Journal of Operations Management 25 (2007) 42–64

www.elsevier.com/locate/jom

Supplier development: Improving supplier performance

through knowledge transfer
Sachin B. Modi *, Vincent A. Mabert
Kelley School of Business, Indiana University, Bloomington, IN 47405, United States
Received 7 September 2004; received in revised form 3 September 2005; accepted 13 January 2006
Available online 18 April 2006

Abstract
The dynamic business environment today requires organizations to effectively use all available resources to remain competitive.
The quality and cost of a product or service offered in the market is a function, not only of the capabilities of the firm, but also the
supplier network providing inputs to the enterprise. To remain competitive, organizations are increasingly implementing supplier
development programs to maintain capable and high performance supply bases. This paper presents a conceptual model of an
organization’s efforts to improve supplier performance. Then latent variable structural equation modeling (LVSEM) is used to test
the model with data for 215 supplier development experiences from US manufacturing firms. The results suggest that evaluation and
certification efforts are the most important supplier development prerequisites before undertaking operational knowledge transfer
activities such as site visits and supplier training. Furthermore, collaborative inter-organizational communication is identified as
important supporting factor in transforming an organization’s efforts to develop suppliers into supplier performance improvements.
# 2006 Elsevier B.V. All rights reserved.

Keywords: Purchasing; Supply management; Supplier development

1. Introduction performance and remain competitive. For example, Otis

Suppliers represent a critical resource to a firm
providing both direct and indirect materials and services,
which are inputs to the organization’s product offerings.
The quality and cost of a product or service offered in the
market is a function, not only of the capabilities of the
firm, but also of the network of suppliers who provide
inputs to the enterprise. When an organization finds its
suppliers lacking in performance it can help suppliers to
develop their capabilities. There is strong evidence that
organizations today are increasingly implementing
supplier development programs to improve supplier
* Corresponding author.
E-mail addresses: smodi@indiana.edu (S.B. Modi),
mabert@indiana.edu (V.A. Mabert).
Elevator’s (Bloomington, Indiana) supplier development
program is considered a core activity for supply
management. Executives at Eaton Corporation believe
that their supplier development initiatives help drive
continuous improvement through their supply base and
achieve reduced supply base costs, improved quality and
delivery, increased capacity, reduced lead times, and
improved productivity. Similarly, John Deere’s Enter-
prise Supply Management (ESM) group has implemen-
ted a program, ‘‘Achieving Excellence,’’ which is geared
towards fostering supplier performance improvements.
While firms increasingly make efforts to develop
supplier performance, theoretical and empirical evi-
dence of supplier development’s value creation poten-
tial remains sparse. This research addresses this gap by
providing evidence of the value creation potential and
exploring the mechanisms through which it is achieved.

