Quality investment as a catalyst for successful performance-based contracts: a relational view perspective

Abstract

Purpose Performance-based contracting (PBC) has been gaining popularity over the years. However, empirical studies investigating the impact of PBC features have been limited. The main purpose of this study is to investigate the effect of PBC features leading to quality investment that fosters financial benefits. Design/methodology/approach After examining the validity and reliability of scale items through confirmatory factor analysis, this study tested hypotheses using covariance-based structural equation modeling of survey data from 381 supply, logistics and operations managers. Findings The findings reveal the impact of PBC features (joint knowledge generation, goal congruence and incentive alignment) on financial benefits and the mediation impact of quality investment between these features and financial benefits. The upfront investment for quality enhancement was found facilitator of PBC features to achieve financial benefits. The findings also reveal the importance of collaborative communication and information sharing for knowledge generation that leads financial benefits through quality investment. This study shows that PBC governance strengthens the theory of relational view by empowering collaborative efforts and aligning goals and incentives within downstream suppliers for knowledge generation and quality enhancement. Research limitations/implications An analysis of PBC features by industry would be very beneficial in differentiating between and more thoroughly understanding the commonalities and differences across various sectors. Investigating how these change across industries would also help identify any bias in PBC implementation. Practical implications This study illustrates that it will be practical and beneficial for suppliers to understand the major drivers of quality investment and the relationship between quality investment and the financial benefits of selecting PBC. Originality/value Unlike most previous studies, this research contributes to the literature in that it is one of the relatively few examples of empirical research on PBC features. Overall, the findings of this study will improve our understanding of how PBC features enhance upfront investment in quality and improve financial benefits.

A hybrid e-logistics service quality approach: modeling the evolution of B2C e-commerce

“…, 2003; Lambrecht and Tucker, 2013; Peinkofer et al. , 2022; Sussman and Olivola, 2011; Uvet et al ., 2021, 2023). MTurk offers an opportunity for behavioral studies in the logistics and supply chain domains to improve sample size and collect survey responses on well-defined criteria (Knemeyer and Naylor, 2011).…”

“…MTurk is a human intelligence marketplace where, for a nominal fee, individuals can voluntarily elect to complete pre-defined tasks. MTurk has been deemed suitable for collecting appropriate data for testing relationships between endogenous and exogenous variables (Adana et al, 2023;Cevikparmak et al, 2022;Chernev and Blair, 2015;Daly and Nataraajan, 2015;Dickens et al, 2023;Kelley et al, 2003;Lambrecht and Tucker, 2013;Peinkofer et al, 2022;Sussman and Olivola, 2011;Uvet et al, 2021Uvet et al, , 2023. MTurk offers an opportunity for behavioral studies in the logistics and supply chain domains to improve sample size and collect survey responses on well-defined criteria (Knemeyer and Naylor, 2011).…”

Supplier goal commitment in performance-based contracts: the lens of goal-setting theory

“…Instead, they would be motivated to invest in innovative activities to increase their profit by improving reliability and product support services, eliminating the need for repairs and reducing associated costs (Kim et al, 2007). Consequently, achieving performance outcomes increases the benefits to both the buyer and supplier (a mutually beneficial situation), aligning both parties' goals (Uvet et al, 2023).…”

“…, 2007). Consequently, achieving performance outcomes increases the benefits to both the buyer and supplier (a mutually beneficial situation), aligning both parties' goals (Uvet et al. , 2023).…”