson City,Tennessee, USA

    The growth of business-to-business auctions presents the quality-focused businessorganization with many opportunities and some serious challenges. In this context, theabsence of a well-designed organizational e-business auction-based strategy has thepotential to promote business practices which may erode organizational quality gains.This article presents a conceptual open system approach designed to improve the qualityfocus of business-to-business auctions practices. The open system approach advocated inthis article is quality focused and supply-chain sensitive. Copyright # 2004 John Wiley &Sons, Ltd.

    Keywords business-to-business auction model; organizational quality efforts; strategicchallenges and opportunities

    INTRODUCTION

    The technological revolution being experiencedby todays information-intensive business orga-nizations is resulting in a significant growth inbusiness-to-business and e-commerce businessactivities and practices. On the other hand, in thelast two decades, many business organizationsall over the globe have made quality-basedstrategies such as Total Quality Management(TQM) and Continuous Improvement (CI) theirstrategic choice. The focus of these quality-based

    strategies and associated initiatives is on enhan-cing the quality of products and services deliv-ered to customer. However, the results of thesequality improvement strategies and initiativeshave been less than desirable for some organiza-tions (Miller, 1992; Hoover, 1995; Lackritz, 1997).The lack of understanding of the different facetsof quality and their costs may have contributedto this apparent failure of quality improvementefforts (Feigenbaum, 1990; Yasin et al., 1999a;Czuchry and Yasin, 1999; Carr and Ponemon,1994). In this context, approaching qualityimprovement from a closed system organiza-tional perspective, which promotes a piecemealorientation rather than an organizational-widestrategic orientation, is behind this apparentfailure. The closed system focus fails to capitalize

    Received 9 October 2002Copyright # 2004 John Wiley & Sons, Ltd. Accepted 26 February 2003

    * Correspondence to: Dr A. J. Czuchry, College of Business andCollege of Applied Science and Technology, East Tennessee StateUniversity, P.O. Box 70552, Johnson City, TN 37614-1707, USA.E-mail: CZUCHRY@MAIL.ETSU.EDU

  • on the resources and contributions of thedifferent subsystems of the business organiza-tion. Furthermore, the closed system focusignores the role of suppliers and customers inthe quality improvement efforts.

    Through the years, managements view ofquality and the cost of quality has evolved froma closed system orientation, where the return onthe quality initiatives is not fully realized orunderstood, to an open system orientation,where the cost of quality information is used asa managerial tool in operational and strategicdecision making (Shank and Govindarajan,1994). The practical benefits derived from theopen system orientation to quality managementinclude strategic, operational and customer-related benefits (Czuchry et al., 1999). However,the increased use of the Internet and web-basedtechnologies threatens to turn the clock back onthe open system quality management orientationand in the process compromises its organiza-tional benefits. Nowadays, more and moresuppliers are being enticed into a price-onlyconsideration through auction-based business-to-business practices. Such practices have thepotential to comprise the quality focus achievedthrough extensive investment and organiza-tional efforts in recent years.

    In light of the growth of auction-based busi-ness-to-business practices, the objective of thisarticle is to present a conceptual approach aimedat maintaining and improving the quality focusof these auction-based business-to-businesspractices. The approach advocated in this articlecapitalizes on an open system orientation topromote and improve the quality of auction-based e-business practices throughout the sup-ply chain. In this context, the advocatedapproach attempts to create synergy betweenthe organizational quality initiatives and infor-mation technology-based innovative businesspractices.

    COST OF QUALITY

    For the quality improvement initiatives in formsof TQM and CI to be effective, the organizationmust have a formal cost of quality (COQ) system.

    In addition, the organization must determinewhat costs should be tracked by this system.Thus, a critical facet of an organizations TQM orCI effective utilization is its ability to measure,monitor and document costs related to quality.As Armand Feigenbaum (1990) states withregard to COQ, unless it can become measur-able, it cannot be manageable.