0272-6963/$ – see front matter # 2006 Elsevier B.V. All rights reserved.
doi:10.1016/j.jom.2006.02.001
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
A review of the literature indicates that Krause et al.
(2000) is the only study, from a buying firm’s perspective,
which empirically tests the relationship between a firm’s
supplier development efforts and buyer’s own product
performance. This study complements their research by
directly investigating the impact of supplier development
on supplier performance improvements.
What is currently known about supplier develop-
ment? Watts and Hahn (1993) note that supplier
development ‘‘involves a long term co-operative effort
between the buying firm and its suppliers to upgrade the
suppliers’ technical, quality, delivery and cost capabil-
ities, and to foster ongoing improvements’’ (p. 12).
Firms improve the performance of their suppliers by
undertaking initiatives which transfer knowledge like
their lean production practices into their supply base
(MacDuffie and Helper, 1997; Lieberman and Asaba,
1997). However, there is a lack of evidence whether
such efforts lead to improved supplier performance,
thereby creating value for the firm. Further, the role of
other factors such as communication, which is critical to
the interface between a firm and its suppliers, is untested
in the context of supplier development. Poor commu-
nication is a prime cause of supplier product problems
(Newman and Rhee, 1990) and channel difficulties
(Mohr and Nevin, 1990), that can undermine the buying
firm’s efforts to improve supplier performance (Galt and
Dale, 1991). Ineffective communication gives rise to
conflict, which leads to ‘‘misunderstandings, incorrect
strategies and mutual feelings of frustration’’ (Etgar,
1979, p. 65). While the importance of communication is
well established in the context of buyer–supplier
relationships, its role in supplier development efforts
remains untested.
By partially replicating the study by Krause et al.
(2000), this research verifies the current state of
knowledge about supplier development and extends
our understanding with an additional investigation into
the role of communication in the context of supplier
development. While the Krause et al. (2000) implicitly
uses the transaction cost economics framework, the
investigation reported here uses a knowledge based view
of the firm. These research viewpoints are discussed later.
Since development programs are normally initiated
and administered by the procuring firm, the research
framework employed here focuses on the buying firm’s
efforts to improve supplier performance through
supplier development programs, specifically through
the use of ‘operational knowledge transfer activities’
(OKTA) with the supplier. While the theoretical
foundations for the OKTA construct are presented in
Section 2, the following two research questions are
43
proposed: Does conducting OKTA with supplier lead to
value creation in the form of supplier performance
improvements? What role does communication play in
supplier development programs?
To investigate the research questions, a survey of US
manufacturing firms utilizing supplier development
programs was conducted and reported below. The
following section provides an overview of supplier
development strategies, the theoretical foundations for
the construct of OKTA, related literature on inter-
organizational communication and management invol-
vement. Based upon this review, the conceptual model
and hypotheses are discussed in Section 3. Section 4
presents the research methodology, data collection
process, and discussion of results, followed by
conclusions and a discussion of research perspectives
for supplier development.
2. Insightful literature
2.1. Supplier development
Hahn et al. (1990) were among the first to propose a
conceptual model for supplier development and
document industry practice. In subsequent work,
Krause et al. (2000) characterize four useful supplier
development strategies:
1. Competitive pressure: Organizations make use of
market forces to develop competitive pressure by
using multiple sources (Dyer and Ouchi, 1993;
Tezuka, 1997). With the use of multiple suppliers to
provide an item, an organization can distribute the
volume of business such that the best performing
supplier gets higher volume of business. This
motivates other suppliers to improve quality, while
maintaining pressure on the primary supplier not to
let performance deteriorate. Suppliers demonstrating
improved performance may be rewarded with
increased business over time (Tezuka, 1997).
2. Evaluation and certification systems: The percep-
tions of the organization and its suppliers regarding
the current and expected performance affect the
performance of the supply chain (Harland, 1996).
Routine supplier evaluation and feedback ensures
that suppliers are aware of their performance and the
customer organization’s expectation of performance.
Firms use formal supplier evaluation systems and
supplier certification programs to communicate their
expectations, plus motivate suppliers to improve
performance (Carr and Pearson, 1999; Krause et al.,
2000).
44 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
3. Incentives: To motivate suppliers, an organization
can also offer incentives. They include the sharing of
achieved cost savings (Gunipero, 1990), giving
consideration for increased volumes, future business
(Monczka et al., 1993; Gunipero, 1990), and
recognizing supplier improvements through awards
(Krause et al., 1998).
4. Direct involvement: Organizations take a proactive
approach to developing suppliers through direct
involvement (Monczka et al., 1993; Krause et al.,
2000). It is important to recognize that ‘direct
involvement’ can be in a number of ways. (a)
Procuring firms can make capital and equipment
investments in supplier operations (Dyer and Ouchi,
1993; Monczka et al., 1993), like an investment in
dies and fixtures. (b) Manufacturers can partially
acquire the supplier firm. For example, manufac-
turers such as Toyota and Nissan typically have
a 20–50% equity position in their largest suppliers
(Dyer, 1996). Such direct involvement involves
huge financial investments by the procuring firm.
(c) Firms may choose to invest human and
organizational resources to develop supplier perfor-
mance. It is the investment of human and organiza-
tional resources to develop supplier performance
which is the focus of this research and is referred to
as ‘operational knowledge transfer activities’
(OKTA).
2.2. Operational knowledge transfer activities
(OKTA)
It is important at this point to discuss the theoretical
foundations for the OKTA construct. The emerging
knowledge based view (KBV) of the firm (Kogut and
Zander, 1992; Nonaka, 1994; Udo and Kogut, 1995;
Grant, 1996a,b, 1997; Spender, 1996) suggests that the
key role of the firm is in creating, storing and applying
knowledge, where the firm is an institution for
knowledge integration. Knowledge is distinguished
as being of two types: (1) explicit knowledge or
information, which can be easily codified, such as facts
and (2) tacit knowledge or know-how, which is difficult
to codify, such as production knowledge (Kogut and
Zander, 1992; Nonaka, 1994; Grant, 1996a,b; Szu-
lanski, 1996). ‘‘The emphasis [of KBV] is on tacit
knowledge, since in the form of know-how, skills and
practical knowledge of organizational members, tacit
knowledge is closely associated with production tasks,
and raises the more interesting and complex issues
regarding its transfer both within and between
organizations’’ (Grant, 1996a, p. 377).
The transfer of tacit knowledge or know-how
can be extremely difficult and time consuming because
it resides within the individuals, can only be observed
through application, and acquired through practice
(Grant, 1996a,b). Tacit knowledge can be transferred
through organizational routines. ‘‘When firm specific
assets are assembled in integrated clusters spanning
individuals and groups so that they enable distinctive
activities to be performed, these activities constitute
organizational routines and processes’’ (Teece et al.,
1997, p. 516). In line with this, OKTA represent
an organizational routine where a firm bundles
together its employees, hence the knowledge which
resides in those individuals with the supplier’s
personnel. Such clustering of individuals from the
procuring firm and vendor allows specific improvement
activities to be performed facilitating the flow of
non-codifiable tacit manufacturing and operations
knowledge to flow across organizational boundaries
of the involved firms. Examples of OKTA include,
direct ‘‘on-site’’ assistance to suppliers or bringing
suppliers to the firm to observe the knowledge as
applied in practice. For example, the Toyota Supplier
Support Center (TSSC) provides on-site assistance to
help suppliers implement the Toyota Production
System (TPS) and fix quality problem through
joint problem solving (Dyer and Nobeoka, 2000);
Honda of America Manufacturing assists suppliers
improve their processes through activities such as root
cause analysis (MacDuffie and Helper, 1997); Otis
Elevators helps suppliers by performing process audits
and helping suppliers with process re-engineering
efforts.
Therefore, operational knowledge transfer activities
are defined as the implementation of activities involving
direct interaction between the procuring firms and
vendors. Such activities are time and resource intensive
for the procuring firm, and firms undertake them with
the objective of increasing supplier capabilities. The
construct was measured by asking respondents the
extent to which their firm engaged in activities such as
the of use site visits by procuring firm’s personnel to
supplier location to undertake initiatives for improving
performance, conducting education and training of
supplier personnel, or site visits to increase supplier
awareness of product use. All these activities involve
direct contact and interaction between individuals of the
procuring organization and vendors. The literature
indicates that through direct contact at the individual
level tacit knowledge is demonstrated and hence
transferred, because it resides in individuals in the
form of know-how (Grant, 1996a).
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
2.3. Inter-organizational communication
The importance of communication and information
sharing has been heavily emphasized for effective inter-
organizational relationships (Monczka et al., 1998;
Mohr and Nevin, 1990). The conceptual development of
the construct of collaborative communication is guided
by the literature on the mechanistic perspective of
organizational communication (Krone et al., 1987)
rooted in communications theory (Fisher, 1978).
Communications theory and organizational commu-
nication literature primarily focus on communication
within organizations, with extensions in the context of
inter-organizational communication by Mohr and
Nevin (1990). Adopting the mechanistic perspective
of communication (Krone et al., 1987), which states that
communication can be viewed as a transmission process
through a channel (mode), Mohr and Nevin (1990)
indicate there are four important facets of inter-
organizational communication: frequency, direction,
content and modality. This perspective of communica-
tion has been widely adopted in extant research (e.g.
Davis, 1968; Reingen and Kernan, 1986; Mohr and
Nevin, 1990). Before proceeding to the discussion of the
four facets of communication, it is important to clarify
the distinction between the important constructs of
OKTA and communication. OKTA relates to the flow of
knowledge which is non-codifiable and hence tacit,
while communication, which is viewed as a transmis-
sion process through a channel, relates to the flow of
explicit, codifiable knowledge or information. The four
facets of communication are discussed next:
 Frequency indicates the amount of communication
that takes place between organizations (Farace et al.,
1977). While assessing frequency it is important to
keep in mind the relation between the amount of
contact taking place and that which is necessary for
adequate co-ordination (Mohr and Nevin, 1990). It is
important that contact take place in a timely manner.
High frequency of communication that is not timely
will prove to be ineffective and lead to inefficiencies
in co-ordination. Frequency of communication is
adopted in both intra-organizational (e.g. Smith et al.,
1994; Pelled et al., 1999) and inter-organizational
communication research (e.g. Boyle et al., 1992) as a
proxy for the amount of communication and is also
included in this research.
 Direction relates to the movement of communication
within the organizational hierarchy (Farace et al.,
1977). In the context of inter-organizational commu-
nication, the focus is on the pattern of contact between
45
organizations (Mohr and Nevin, 1990). For inter-
organizational efforts which have mutual benefits as
the goal, characterization of status is blurred and
unclear. In such a situation the patterns of commu-
nication can be phrased as ‘‘unidirectional’’ (buyer to
supplier or vice versa) and ‘‘bi-directional’’ (buyer to
supplier and vice versa).
 Content refers to the message or information that is
communicated. While organizations will share
tactical or helpful information necessary for co-
ordination of activities critical or propriety informa-
tion may also be communicated to one’s supply chain
partner (Monczka et al., 1998; Mohr and Spekman,
1994). This research characterizes the content at two
levels: helpful versus proprietary information.
 Modality addresses the medium or method used to
communicate the information. Media may be
represented by use of internet, electronic data
interchange, phone/fax, regular surface mail or face
to face communication. Research has focused on
media choice and the comparison of outcomes with
different media (Bouas and Arrow, 1995; Larson and
Kulchitsky, 2000). Modality was excluded from the
research framework because of its categorical nature.
In line with the mechanistic perspective of commu-
nication (Krone et al., 1987) and Mohr and Nevin
(1990) conceptualization of inter-organizational com-
munication, collaborative communication is defined as
frequent and timely bi-directional communication of
information between the vendor and the customer.
2.4. Management involvement
Management needs to be knowledgeable of the
firm’s resource needs and incorporate that information
into the enterprise’s programs to remain competitive.
Since supplier performance affects the firm perfor-
mance, a firm’s top management (Hahn et al., 1990)
must first recognize the need for supplier development
programs. For example, Dyer (1996) noted that top
management motivation was an important factor for
Chrysler’s partnering effort with its suppliers. Further,
supplier development efforts represent an initiative that
may lead to benefits for both the organization and the
suppliers. Hartley and Choi (1996) point to the
importance of involving a supplier’s top management
for the success of supplier development programs. They
find that oftentimes the supplier is unwilling to
participate in development efforts which cause them
to open their firm’s facilities to the scrutiny of the
customer. To align the objectives of both the customer
46 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
and supplier, it is important that top management of the
vendor and customer firm be involved in the supplier
development efforts. Thus, bilateral top management
involvement is defined as involvement of both the
vendor and the customer leadership for supplier
development efforts.
3. Conceptual model and hypotheses
While past work suggests that an enterprise’s
supplier development programs involve important
factors like supplier development strategies, commu-
nication and management involvement, it is useful to
think about how they interact and ultimately influence
performance. Fig. 1 provides a pictorial representation
of how the four different supplier development
strategies, collaborative communication, and bilateral
top management involvement are linked. The figure
also indicates the hypotheses that are discussed below
and tested to determine importance.
3.1. Linking competitive pressure strategy and
operational knowledge transfer activities
For extracting price benefits, firms can purposefully
develop multiple suppliers for each product (Porter,
1980). Buyer–supplier relationships are normally arms-
length or even adversarial (Dwyer et al., 1987). An
adversarial approach to supplier relationships is a
constraining factor in implementing joint activities
requiring co-ordination between firms and their vendors
(Spekman, 1988). The use of multiple sources is
