Integration and self regulation of quality management in Dutch agri-food supply chains : a cross-chain analysis of the poultry meat, the fruit and vegetable and the flower and potted plant chains

Introduction During the last decade, concerns about quality and safety in agri-food supply chains have been raised. Several sector-wide crises, such as the BSE and the dioxin crises, classical swine fever and foot-and-mouth disease and Aviaire Influenza have fuelled these concerns. These concerns may not only be limited to safety and quality issues, but also important ethical concerns are raised, for example, concerning preventive slaughtering of animals. Due to all this attention, consumers have become more critical regarding the food products they buy. The EU and the national governments have also reacted on the above mentioned crises by setting up regulations for quality and safety of agri-food products. Furthermore, retailers have introduced quality management standards, such as BRC and Eurep-GAP in which they impose quality requirements on their suppliers. In order to comply with the quality requirements of the government and the retailers, closely coupled agri-food supply chains have emerged. The essence of such closely integrated chains is to create collaboration and commitment in which partners share information, work together to solve problems, jointly plan for the future and make their success interdependent. Due to higher transparency firms are also better able to enforce quality requirements. However, concerns have been raised about the (administrative) burdens being placed on firms, because at the moment firms have to comply with many different private and public quality regulations. In order to reduce the compliance burdens, the Dutch Ministry of Agriculture, Nature and Food Quality wants to implement a new inspection policy, called ‘control-on-control’, whereby the private sector is assigned more responsibility for compliance with statutory regulations. The government operates at a greater distance, but retains the ultimate responsibility. Research questions Building and maintaining good businesses relationships between partners are daunting tasks. Therefore, understanding the factors that determine successful collaboration and integration on the one hand and self regulating of quality management systems in agri-food supply chains on the other hand is very important. Furthermore, it is important to find the right balance between the two important dimensions of self regulation, commitment and enforcement, which enables ‘control-on-control’. To address the challenges described above, three research questions are formulated: 1. Which (internal and external) factors have an impact on the integration of quality management systems in agri-food supply chains? 2. How do integrated quality management systems affect self regulation and performance in agri-food supply chains? 3. What is the best way to create self regulated quality management systems in agri-food supply chains? Although research interest in supply chain management is clearly growing, only a few studies have been directed to quality management practices in a supply chain perspective. The present study deals with this research gap by investigating the integration and self regulation of quality management in agri-food supply chains. Research model In this study a number of theories have been used. The Supply Chain Management (SCM) and Total Quality Management (TQM) theories are used to define the most important elements of quality management in a supply chain perspective. Due to intensive collaboration in the chain, for example, on quality management, higher performance for the individual firms in the chain is expected. Literature on buyer-supplier relationships frequently states that increased performance is likely to be best achieved by means of committed suppliers and buyers. For measuring performance of a firm buyer satisfaction and revenue growth of the firm were used. In addition, SCM emphasises the importance of information exchange by means of ICT which can be regarded as a catalyst for successful integration of supply chain processes. Transaction Cost Theory underlines the impact of transaction specific investments (TSIs) as needed for the integration of quality management. Due to strong collaboration in chains supported by these investments, opportunistic behaviour of the chain partners is to a large extent prevented. Furthermore, external drivers (media attention, legislative demands, changing consumer demands and societal demands for corporate social responsibility) put pressure on firms to integrate their quality management. From a Contingency Theory perspective a firm that faces more external pressures will be more inclined to integrate its quality management systems with its suppliers and buyers whereby the importance of the own quality strategy for the success of this integration is emphasised. As was already argued, the integration of quality management with suppliers and buyers is expected to have a positive impact on self regulation (commitment and enforcement), because firms get common goals and transparency in the chain, which enables them better to control each other. These thoughts are summarised in Figure S1. External pressure Integration of quality management systems Performance Quality strategy Transaction specific investments Automated information exchange by means of ICT Commitment Enforcement Self regulating system Figure S1 Theoretical model An important feature of the study is that it collects data from both the supplier and the buyer side of the firm and includes two successive stages in each chain (primary producers and traders and/or processors). This approach ensures the proper implementation of the SCM approach. Until now, most studies were limited to data collection in the firm or solely about the suppliers or buyers. In this study, the research model was applied to the supplier and buyer side of the focal firm and for each model hypotheses were formulated (Table S1). Table S1 The hypotheses for the supplier and buyer model. S refers to the supplier model, B to the buyer model Hypotheses 1 The higher the pressure from the business environment with regard to product and process quality, the higher the level of integration of quality management systems between the firm and its suppliers (H1S) and its buyers (H1B). 