    In the context of quality management, thedevelopment and utilization of a formal organi-zational COQ system which gathers and inte-grates information from accounting, operations,and marketing, then makes it available tomanagement, has significant operational andstrategic benefits to the business organization.Through the utilization of such a system, opera-tional quality can be linked to strategic effective-ness (Greising, 1994). In this context, a COQsystem provides the means for monitoringoperational performance relative to establishedbenchmarks and identifying areas for improve-ment with respect to costs (Metzer, 1993). Thus, itcan facilitate the identification and elimination oforganizational non-value-added activities whichdo not provide or enhance quality from acustomers perspective. In the process, sourcesof hidden costs, which may amount to as muchas 2030% of revenues (Carr, 1994; Greising,1994), are uncovered and dealt with. In addition,the information generated from a COQ systemmay be used to determine the financial impact ofquality and its costs on products, services, andprocesses failure. Such financial benchmarks, inturn, may be used to generate support andprovide financial justification for future qualityimprovement initiatives. Thus, they serve as abasis for furthering organizational quality invest-ments throughout the operational system(Metzer, 1993; Corradi, 1994).

    COQ has also been credited with the ability tobestow many strategic benefits to the organiza-tion. The information generated by such a systemmay serve as a baseline by which improvementsmay be measured against strategic targets. Thus,information from a COQ system can become avaluable input to the organizational strategicplanning processes. Such information may beused to conduct analyses pertaining to thereturn on quality enhancement expenditures

    RESEARCH PAPER Syst. Res.

    Copyright 2004 John Wiley & Sons, Ltd. Syst. Res. 21, 651^661 (2004)

    652 Mahmoud M.Yasin et al.

  • (Campanella, 1990; Greising, 1994). Other strate-gic benefits of a COQ system include theidentification of time lags in relation to qualityinvestments pay-off. Also, further insights intothe nature of the relationships between qualitycost categories can be gained through theutilization of such information (Campanella,1990). In this context, when the COQ system isutilized to augment the existing accountingpractices, it can provide top management witha guide for making cost-related, fact-basedstrategic decisions (Corradi, 1994). Therefore,the design of the COQ measurement systemshould be consistent with the metrics of CIefforts. Such consistent design contributes toorganizational synergy, as it facilitates theeffective generation and utilization of quality-related information throughout the organization(Czuchry et al., 1995). It is to be noted that theoperational and strategic benefits of a formalizedCOQ system are emphasized and reinforced inseveral quality documents and specifications,including the Baldrige National Quality Program(2002), MIL-Q-9858A, and the ISO quality systemstandards.

    When the design of the COQ system is faulty,return on the quality investments, as well as thecosts of failure to meet quality standards and/orcreate customer satisfaction, will not be fullyrecognized or understood by management(Shank and Govindarajan, 1994). This leads toan inspection approach to quality managementas illustrated in Figure 1. Under this approach toquality, the engineering, manufacturing, andlogistics support functions act autonomously.Such system performance specifications become

    the driving consideration, while producibility,maintainability, logistics support and life-cyclecosts considerations are neglected or given onlytoken consideration. This approach to qualitymanagement is consistent with the closed systemview of the organization. In this context, aninternal, operational efficiency focus is prevalent,with little, if any, emphasis on external andstrategic interactions with vendors and custo-mers.

    In contrast to the traditional paradigm, thenew quality paradigm is based on a philosophyof CI and meeting customer expectations. Underthis approach, management understands thatproducing for quality can be cost-effective, sincethe benefits of delivering quality products andservices, in many cases, far outweigh up-frontexpenditures. Responsibility for quality restswith everyone in the organization, not just thequality subsystem. Quality is designed andbuilt into products and services from the bottomup, and emphasis is placed not only on conform-ing to standards but also outperforming them.Under this approach, the cost of a quality systemis designed with a broader organizationalperspective in mind. Thus, it is an integratedsystem.