representative of the use of market governance and an
arms length relationship (Heide, 1994). On the other
hand developing suppliers by providing them with
Fig. 1. Supplier development conceptual model. Paths from the control variables to all constructs are present but not shown in the figure.
assistance, aims at forming co-operative relationships
(Watts and Hahn, 1993). Knowledge transfer efforts
made by a firm involve intense commitment in terms of
time and resources (Dyer and Nobeoka, 2000). Firm’s
typically target a small number of suppliers for
development. As firms try to rationalize their supply
base and reduce the number of suppliers, they move
towards fewer full service suppliers with the help of
supplier development. This reduces the competitive
pressure strategy with suppliers in this co-operative
orientation environment. Therefore:
H1. Use of competitive pressure strategy will be nega-
tively associated with buyer initiated operational
knowledge transfer activities.
3.2. Linking evaluation and certification to
operational knowledge transfer activities
An evaluation of supplier’s current performance
provides information about the potential development
requirements with the supplier, which in turn triggers
supplier development activities (Hahn et al., 1990). The
literature on manufacturing capabilities also indicates
that quality capability forms the basis for improvement
in other capabilities such as dependable delivery,
flexibility, and cost (e.g., Ferdows and De Meyer,
1990; Rosenzweig and Roth, 2004). As such, having
some level of quality capability is imperative for
development of other dimensions of performance.
Therefore, firms will provide assistance to a select
set of suppliers, using evaluation and certification to
measure against qualification level before they further
undertake activities to improve their performance.
Evaluation and certification also provide organizations
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
with a baseline for assessing the supplier’s needed
improvements. It is expected that firms will undertake
the evaluation and certification activities prior to
initiating operational knowledge transfer activities with
the supplier. Therefore:
H2. Supplier evaluation and certification will be posi-
tively associated with buyer initiated operational
knowledge transfer activities.
3.3. Linking future business incentives to
operational knowledge transfer activities
Procuring firms initiate knowledge transfer to
suppliers and assist them in improving operations when
the firms intend to have an ongoing supplier relationship
(Krause, 1999). When organizations expect/desire to
continue their relationship with the supplier, they can
use it to motivate supplier through future business
incentives prior to instituting direct involvement
activities (Krause et al., 2000). Often, buying firms
experience resistance from the supplier to open their
facilities (Hartley and Choi, 1996). Incentives motivate
the supplier to open its facilities to the buying firm’s
staff and implement the operational improvements
suggested by the procuring firm. Therefore:
H3. Providing future business incentives will be posi-
tively associated with buyer initiated operational
knowledge transfer activities.
3.4. Linking operational knowledge transfer
activities to performance improvements
As firms increase OKTA such as training of supplier
personnel and ‘‘on-site’’ problem solving assistance, it
helps the supplier’s employees improve their skills and
productivity. This increase in skill of the supplier will
reflect in supplier’s improved performance. Anecdotal
evidence – as reported in the automotive industry for
Toyota Corporation (Dyer and Nobeoka, 2000) and
Honda Corporation (MacDuffie and Helper, 1997) –
suggests that OKTA can lead to supplier performance
improvements. Further, Clark (1989) observes that due
to Japanese automaker’s knowledge sharing and joint
problem solving routines, their suppliers seek to create
value for the buying firm. OKTA like onsite visits and
problem solving assistance allow direct interaction
between supplier and buyer personnel. Direct interac-
tion at the individual level facilitates the demonstration
and transfer of tacit knowledge (Grant, 1996a).
Interaction between the procuring firm’s staff will
empower the supplier personnel with the knowledge to
47
tackle production problems and streamline their process
for better performance and therefore OKTA are
expected to lead to performance improvements of the
supplier’s operation. Therefore:
H4. Increased operational knowledge transfer activ-
ities implemented by the customer with the vendor will
be positively associated with supplier performance
improvements.
3.5. Linking operational knowledge transfer
activities to collaborative communication
A review of the past literature suggests that the link
between collaborative communication and operational
knowledge transfer activities, such as site visits and
supplier training/education, has not been empirically
tested. Ineffective communication can result from the
use of unknown symbols, concepts and ideas, desire for
secrecy, and a lack of motivation for information
sharing (Etgar, 1979). Direct contact and knowledge
transfer between the buying and supplying firm staffs
allow for a development of a common language (Grant,
1996a). The initiation of knowledge transfer activities
indicates a long-term relationship orientation on the part
of the customer. Long-term relationship orientation
increases communication between the firms (Chen
et al., 2004). Such orientation leads to the establishment
of trust between trading partners (Bensaou and
Venkatraman, 1995). Increased trust leads to a reduced
desire for secrecy, motivating data sharing and
facilitating greater collaborative communication. Invol-
vement in OKTA indicates joint action on part of the
involved firms requiring higher levels of co-ordination.
As the level of joint activity increases, firms will share
more information to effectively co-ordinate their
operations and plans. Based on these arguments it is
expected that OKTA will be positively associated with
collaborative communication. Therefore:
H5. Buyer initiated operational knowledge transfer
activities will be positively associated with collabora-
tive communication between the vendor and customer.
3.6. Linking collaborative communication to
supplier performance improvements
The value of information exchange in supply chain
relationships is well documented in the supply chain
literature (e.g., Gavirneni et al., 1999). Collaborative
communication with suppliers benefits the buying firm
in the long run (Carr and Pearson, 1999), fostering an
environment of mutual support and improving the
48 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
responsiveness among supply chain partners (Mohr
et al., 1996). Greater information sharing between a
firm and its suppliers can increase cost savings due to
better operational efficiencies (Carr and Pearson, 1999;
Chen et al., 2004). While communication is necessary,
increased communication can also lead to information
overload, having detrimental consequences (Guetzkow,
1965; Stohl and Redding, 1987; Mohr and Nevin,
1990). However, a lower level of communication can
lead to conflicts that is detrimental to efficient co-
ordination (Siegall and Cummins, 1995). Higher levels
of collaborative communication in organizations leads
to better co-ordination (Cushman and King, 1989) and
effective completion of tasks (Guetzkow, 1965), which
positively affects the performance of alliance relation-
ships (Mohr and Nevin, 1990; Monczka et al., 1998).
Supplier development activities represent a move
towards an alliance relationship and similar effects
can be expected on supplier performance improvements
from collaborative communication. Therefore:
H6. Collaborative communication will be positively
associated with supplier performance improvements.
3.7. Role of bilateral top management involvement
3.7.1. Linking operational knowledge transfer
activities and bilateral top management
involvement
Hartley and Choi (1996) note suppliers may be
reluctant to participate in joint development activities
that require suppliers to open their plants to the
customer. As firms expand the level of knowledge
transfer activities, the interdependence of the involved
partners increases and facilitates greater data
exchanges. Knowledge transfer activities involve joint
action on part of the two firms. Heide and John (1990)
state that increasing joint action ‘‘introduces more
uncertainty into a firm’s decision making because its
activities are directly influenced by the other party’s role
performance’’ (p. 26). An organization’s top manage-
ment is aware of its current and future business needs.
Bilateral top management involvement gives the
customer and vendor the ability to align their objectives
about their relationship and the efforts that are being
made to improve the performance. Alignment of
objectives will lead to lesser uncertainty in decision
making as compared to situations where asymmetric
objectives exist. In the presence of bilateral top
management involvement, there will also be increased
accountability of the customer’s and vendor’s devel-
opment teams to reach the desired objectives for
improvements. Such involvement can ensure that the
financial resources required to implement the changes
are available. Hence it is expected that the presence of
bilateral top management involvement will lead to a
more positive impact of OKTA on supplier performance
improvement as compared to situations with lesser
bilateral top management involvement.
H7. The impact of operational knowledge transfer
activities on supplier performance improvement will
be more positive where there is higher bilateral top
management involvement.
3.8. Control variables
Supplier development efforts are influenced by
potential impact of the relationship. Three control
variables were identified and added to the model. They
are: (1) The percent of buyer requirement satisfied by
the supplier (%ByRq). If a buyer procures a larger
percent of their requirement from a supplier, they are
more likely to use development strategies. They are also
more likely to have better communication infrastructure
and routines with such suppliers. (2) The percentage of
supplier output bought by the buyer (%SupOpt). If a
buyer procures a large percentage of the supplier’s
output, the transaction represents an important custo-
mer. Hence, the supplier’s motivation to improve its
performance and meet buyer’s criteria increases. (3)
Type of material procured (MatTyp). It is possible that a
buyer will make greater effort with suppliers who
provide made-to-order products and these suppliers will
show more improvement.
While competitive pressure, evaluation and certifica-
tion and future business incentives are often cited as
important, the linkages/interdependencies between are
unclear. Firms may or may not use a combination of these
strategies prior to implementing operational knowledge
transfer activities with the supplier. Based upon the
supplier development model in Fig. 1, survey data were
collected to test the significance and direction of the
proposed linkages. The following section discusses the
survey instrument, data analysis and observations.
4. Data collection and analysis methodology
4.1. Measures
Developing effective measurement scales for various
dimensions can be challenging. To address this issue
both past work and pilot field testing were employed to
develop the scales used in this study. Whenever
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
possible, existing scales were used to measure the
constructs of interest. Additionally, an interview was
conducted with the supplier development manager at
the Bloomington, IN plant of Otis Corporation to field
evaluate different measures. Scale items to measure
supplier development strategies were developed based
on this interview and past literatures (Watts and Hahn,
1993; Krause, 1999; Krause et al., 2000), while the
measures for communication were developed by
referring to Mohr and Nevin (1990) and Mohr and
Spekman (1994). Measures for bilateral top manage-
ment involvement were developed to indicate the
involvement of both the buying firm’s top management
and the vendor’s top management.
Improving supplier performance is the central goal
of supplier development programs (Hahn et al., 1990;
Watts and Hahn, 1993; Krause et al., 2000). Perfor-
mance improvements were operationalized using the
buying firm respondent’s perceptions of the perfor-
mance improvements demonstrated by the supplier.
Based on the field interviews, the measures of supplier
performance were developed to include aspects of cost,
quality, delivery, and inventory representing operational
performance, with measures of product design and
process technology improvements included as indica-
tors of capability improvement. The initial list of
measures was tested for face validity, content validity
and readability with three executives at Eaton Corpora-
tion (Cleveland, OH). Based on their responses,
modifications were made to the questions. Finally,
another test for content validity, adequacy and non-
ambiguity of the questionnaire was conducted with 21
supply chain professionals from different enterprises
who were asked to comment on the adequacy and clarity
of the questions. Based on their feedback further
changes were made to the measure before mailing the
survey. Appendix A presents the item list and the
corresponding literature used for their development.
4.2. The survey
A questionnaire was sent to 1900 randomly selected
members of the Institute of Supply Management
(ISM)1. The members represented the following two
digits SIC codes, 34, 35, 36 and 37, providing a fair
representation of the manufacturing industry. Along
with demographic information, respondents were asked
to provide information about two instances of supplier
1
The authors thank the Institute of Supply Management for
facilitating this research by providing contact information of the
respondents.
49
development efforts at their organization; one which
they considered their least successful effort and the
second considered their most successful effort. The unit
of analysis in this research is the supplier development
efforts within a buyer–supplier dyad.
It is important to note that organizations have unique
ways of interacting with different suppliers. Each
buyer–supplier dyad or relationship may have some
practices that are common across multiple suppliers,
while others are unique, and hence differ across
different supplier relationships (Vollmann et al.,
2005). This is especially true in terms of knowledge
transfer activities where the efforts implemented will be
specific to the buyer–supplier dyad. Therefore, collect-
ing information about two extreme instances – as
opposed to a single instance of supplier development or
in general about the whole supply base – was done to
facilitate the understanding of the total breath of
supplier development programs. This approach fol-
lowed similar methods employed in past research
(Ragatz et al., 2002; Monczka et al., 1998).
The questionnaire gathered demographic information
about the supplier, the goals of the supplier development
programs, which supplier development practices were
used, the extent of top management’s involvement, the
information exchanged with the suppliers, and the
respondent’s perception of the supplier’s performance
improvements. A total of 1900 surveys were sent with a
mailed follow-up 2 weeks later. Finally, follow-up emails
and phone calls were made to respondents. The data
collection effort resulted in a total of 161 responses
(8.47% response rate), with 19 responses deemed non-
usable due to missing data, and yielding 142 useful
returns. From the useful responses, 28 respondents
(19.71%) indicated that their firms did not have an active
supplier development program. The remaining 114 firm’s
(80.28%) had active supplier development programs.
These data represent a sample of 228 supplier develop-
ment programs with each firm reporting two independent
instances of which 13 responses were not included in the
final analysis due to missing data on control variables.
4.3. Respondent and enterprise background
The respondents were primarily purchasing execu-
tives at solicited organizations; Table 1a presents the
distribution of titles of the respondents. The distribution
of annual sales for the respondent firms, shown in
Table 1b, indicates that both larger and smaller firms are
implementing supplier development programs. Table 1c
provides demographic information about the supplier
sample. The median length of relationship of 9 years
50 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64