2 The higher the level of transaction specific investments of the suppliers cq the firm, the higher the level of integration of quality management systems between the firm and its suppliers (H2S) or its buyers (H2B). 3 The higher the level of information exchange in the chain by means of ICT, the higher the level of integration of quality management systems between the firm and its suppliers (H3S) or its buyers (H3B). 4 The more the firm pursues its quality strategy, the higher the level of integration of quality management systems between the firm and its suppliers (H4S) and its buyers (H4B). 5 The higher the level of commitment of the suppliers to the quality requirements of the buyers, the higher the level of integration of quality management systems between the suppliers and buyers (H5a). And vice versa: The higher the level of integration of quality management systems between the suppliers and buyers), the higher the level of commitment of the suppliers to quality requirements of the buyers (H5b). 6 The higher the level of integration of quality management systems between the firm and its suppliers or buyers the higher the possibilities for enforcement of the quality requirements by the firm (H6S) cq the buyers (H6B). 7 The higher the level of integration of quality management systems between the firm and its suppliers (H7S) or its buyers (H7B), the higher the buyer satisfaction will be and ultimately the financial performance of the focal firm. Study domain The research model was tested in the poultry meat chain, the fruit and vegetable chain and the flower and potted plant chain, because: 1. These chains are valid representations of the agri-food sector, they are characterised by a large diversity of marketing channels and products. 2. All these chains are of great interest for the Dutch economy, especially with regard to export 3. All the three chains pay a lot of attention to quality management. Methodology The study makes use of ‘mixed methodology’ combining qualitative and quantitative research methods. The study was carried out in three phases. The first phase of this study starts with the identification, description and ranking of external pressures acting on agri-food supply chains, with experts from business and research. These interviews were combined with a conjoint analysis, a quantitative method to arrive at a ranking of the importance of the different drivers/pressures for integration of quality management and self regulation in the three chains. In the second phase a survey was conducted among primary producers, processors and/or traders in the three chains. The primary goal of the survey was to test hypotheses of the theoretical model. In the third phase, the findings from the quantitative part of the research were verified using in-depth interviews with experts from the three chains. By doing so, for example, the advantage of the generalisibility of the questionnaire can be compensated by greater insight in the way of working of firms in their single, natural setting, provided by the in-depth interviews. Besides, on the basis of the results, examples of ‘best practices’ about quality management and self regulation were formulated for managers and policy makers. Results and Conclusions In the first phase of the study, 47 interviews with experts from business and research were held. The results of the conjoint analysis show a clear ranking of the drivers across different chains. Drivers such as media attention, changing consumer demands and societal demands for corporate social responsibility in particular have an important impact on the on-going integration of quality management systems of firms, while pressures such as the globalisation of trade were regarded as less important. In total 585 firms reacted to the survey. Table S2 shows the distribution of the respondents across the chains involved. Based on the analysis of the survey, it turned out that the general research model was highly generalisable for the different kinds of firms involved in the study. Therefore, it could be regarded as a robust model for studying quality management and self regulation in agri-food supply chains. However, the measured level of quality management in the flower and potted chain was significantly lower compared to the poultry meat en the fruit en vegetable chain. An explanation is that food safety does not play a role in the flower and potted plant chain. Table S2 Number of firms per chain Firm Number of firms Poultry meat Fruit and vegetables Flowers and potted plants Total Primary producers 116 151 102 369 Traders/processors 34 98 84 216 Total 150 249 186 585 Regarding the first research question, this study has shown that if firms perceive stronger external pressures, their quality management systems will be more integrated with suppliers and buyers (see Figure S2). Many of the pressures are not aimed at specific firms, but often influence all firms in a supply chain. However, incorrect actions of only one firm in the supply chain may result in increasing external pressures on all firms in the chain. By integrating quality management systems in agri-food supply chains, managers try to prevent this. Interestingly, legislative demands have hardly any impact on the integration of quality management systems with buyers and suppliers, while media attention, societal demands for corporate social responsibility and changing consumer demands have a great impact. External pressures Integration of quality management systems Quality strategy External pressures Quality strategy + + + + Transaction specific investments Information exchange by ICT + + + Information exchange by ICT Supplier model Customer model Transaction specific investments Integration of quality management systems Figure S2 Factors influencing integration of quality management with the supplier (left) and buyer (right); no line means no significant relationship. TSIs and integrated ICT systems (for example ‘tracking and tracing systems’) also contribute to the successful integration of quality management systems. Integration and collaboration on quality lowers the risks for opportunistic behaviour. Firms send an important signal to other parties in the chain that the relationship is highly valued by TSIs and integration of quality management systems. Interestingly, the quality strategy of the focal firm has an impact on the integration of quality management with the suppliers, but not with the buyers. The most likely explanation is that firms are able to impose their quality requirements upstream, but not downstream in the chain. When selecting suppliers, the firm is able to let its interest for quality management play an important role, whereas this is much more difficult in the choice of its buyers. Regarding the second research question, the study showed empirical evidence that integrated quality management systems are strongly positively related to self regulation, see Figure 3. Due to the integration of quality management systems a platform is established for open communication about specifications and chain process improvements which results in a mutual understanding and commitment for each other’s quality requirements. Moreover, the exchanges of outcomes of quality test and – inspections, results in more possibilities for enforcement of quality requirements. This study also shows that integration of quality management leads to higher performance. Firms that have integrated their quality management systems with their suppliers and buyers achieve higher levels of performance (both for buyer satisfaction and revenue growth). This effect is achieved by commitment of the parties in the chain and not by means of enforcement. A policy that is focused too much on enforcement and sanctions has no effect in the supplier model and works even detrimentally in the buyer model. Enforcement has the potential to result in conflicts with suppliers, especially if sanctions are imposed that are perceived to be unjust or unreasonable. However, although a large majority of firms will comply with quality requirements as well as possible and too strong enforcement is de-motivating for them, a certain level of enforcement is needed for firms that will behave opportunistically. Buyer model Commitment Buyer satisfaction Revenue growth Customer model + + + Enforcement + + Commitment Buyer satisfaction Revenue growth Supplier model + + + + Enforcement + + + Integration of quality management systems Integration of quality management systems Figure 3 Impact of integration of quality management on self regulation and performance of firms in agri-food supply chains (dashed arrow means weak significant relationship). Recommendations for managers and policy makers In order to answer the third research question based on 14 in-depth interviews important recommendations are formulated for managers and policy makers for the creation of self regulated quality management systems in agri-food supply chains. The results from the first and the second phase of the study are also included in these recommendations. The first recommendations are intended to establish self regulated quality management systems in firms: 1. Due to the use of quality management systems, managers have access to an abundant source of information about the quality performance of their own firm and their suppliers, which is often only used to verify compliance. Analysing this often underused or even unused data can result in new insights in performance and may lead to (great) process improvements. 2. Managers should take care that quality management is ‘alive’ in the firm. If quality management is integrated well with all business functions, such as the human resource management policy of the firm, and it serves as a means supportive to the design of superior firm and chain processes, it will not be regarded as merely a bureaucratic burden. The study has also derived a number of important implications for policy makers. These recommendations mainly focus on facilitating and improving self regulation in agri-food supply chains. 1. To minimise the chance of fraud, inspection procedures should be clearly described and supervised by an independent Council of Accreditation. This prevents the commercial relationship between audited firms and certifiers influencing certifiers in their evaluation. ‘Control-on-control’ may then even be more effective in preventing fraud. Certifiers know firms and develop relationships with them which are aimed at the improvement of quality management systems. 2. As a result of ‘control-on-control’ the effectiveness of governmental inspections will increase, because the government is ‘fishing where the fishes swim’ (bad performing firms on quality are inspected more frequently). The government should stress the higher effectiveness of the ‘control-on-control’ approach on an EU-level, because it might falsely suggest a high number of non-compliances in The Netherlands. Fair comparisons are extremely important for Dutch agri-food supply chains, regarding the large export interests. 3. Not legislative demands, but other pressures such as ‘media attention’ and ‘societal demands for corporate social responsibility’ have an impact on the integration of quality management. Therefore, policy makers should not focus exclusively on prescriptive legislative, but on innovative approaches to increase the integration of quality management systems to motivate firms to deliver safe and high quality foods, for example, publishing the names of poorly performing firms.