    A design approach to quality, as illustrated inFigure 2, promotes quality, product design, andlogistics support design to a status equal to thatof a system performance. Furthermore, the totalsystem design makes its management in anintegrated fashion relatively easier. Finally, thecustomer plays an important role in this opensystem orientation, as illustrated in Figure 3.From an information exchange viewpoint, a

    Figure 1. An inspection approach to quality

    * A piecemeal approach to the cost of quality* The cost of quality is an afterthought and lacks systemic integration* Functionally each organization acts autonomously* System performance specifications are the driving consideration* Producibility, maintainability, logistics support, and/or life-cycle costs are rarely considered

    Syst. Res. RESEARCH PAPER

    Copyright 2004 John Wiley & Sons, Ltd. Syst. Res. 21, 651^661 (2004)

    Maintaining Quality Focus in B-2-B Auction Model 653

  • partnership approach encourages the organiza-tion and customers to exchange informationunique to each because of their inherent anddifferent core competencies.

    Generally speaking, the customer has moredetailed knowledge of the logistics supportenvironment, while the organization possessesfundamental design and manufacturing exper-tise. Therefore, transparency encourages thisknowledge to be freely exchanged and resultsin an iterative process which is winwin based.In this context, design specifications can benegotiated to obtain the appropriate balancebetween system performance, manufacturability,supportability and life-cycle costs.

    Under this approach to quality management,suppliers selection is based on informationregarding total life-cycle costs, not just the initialcosts. Adjustments and alignments are made tothe cost accounting and cost managementsystems in order to enhance the validity andavailability of COQ data. Finally, under the newparadigm, the COQ information is used as amanagerial tool in assessing cost-related expen-ditures, for tracking costs, and to augment otherforms of information utilized as inputs tooperational and strategic decision-making pro-cesses (Shank and Govindarajan, 1994). Thisapproach is consistent with the open systemview of the organization. Such a perspective

    Figure 2. A design approach to quality

    * The cost of quality system utilizes an organization-wide integrated approach* The performance, product, and logistics support system design problems are treated in an integrated/combined manner

    Figure 3. The role of the customer

    * From an information viewpoint the interesting consideration is what is exchanged and what changes or iterations arepossible

    * The cost of quality system integrates both internal and external information to achieve a quality and a customer focus

    RESEARCH PAPER Syst. Res.

    Copyright 2004 John Wiley & Sons, Ltd. Syst. Res. 21, 651^661 (2004)

    654 Mahmoud M.Yasin et al.

  • promotes interactions with customers and sup-pliers, as the organization attempts to improveinternal efficiency and external strategic effec-tiveness.

    WEB-BASED BUSINESS PRACTICES ANDQUALITY

    With the above discussion as a backdrop,consider the impact of web-based technologyon the information flow between the customersand organizations competing for market share.Figure 4 illustrates a simplified value chainmodel for an organization interested in imple-menting both supply chain management (SCM)and customer relationship management (CRM).Ideally, the organization evaluates sources forraw material, parts, and major subsystems withimportant benefits to the customer as measuredby customer, satisfaction with products andservices in mind. When dealing with complexemerging technologies, customers often have anincomplete set of product specifications andsomewhat vague requirements. In order tocapitalize on the potential for technical innova-tion throughout the value chain, care must betaken to avoid compromising long-term businessrelationships for near-term gains. In this context,this risk is likely to become more pronouncedwhen the depersonalizing nature of rapid web-based transitions is involved.

    When dealing with SCM in complex markets,business relationships that rely on trust are veryimportant (Handfield and Bechtel, 2002). Theextent to which the Internet and web-basedinformation and communications technologiespromote trust in a business relationship isperhaps dependent on the manner in whichbusiness is conducted in relation to this informa-tion technology mode. To illustrate this point, theauthors show the framework in Figure 4, using abusiness-to-business auction model to identifypotential pitfalls. Next, examples are cited tosuggest good and bad Internet business prac-tices in the context of long-term businessrelationships. Finally, the discussion ends withsome managerial implications regarding theapplicability of auction-based e-business models.

    Organizations implementing SCM and CRMappear to be increasingly dependent upon web-based technologies to accelerate transactions.However, before organizations implement w...

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