Table 1a Table 2
Titles of respondents Percent of goals ranked as most important
Title Frequency Goal of supplier development effort Percent a
Director/VP (of purchasing, operations, 24 Improve cost performance 39.80
materials, supply chain) Improve quality performance 33.63
Manager (of purchasing, materials, 47 Improve delivery performance 21.24
supplier resources, supply chain) Improve process capabilities 5.31
Sr. Buyer 13 Improve technical capabilities 2.21
Buyer 11 Improve product development capabilities 1.17
Other (e.g. supply chain analyst, 19 Improve management capabilities 2.22
Supplier development team lead, a
Total over 100% as some respondent rated multiple goals as most
Purchasing coordinator)
important.
114

goal was ranked the most important. Product cost,

quality and delivery were ranked as the most important
suggests that organizations invest substantial effort to goals of the supplier development efforts.
develop capabilities for vendors with whom they have
an ongoing long-term relationship. Most of the 4.4. Data analysis and results
respondents focused their responses on direct material
suppliers providing make-to-order items. Respondents This section contains a description of the data
were asked to indicate and rank the goals of the supplier analysis, which includes testing for non-response bias,
development efforts made with suppliers; Table 2 shows the measurement model results for validity and
the percentage for number-of-times that the particular reliability of scales, and the structural model evaluation
for path significance.
Table 1b
Annual sales of firms 4.4.1. Non-response bias
Total annual sales ($) Frequency One method to test for non-response bias, which
assumes that opinions of late responders can be
Less then 50 million 21
50.1–100 million 11 considered as representative of non-responders, is to
100.1–300 million 25 test for significant differences between responses
300.1–500 million 6 returned early and responses returned towards the end
500 million–1 billion 11 of the data collection effort (Armstrong and Overton,
1–5 billion 16
1977). The sample of 114 firms was split into three parts,
Over 5 billion 18
the first and the last 38 responses to be returned were used
Total 114a and a t-test performed on the mean responses of these two
a
Not reported 6. sets. The t-tests did not yield any significant differences
between the responses of the early and late responders
Table 1c (results of the t-test are shown in Appendix B). While this
Supplier demographics test does not totally rule out the possibility of non-
Demographic response bias, it suggests that non-response may not be a
concern given the assumption that the late responders
Length of relationship (years)
Mean 10.85 represent the opinions of non-responders.
Median 9.00
Material provided
4.4.2. Model evaluation
Direct material/subassembly 84.65 While each of the hypothesized relationships can be
Maintenance, repair and operating supplies 6.58 independently tested, latent variable structural equation
Services, capital equipment and other 3.95 modeling (LVSEM) was used to test the conceptual
Multiple items 4.84 model shown in Fig. 1. LVSEM has the advantage of
Type of item simultaneously testing all the relationships and provid-
Standard 24.66 ing a better evaluation of the importance of each factor.
Make-to-order 73.54
The item covariance matrix was used as the input for
Both standard and made-to-order 1.79
analysis and is presented in Appendix C. The two-step
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
Fig. 2. Reduced supplier development conceptual model. Paths from the control variables to all constructs are present but not shown in the figure.
approach recommended by Anderson and Gerbing
(1988) was used; it tests the measurement model first to
ensure the validity and reliability of the scales and then
evaluates the structural model.
4.4.2.1. Measurement model, validity and reliabili-
ty. As a first step, the measurement model was tested
and purified using confirmatory factor analysis (CFA).
The initial CFA results indicated that the construct of
bilateral top management involvement could not be
validated. Based upon the results shown in Appendix C,
the construct was dropped from further analysis to
maintain scientific rigor. The reduced model shown in
Fig. 2 was tested. It is important to note that a similar
approach has been adopted in the past (Prahinski and
Benton, 2004).
Table 3 shows the loadings and t-values of the final
measurement model that excluded the bilateral top
management involvement. Convergent validity can be
assessed from the measurement model by checking if
each indicator’s estimated loading on its posited
underlying construct is significant (Anderson and
Gerbing, 1988). One sees in Table 3 that all items
load significantly on the hypothesized constructs and
provide evidence of convergent validity. Additionally,
the correlations between the latent constructs are shown
in Table 4, with the diagonal indicating the average
variance extracted values for the constructs. Discrimi-
nant validity can be assessed by examining if the
average variance extracted by the items of a construct is
greater than the average shared variance (square of the
correlations in the off diagonals) between two
constructs (Fornell and Larker, 1981). All constructs
pass this test, supporting discriminate validity.
The Cornbach’s a (Cronbach, 1951) composite
reliability (Fornell and Larker, 1981) estimates are
shown in Table 4. The Cornbach’s alpha is over the rule of
thumb value of 0.7 for all constructs except operational
knowledge transfer activities which is 0.648. While
51
reliability co-efficients of 0.7 or higher are desirable
(Cronbach, 1951; Nunnally, 1978), co-efficients below
0.7 are often considered adequate for analysis (Nunnally,
1978) and a cutoff value of 0.6 is frequently used (e.g.
Chen and Paulraj, 2004; Li et al., 2002; Jack and Raturi,
2002). All other scale reliabilities are well are over the
rule of thumb value of 0.7 providing adequate support for
reliability of the scales.
The overall measurement model fit is shown in
Table 5. Although the chi-square statistic is significant;
which is expected given the larger sample size (Bagozzi
and Yi, 1988, Hair et al., 1998), other fit indices indicate a
good fit to the measurement model as shown in the table.
4.4.2.2. Structural model and path significance. Fig. 3
shows the structural model with the parameter estimates
and t-values of the paths. The fit indices are shown in
Table 5 and the structural equations are represented in
Table 6. Overall, the structural model fit indices provide
adequate evidence of a good fit for the proposed model.
Therefore, using statistical significance of the paths
assessed at p  0.05, hypotheses H2, H3, H4, H5, and
H6 are supported, with no support for hypothesis H1.
Further, with path co-efficients completely standardized,
we can assess their relative importance based on the
magnitude of the co-efficients. Substantive implications
of this are discussed next.
4.5. Model interpretation
4.5.1. The antecedents of operational knowledge
transfer activities
Evaluation and certification efforts made by the
procuring organization prove to be the most important
prerequisites for undertaking OKTA with suppliers. In
support of hypothesis H2, the path co-efficient of 0.406 is
highly significant ( p < 0.001). The finding is consistent
with theory in operations strategy, indicating that quality
is the basis for development of other capabilities
52 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64

Table 3
Survey items, item means, standard deviation, item loadings and t-values, all loadings are significant at p < 0.001
Items Mean S.D. Loadinga t-Value
Competitive pressure: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
CompPr1 Used multiple suppliers for the purchased item to 4.228 1.969 1b 20.688
create competitive pressure for this supplier.
Evaluation and certification: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
E&C1 Assessed this supplier’s performance through a 5.516 1.844 0.961 15.742
formal supplier evaluation system with established guidelines and procedures
E&C2 Provided this supplier with feedback about the results of the evaluation 6.005 1.602 0.740 11.503
E&C3 Used a supplier certification program to certify this supplier’s quality 4.684 2.516 0.556 8.339
Future business incentives: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
FBINC1 Promised increased volume order of items 4.544 1.838 0.696 9.162
supplied by this supplier for improving current performance
FBINC2 Promised consideration for improved business 4.856 1.583 0.907 11.225
in the future for delivered improvements in performance
Operational knowledge transfer activities: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
OKTA1 Used site visits by your organization’s personnel 4.981 1.772 0.706 8.804
to this supplier’s premises to help them improve performance
OKTA2 Invited supplier’s personnel to your site to 5.164 1.464 0.609 7.732
increase their awareness of how their product is used
OKTA3 Conducted training and education programs 3.120 2.081 0.495 6.296
for supplier personnel
Collaborative communication: measured as degree of agreement with the item on a 7-point scale (1—strongly disagree, 4—neutral, 7—strongly
agree)
ColComm1 It is expected that any information that might help 6.316 0.8713 0.594 8.746
the supplier will be provided to them
ColComm2 It is expected that the supplier will provide your 5.990 1.260 0.704 10.842
organization with any information that might help you
ColComm3 It is expected that the supplier will be provided with 5.577 1.520 0.361 4.963
proprietary information if it might help themc
ColComm4 It is expected that the supplier will provide 5.404 1.626 0.512 7.350
proprietary information if it helps your organizationc
ColComm5 Exchange of information with this supplier 5.884 1.160 0.744 11.648
takes place frequently.
ColComm6 Exchange of information with this supplier 5.656 1.224 0.753 11.827
takes place in a timely manner
Supplier performance improvements: measured as degree of improvement on a 7-point scale (1—significant deterioration, 4—no improvement, 7—
significant improvement)
SupPerf1 Number of incoming defects 5.330 1.353 0.687 11.112
SupPerf2 Percentage of on time deliveries 5.298 1.480 0.835 14.688
SupPerf3 Percentage of orders delivered completely 5.274 1.392 0.882 16.024
SupPerf4 Time from order placement to final receipt of order 5.274 1.409 0.782 13.297
SupPerf5 Amount of inventory you have to carry for this supplier’s product 4.940 1.627 0.646 10.262
SupPerf6 Procured product’s cost 4.893 1.586 0.598 9.303
SupPerf7 Procured product’s design 4.641 1.310 0.510 7.695
SupPerf8 Processes and/or technologies used for the procured product 4.930 1.156 0.643 10.194
%ByRq Percent of buyer requirement procured from the 39.88 41.55 1b 20.688
supplier reported as a value between 0 and 100%
%SupOpt Percent of supplier output which the buyer represents 25.82 28.04 1b 20.688
reported as a value between 0 and 100%
MatTyp Standard (coded as 1), made-to-order 1.777 0.460 1b 20.688
(coded as 2), both standard and made-to-order (coded as 3)
a
Completely standardized co-efficients all loadings are significant at p < 0.001.
b
Error term fixed at 0 due to single item scale.
c
The error term correlation was freed which is acceptable as both items are for he same construct, are next to each other in the questionnaire and
share similar wording related to propriety information.
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64 53

Reliability

The lower half of the matrix shows the estimated correlations between the latent constructs (wij) with standard errors in brackets, the diagonal shows values for the average variance extracted.
Table 5

0.7871
0.8951
Measurement model and structural model fit indices with recom-

0.807
0.787
0.635
mended values

–
–
–
–
Cornbach a Fit Measurement Structural Recommended
statistic model model values

0.795
0.790
0.648
0.815
0.886
x2 434.080 450.364
d.f. 266 272
–
–
–
– RMSEA 0.0515 0.0522 0.05a,b
SupPerf

0.4952
(90% CI) (0.0418; 0.0608) (0.0427; 0.0614)
NFI 0.896 0.892} >0.8 marginal
–
–
–
–
–
–
–
–
fit and >0.9
good fit b
0.561 (0.058) NNFI 0.946 0.944
ColComm

CFI 0.956 0.953

0.3936

IFI 0.957 0.954

GFI 0.870 0.866
–
–
–
–
–
–
–

SRMR 0.0595 0.0718 <0.09b

0.240 (0.090)
0.261 (0.084)

a
Browne and Cudek (1993).
b
Hu and Bentler (1998, 1999).
0.3713
OKTA
–
–
–
–
–
–

(Ferdows and De Meyer, 1990). Evaluation and

certification activities provide buying firms a tool to
0.324 (0.087)
0.293 (0.078)
0.412 (0.069)

identify the areas in which suppliers need improvement

FBINC

0.6530

and also a baseline for measuring performance improve-

ments. Since buying firms typically implement devel-
–
–
–
–
–

opment activities with few suppliers, the process gives a

EVAL&CERT

0.291 (0.073)
0.428 (0.077)
0.013 (0.077)
0.015 (0.073)

means to select suppliers needing improvement or

suppliers that the firm has strategically decided to
0.5933

improve. Certification ensures that the vendor has the

required minimum level of competence to make further
–
–
–
–

investments beneficial. Hence, evaluation and certifica-

(0.070)
(0.074)
(0.083)
(0.076)
(0.071)

tion represents the foundation of successful supplier

COMPPR

development programs.
0.091
0.096
0.130
0.088
0.068
Inter construct correlations, average variance extracted and scale reliabilities

Managers implementing supplier development pro-

–
–
–
–

grams should use this as a first step before starting

(0.065)
(0.068)

(0.074)
(0.083)
(0.076)
(0.071)

knowledge transfer activities with the supplier. Best

practices in the industry are indicative of this sequence
MatTyp

0.300
0.010

0.061
0.167
0.022
0.101

of supplier development, as seen by the authors at John

Deere. Suppliers go through a rigorous evaluation
–
–
–

process and are categorized as partner, key, approved or

(0.070)
(0.068)
(0.065)

(0.073)
(0.084)
(0.075)
(0.071)

conditional and the organization focuses on developing

suppliers categorized as partner suppliers.
%SupOpt

0.076
0.015
0.208

0.133
0.111
0.084
0.025
–
–

Table 6
Structural equations
(0.071)
(0.067)
(0.066)
(0.068)

(0.074)
(0.084)
(0.075)
(0.070)

Structural equation R2
h1 = 0.206j1 + 0.021j2 0.044j3 + 0.955 0.045
%ByRq

0.068
0.156
0.179
0.071

0.102
0.093
0.078
0.139

h2 = 0.126j1 0.072j2 + 0.087j3 + 0.971 0.029

–

h3 = 0.075j1 + 0.313j2 + 0.004j3 + 0.905 0.095

h4 = 0.205j1 + 0.080j2 + 0.086j3 + 0.070h1 0.310
EVAL&CERT

+ 0.334h2 + 0.460h3 + 0.690

ColComm
COMPPR

h5 = 0.117j1 0.089j2 + 0.046j3 + 0.272h4 + 0.896 0.104

%SupOpt

SupPerf
%ByRq

MatTyp
Table 4

FBINC

h6 = 0.012j1 0.183j2 + 0.135j3 0.375

OKTA

+ 0.217h4 + 0.588h5 + 0.625

54 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64

Fig. 3. Supplier development structural model, *p < 0.05, **p < 0.01, +p < 0.001, only the main/significant relationships are represented in the
figure. Other relationships are as follows: (path, co-efficient, t-value) (j1 ! h3, g31 = 0.075, 1.038), (j1 ! h5, g51 = 0.117, 1.449), (j1 ! h6,
g61 = 0.012, 0.144), (j2 ! h1, g12 = 0.021, 0.305), (j2 ! h2, g22 = 0.072, 1.001), (j2 ! h4, g42 = 0.080, 0.782), (j2 ! h5, g52 = 0.089,
1.090), (j3 ! h1, g13 = 0.044, 0.621), (j3 ! h2, g23 = 0.087, 1.189), (j3 ! h3, g33 = 0.004, 0.056), (j3 ! h4, g43 = 0.086, 0.883), (j3 ! h5,
g53 = 0.046, 0.564), (j1 $ j2, f12 = 0.156**, 2.345), (j1 $ j3, f13 = 0.015, 0.224), (j2 $ j3, f23 = 0.179**, 2.706); z = structural error terms are as
follows: z1 = 0.955, z2 = 0.971, z3 = 0.905, z4 = 0.690, z5 = 0.896, z6 = 0.625.

In supported of the hypothesized positive association
between future business incentives and OKTA, i.e. H3,
the path co-efficient of 0.334, is highly significant
( p < 0.001). Buying firms will implement activities
such as supplier training and site visits with supplier,
allowing them to transfer tacit production know-how to
support future business. A supplier who has the
incentive of greater business from the customer in
the future is more likely to be more open about their cost
structure and process capabilities, providing greater
commitment in joint knowledge transfer activities.
It was expected that firms would not use a
competitive pressure strategy when they implement
OKTA. The path co-efficient 0.094 is not significant
( p > 0.1) and hypothesis H1 is not supported. This
indicates that firms implement OKTA with suppliers
regardless of whether they are using a single or multiple
sourcing for the procured item.
4.5.2. The consequents of operational knowledge
transfer activities
Evaluating the impact of OKTA on supplier perfor-
mance improvements, the path co-efficient of 0.217 is
significant ( p < 0.01), providing support of hypothesis
H4. This indicates that undertaking operational knowl-
edge transfer activities helps a firm create value for itself
in the form of improved supplier performance. To shed
light on the content of knowledge transfer, respondents
were asked to provide information regarding the type of
activities undertaken during site visits and for training/
education. While missing data precludes any statistical
analysis, the categories listed in Table 7 indicate the
breadth of activities employed by firms.
Managers can develop organizational routines which
help the diffusion of tacit knowledge within their supply
base. The development of a special functional group
within the organization which focuses on supplier
development can represent the first step in this direction.
Such a group can work at with suppliers to help them
improve. For example, Otis Elevator2 (Bloomington,
Indiana) has a separate functional group responsible for
supplier development. Otis personnel regular conduct
audits and help suppliers improve their processes to
achieve shared cost savings.
While OKTA directly improve supplier perfor-
mance, they also facilitate improved communication
between the involved organizations. As a firm increases
its effort to develop a supplier through site visits and
supplier training programs, it should increase the
interaction and willingness of both the involved parties
2
The authors express their appreciation to Otis Elevator executives
for sharing their supplier development experience.
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64 55

Table 7 objectives, organizational expectations, capabilities

Content of knowledge transfer activities between buyer and supplier (products, quality, etc.), and short-term tactical informa-
(1) Production/manufacturing related tion needs. This leads to closer integration of operations
Lean manufacturing between the customer and vendor organizations,
Cell development
providing improved performance benefits. The analysis
Pull implementation
Management of order lots indicates that collaborative communication is a necessary
Test fixture development facilitator in transforming the buying firm’s efforts to
Interface with operators implement OKTA into supplier performance improve-
(2) Problem solving assistance related ments.
FEMA
Root cause analysis 4.5.3. Results for control variables
Corrective action As indicated earlier there are three control variables of
Problem solving
Cost analysis
interest: % of buyer requirement purchased from the
supplier, % of supplier output bought by the buyer and the
(3) Quality related
type of material procured. First, the higher the percent of
Six sigma
Quality control buyer requirement, there is a lower level of OKTA
SPC data collection and training undertaken by the procuring firm. This indicates that
Certification preparation firms procure higher levels of their requirement from
Advanced product and quality planning suppliers who already have high performance and do not
Goal setting
require further development. Further, it is negatively
Certification preparation
associated with use of competitive pressure and
(4) Process control related positively associated with the use of incentives, both
Process improvement/defining processes
Control flow
of which are expected. Second, it is also evident from the
Value stream mapping data that higher performance improvements can be
Poke A yoke expected when buyers procure larger percent of the
(5) Other vendor’s output. In such a case, the buyer represents an
e-Procurement important customer and the supplier will be more
Timing and innovation motivated to improve performance. And third, with
Internal use of supplier product regard to the type of material procured, the data indicate
that firms put emphasis on evaluation and certification
with vendors from whom they procure made-to-order
to share frequent and timely information, leading to more products. However, vendors offering standard products
collaborative communication between the two involved seem to show higher performance improvements. The
organizations. In support of hypothesis H5 the path co- positive significant correlation between the type of
efficient of 0.272 is highly significant ( p < 0.001). This material procured and percent of buyer requirement
indicates that the implementation of operational knowl- procured from the vendor may indicate a tendency of
edge transfer activities – such as on-site visits for problem firms to concentrate their business with fewer suppliers
solving or conducting training/education – leads to for made-to-order products.
improvement in the collaborative communication
between the two firms, which in turn contributes to 5. Conclusions
performance improvements at the supplier.
When trading partners communicate well, it reduces This study focused upon the procuring firm’s efforts
the operational inefficiencies experienced due to to improve supplier performance. Theoretical founda-
information asymmetry and leads to improved perfor- tions of the construct of operational knowledge transfer
mance. Measuring this link in the model, the path co- activities are developed in line with the knowledge
efficient of 0.588 indicates a highly significant based view of the firm. The research tested a structural
( p < 0.001) impact, lending support to hypothesis H6. model of buying firm’s perception of their supplier
Collaborative communication – which is bi-directional, development efforts, providing several key in-sights
frequent and timely – reduces the ambiguity and regarding how supplier development efforts through
uncertainty in the exchange relationship. It leads to an operational knowledge transfer activities lead to value
improved collaboration between the organization and its creation for firms in the form of improved supplier
vendors by allowing them to communicate long-term performance.
56 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
First, evaluation and certification efforts lay a
foundation for initiating OKTA. It ensures that the
supplier has the minimum capabilities to warrant further
investment of resources in the supplier and provides a
tool for detecting development opportunities and
benchmarking improvements. Second, incentives are
important to effective supplier development partner-
ships. Firms develop suppliers with whom they expect
to continue doing business and should communicate
that expectation to the supplier. This provides an
incentive for the supplier to open their facilities to the
scrutiny of the customer. Third, OKTA facilitates the
creation of value for an organization in the form of
improved supplier performance. As organizations strive
to create efficient and competitive supply networks,
they enhance supplier performance and capabilities by
diffusing their manufacturing and production expertise
(e.g., SPC and SMED) in their supply bases.
Implementing activities that enable the transfer of
‘‘tacit’’ production knowledge improves supplier skills,
which benefits the customer organization in the form of
a more capable and better performing supplier. Finally,
collaborative communication acts as an important
facilitator in transforming a buying firm’s efforts for
supplier development into performance improvements.
Bi-directional sharing of tactical information enables
the trading firms to operate more efficiently while
sharing more proprietary information about cost
structures and future plans. This enables firms to detect
opportunities for improvement and align their objec-
tives.
6. Research perspectives
It is important at this stage to compare and contrast the
results of this research effort with the existing literature
on supplier development. As mentioned above, this study
represents a quasi-replication of the work by Krause et al.
(2000) and draws upon its framework of four supplier
development strategies: competitive pressure, evaluation
and certification, incentives, and direct involvement.
Results from both studies support the inter-relationships
between the four different supplier development strate-
gies which are summarized above. The current study
complements and extends past work by further con-
ceptualizing that direct involvement takes different forms
with procuring firms: (a) making capital and equipment
investments in supplier operations; (b) partially acquiring
the supplier firm; (c) investing human and organizational
resources to develop supplier performance. Of these three
forms of direct involvement, this research focuses on the
firm’s efforts to develop suppliers through the investment
of human and organizational resources and views
supplier development through the lens of KBV of the
firm. This paves the way for future research which can
delve deeper into the content of knowledge transfer with
suppliers and investigate the relative importance and
inter-relationships of different types of knowledge
transferred with performance improvement. For exam-
ple, Table 7 lists knowledge transfer areas obtained from
this research that can serve as the starting point for future
inquiry.
Additionally this study increases our understanding
of supplier development programs by establishing the
importance of inter-organizational communication in
the context of supplier development. As noted earlier, it
is important to reiterate the distinction between the
important constructs of OKTA and communication.
OKTA relates to the flow of knowledge which is non-
codifiable and hence tacit, while communication, which
is viewed as a transmission process through a channel,
relates to the flow of explicit, codified information.
Though, intricately linked they represent distinct
concepts for this study. The emphasis of KBV is on
tacit knowledge and that of the mechanistic perspective
of communication on explicit information flow.
The work by Krause et al. (2000, p. 37) indicated that
‘‘direct development efforts represent transaction
specific investments in the supplier by the buying firm
. . . thus direct involvement strategy represents a risk to
the buying firm’’. As such they rely upon the transaction
cost economics (TCE) (Williamson, 1981, 1985) in
their view of direct involvement strategy. The research
reported here views buyer efforts of investing human
and organizational resources to develop suppliers
through the lens of the knowledge based view (KBV)
of the firm. While these two views represent topics of a
growing debate in the strategy literature, the primary
difference between the two evolves around governance
choice. TCE scholars argue that governance choice
relies on the assumption of both bounded rationality and
opportunism while KBV scholars indicate that only the
assumption of bounded rationality is needed to explain
governance choice (Heiman and Nickerson, 2002).
Opportunism gives rise to transaction costs due to the
need to ensure that the other party does not engage in
opportunistic behavior by monitoring and safeguarding
transaction specific assets. This can be achieved by
using hierarchy as the governance form. In summary,
TCE indicates that transactions between parties can be
organized by choosing between the two governance
mechanisms of markets or hierarchy (firm), with the
latter providing higher monitoring and safeguarding
procedures to control for opportunism in the transaction
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64 57

(Williamson, 1985). However, a number of researchers
have criticized TCE, arguing that the market-hierarchy
dichotomy is too simplistic to represent various forms
of governance mechanisms (Rindfleisch and Heide,
1997) and that TCE fails to recognize that hierarchical
behavior can also foster opportunistic behavior
(Ghoshal and Moran, 1996).
While it is not the objective of this paper to
contribute to this growing debate between TCE and
KBV, it is important to note these two views are forming
a framework for supplier development research. It also
provides a starting point to explore the issue of risk in
supplier development due to opportunistic behavior by
the supplier which is largely unexplored at this point.
Further research will benefit from investigating the type
of monitoring and safeguarding procedures used by a
buyer to control for opportunism and their role as
moderators in the context of supplier development.
As with all investigations, this research has its
limitations. The low response rate for the study poses
some concern. While a reminder postcard was mailed 2
weeks following the survey and follow-up emails and
phone calls were made, one limitation of this study is
that multiple waves of survey instrument were not
mailed to respondents. As such it is recommended that
future research fully implementing Dillman’s total
design method (Dillman, 1978) and use multiple survey
mailings. Finally, the construct of bilateral top manage-
ment involvement could not be validated and requires
further examination to determine its role in the supplier
and buyer partnership. While further work may clarify
the management interface issue, this research adds to
the growing body of knowledge on supplier develop-
ment and provides an impetus to increase our under-
standing of organizational efforts for managing
complex supply networks.
Appendix A
Table A.1 presents the item source identification for
the survey items.

Table A.1
list of items and source identification for survey items
Items Supporting literature/field visits
Competitive pressure: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
CP1 Used multiple suppliers for the purchased item to create Adapted from Krause et al. (2000)
competitive pressure for this supplier
Evaluation and certification: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
E&C1 Assessed this supplier’s performance through a formal supplier Adapted from Krause (1999), Krause et al. (2000),
evaluation system with established guidelines and procedures and based on discussion in Watts and Hahn (1993)
E&C2 Provided this supplier with feedback about the results of the evaluation
E&C3 Used a supplier certification program to certify
this supplier’s quality
E&C4 Used formal and written communication to communicate
improved performance expectationsa
Future business incentives: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
FBINC1 Promised increased volume order of items supplied by this Adapted from Krause (1999), Krause et al. (2000)
supplier for improving current performance and based on discussion in
FBINC2 Promised consideration for improved business in the future Watts and Hahn (1993)
for delivered improvements in performance
FBINC3 Shared the cost savings achieved due to this supplier’s
performance improvements a
FBINC4 Recognized the suppliers improvements through awardsa
Operational knowledge transfer activities: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
OKTA1 Used site visits by your organization’s personnel to this supplier’s Adapted from Krause (1999), Krause et al.
premises to help them improve performance (2000), MacDuffie and Helper (1997), and
OKTA2 Invited supplier’s personnel to your site to increase their awareness Dyer and Nobeoka (2000) serve as supporting
of how their product is used literature indicating that such activities involve tacit
OKTA3 Conducted training and education programs for supplier personnel knowledge transfer
58 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
Table A.1 (Continued )
Items Supporting literature/field visits
Collaborative communication: measured as degree of agreement with the item on a 7-point scale (1—strongly agree, 4—neutral, 7—strongly
disagree)
ColComm1 It is expected that any information that might help the supplier Developed for this study based by referring
will be provided to them to Mohr and Spekman (1994), Mohr and
ColComm2 It is expected that the supplier will provide your organization Nevin (1990) and site visits at Otis Elevators,
with any information that might help you Bloomington, IN and Eaton Corporation,
ColComm3 It is expected that the supplier will be provided with proprietary Cleveland, OH
information if it might help them
ColComm4 It is expected that the supplier will provide proprietary information
if it helps your organization
ColComm5 Exchange of information with this supplier takes place frequently
ColComm6 Exchange of information with this supplier takes
place in a timely manner
ColComm7 Exchange of information between your organization and this
supplier involves many inter-firm contactsa
Bilateral management involvement: measured as degree of agreement with the item on a 7-point scale (1—strongly agree, 4—neutral,
7—strongly disagree)
TMI1 Your organization’s management fully supports the efforts to Developed for this study based on site visits
improve this supplier’s performance at Otis Elevators, Bloomington, IN and
TMI2 Your organization’s management has formal long-term plans Eaton Corporation, Cleveland, OH
with this supplier requiring them to improve their performance
TMI3 This supplier’s top management recognizes and supports your
efforts to improve their organization’s performance
Performance improvements: measured as degree of improvement on a 7-point scale (1—significant deterioration, 4—no improvement,
7—significant improvement)
SupPerf1 Number of incoming defects Developed for this study based on site visits at
SupPerf2 Percentage of on time deliveries Otis Elevators, Bloomington, IN and Eaton
SupPerf3 Percentage of orders delivered completely Corporation, Cleveland, OH
SupPerf4 Time from order placement to final receipt of order
SupPerf5 Amount of inventory you have to carry
for this supplier’s product
SupPerf6 Procured product’s cost
SupPerf7 Procured product’s design
SupPerf8 Processes and/or technologies used for the procured product
a
Items dropped due to low loadings during scale purification for CFA.

Appendix B

Tables B.1–B.3 show the results of the t-test for the early and late responders.

Table B.1
t-Test for means of demographics of initial 38 and last 38 responses
Variable d.f. t-Value Pr > jtj
Number of years respectively employed 74 0.3 0.7665
Annual sales 70 0.94 0.3507
Number of suppliers 71 0.4 0.6908
Percent change in number of suppliers 73 0.12 0.9044
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64 59

Table B.2 Table B.3

t-Test for means initial 38 and last 38 responses for unsuccessful t-Test for means initial 38 and last 38 responses for successful
instances instances
Variable d.f. t-Value Pr > jtj Variable d.f. t-Value Pr > jtj
Number of years supplier has 70 0.2 0.8404 Number of years supplier has 71 0.55 0.5827
supplied product supplied product
Percent of supplier’s output procured 72 0.77 0.4422 Percent of supplier’s output procured 72 0.8 0.4241
Percent of companies’ 73 0.17 0.8647 Percent of companies’ output procured 72 0.08 0.9359
output procured CompPr1A 74 0.18 0.8561
CompPr1O 74 1.29 0.2012 E&C1A 74 1.09 0.2786
E&C1O 74 0.81 0.4206 E&C2A 74 1.17 0.2457
E&C2O 74 1.81 0.0742 E&C3A 74 1.15 0.2559
E&C3O 74 0.31 0.7565 OKTA1A 74 0.91 0.3639
OKTA1O 74 1.01 0.3178 OKTA2A 74 0.58 0.5667
OKTA2O 74 0.07 0.9444 OKTA3A 74 0.01 0.9954
OKTA3O 74 0.52 0.6024 FBINC1A 74 0.65 0.5206
FBINC1O 74 1.44 0.1549 FBINC2A 74 0.77 0.4415
FBINC2O 74 1.26 0.2103 TMI1A 74 0.39 0.7005
TMI1O 74 0.14 0.8929 TMI2A 74 0.8 0.4242
TMI20 74 1.37 0.1743 TMI3A 74 1.28 0.2039
TMI3O 74 0.12 0.9019 SupPerf1A 74 0 1
SupPerf1O 74 1.28 0.2047 SupPerf2A 74 1.26 0.2108
SupPerf2O 74 0.07 0.9412 SupPerf3A 74 0.24 0.8133
SupPerf3O 74 0.08 0.935 SupPerf4A 74 0.53 0.5943
SupPerf4O 74 0.84 0.403 SupPerf5A 74 0 1
SupPerf5O 74 0.68 0.5004 SupPerf6A 74 0.09 0.9295
SupPerf6O 74 0.07 0.9448 SupPerf7A 74 0.27 0.7916
SupPerf7O 74 1.4 0.166 SupPerf8A 74 0.76 0.4518
SupPerf8O 74 0.41 0.6818 ColComm1A 74 1.3 0.1971
ColComm1O 74 0.99 0.3266 ColComm2A 74 1.91 0.0596
ColComm2O 74 0.43 0.6688 ColComm3A 74 0.24 0.808
ColComm3O 74 1.27 0.2084 ColComm4A 74 0.08 0.9389
ColComm4O 74 0.07 0.9481 ColComm5A 74 0.45 0.657
ColComm5O 74 0.29 0.7717 ColComm6A 74 0.47 0.6426
ColComm6O 74 0.49 0.6259
 60
Appendix C. See Table C.1 for correlation, variance and covariance matrix.

S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64

Table C.1
Correlation (upper half triangle), variance (diagonal) and covariance (lower half triangle) matrix
Cornp E&C1 E&C2 E&C3 FBINC1 FBINC2 OKTA1 0KTA2 OKIA3 Col- Col- Col- Col- Col- Col- Petf1 Petf2 Petf3 Petf4 Petf5 Petf6 Petf7 Petf8 %Buy- %Sup- MatTyp
Pr1 Comm1 Comm2 Comm3 Cormrn4 Comm5 Comm6 Req Opt

ConnpPr1 3.878 0.091 0.062 0.001 0.102 0.078 0.067 0.141 0.027 0.020 0.050 0.082 0.122 0.100 0.023 0.049 0.087 0.076 0.050 0.007 0.065 0.057 0.001 0.208** 0.070 0.010
ES&C1 0.330 3.400 0.713+ 0.529+ 0.096 0.272+ 0.265+ 0.275+ 0.232+ 0.133 0.052 0.013 0.011 0.046 0.131 0.145** 0.060 0.094 0.170* 0.116 0.126 0.170 * 0.026 0.067 0.065 0.296+
E&C2 0.195 2.105 2.565 0.421+ 0.094 0.235+ 0.135 * 0.226+ 0.115 0.240+ 0.090 0.032 0.053 0.108 0.163* 0.124 0.092 0.095 0.120 0.142** 0.151 * 0.170 * 0.081 0.084 0.021 0.147 *
E&C3 0.007 2.454 1.698 6.329 0.098 0.216 ** 0.272+ 0.134* 0.152 * 0.172 * 0.037 0.111 0.045 0.099 0.107 0.202** 0.057 0.133 0.184** 0.215** 0.180 ** 0.228+ 0.079 0.083 0.116 0.189 **
FBINC1 0.371 0.325 0.278 0.453 3.350 0.631+ 0.135 * 0.183** 0.199 ** 0.225+ 0.66* 0.185** 0.175 ** 0.209 ** 0.111 0.215** 0.227+ 0.310+ 0.294+ 0.241* 0.216 ** 0.240+ 0.240+
0.032 0.090 0.060
FBINC2 0.243 0.794 0.603 0.661 1.836 2.507 0.112 0.254* 0.211 ** 0.253+ 0.121 0.134 0.104 0.212 ** 0.179** 0.265* 0.260+ 0.289+ 0.290+ 0.327* 0.252+ 0.211 ** 0.247+
0.136 *
0.085 0.051
OKTA1 0.233 0.865 0.383 1.214 0.440 0.315 3.140 0.444+ 0.377+ 0.137 * 0.107 0.001 0.031 0.147 * 0.004 0.209** 0.102 0.112 0.139* 0.039 0.097 0.172+ 0.034 0.139 *
0.025 0.144 *
OKTA2 0.1 0.742 0.530 0.494 0.491 0.559 1.152 2.145 0.232+ 0.206 ** 0.211 ** 0.014 0.007 0.160 * 0.168* 0.072 0.131 0.148 * 0.158* 0.096 0.141 * 0.186 ** 0.010 0.032 0.047 0.031
OKTA3 0.112 0.891 0.353 0.795 0.761 0.695 1.390 0.706 4.331 0.136 * 0.056 0.108 0.034 0.168 * 0.007 0.303* 0.122 0.106 0.194** 0.169** 0.097 0.170 * 0.196 **
0.022 0.142 * 0.131
ColComm1 0.035 0.214 0.335 0.376 0.360 0.350 0.212 0.263 0.247 0.759 0.458+ 0.275+ 0.322+ 0.471+ 0.405+ 0.196** 0.224+ 0.175 * 0.214** 0.060 0.082 0.194 ** 0.226+
0.113 0.035 0.025
ColCornm2 0.124 0.122 0.152 0.119 0.354 0.242 0.238 0.359 0.225 0.503 1.559 0.325* 0.462+ 0.485+ 0.507+ 0.240* 0.350+ 0.337+ 0.388+ 0.155** 0.236+ 0.295+ 0.301+ 0.020 0.054 0.052
ColComm3 4.244 0.037 0.077 0.426 0.516 0.322 0.003 0.032 0.341 0.365 0.622 2.311 0.754+ 0.221 ** 0.233+ 0.096 0.114 0.185 ** 0.196** 0.112 0.111 0.118 0.116 0.065 0.015 0.091
ColComm4 0.392 0.033 0.138 0.155 0.522 0.269 0.091 0.016 0.115 0.456 0.948 1.935 2.644 0.322+ 0.371+ 0.213** 0.183 ** 0.211 ** 0.255+ 0.140** 0.120 0.180 ** 0.216 **
0.062 0.024 0.046
ColComm5 0.226 0.098 0.201 0.290 0.447 0.390 0.302 0.273 0.407 0.476 0.709 0.39 0.608 1.346 0.594+ 0.245* 0.390+ 0.332+ 0.337+ 0.256* 0.245+ 0.280+ 0.294+ 0.105 0.110 0.005
ColCornrn6 0.055 0.295 0.319 0.330 0.249 0.347 0.006 0.301 0.019 0.432 0.752 0.433 0.738 0.543 1.495 0.250* 0.369+ 0.409+ 0.445+ 0.306* 0.270+ 0.287+ 0.363+
0.046 0.059 0.038
Petf1 0.130 0.361 0.269 0.659 0.534 0.567 0.501 0.142 0.852 0.232 0.410 0.197 0.469 0.384 0.413 1.530 0.576+ 0.627+ 0.511+ 0.413* 0.356+ 0.376+ 0.490+
0.129 0.001 0.046
Perf2 0.254 0.163 0.216 0.211 0.616 0.609 0.267 0.254 0.375 0.269 0.652 0.257 0.440 0.670 0.665 1.154 2.191 0.774+ 0.653+ 0.528* 0.451+ 0.339+ 0.512+
0.007 0.089 0.163
Perf3 0.206 0.241 0.218 0.466 0.794 0.638 0.276 0.303 0.308 0.212 0.591 0.392 0.477 0.537 0.695 1.180 1.596 1.935 0.705+ 0.531* 0.492+ 0.426+ 0.535+
0.009 0.113 0.094
Perf4 0.138 0.442 0.270 0.653 0.761 0.647 0.346 0.326 0.569 0.263 0.659 0.42 0.555 0.551 0.765 0.974 1.362 1.382 1.985 0.554* 0.431+ 0.340+ 0.459+ 0.105 0.109 0.042
Perf5 0.024 0.349 0.369 0.878 0.720 0.842 0.111 0.229 0.573 0.085 0.317 0.275 0.370 0.484 0.610 0.905 1.270 1.204 1.269 2.646 0.537+ 0.347+ 0.405+
0.102 0.155 0.037
Perf6 0.202 0.369 0.354 0.718 0.629 0.634 0.274 0.328 0.321 0.113 0.471 0.265 0.310 0.450 0.524 0.764 1.060 1.086 0.964 1.386 2.517 0.501+ 0.495+ 0.096 0.165 0.025
+
Perf7 0.147 0.410 0.357 0.751 0.579 0.439 0.400 0.356 0.464 0.221 0.457 0.236 0.354 0.425 0.460 0.666 0.659 0.776 0.627 0.740 1.041 1.717 0.452 0.005 0.122 0.014
Perf8 0.002 0.055 0.150 0.230 0.510 0.453 0.069 0.018 0.471 0.225 0.439 0.204 0.407 0.394 0.513 0.766 0.576 0.560 0.745 0.762 0.905 0.685 1.336 0.030 0.134 0.091
%BuyReq 16.982 5.146 5.601 6.655 2.452 6.954 10.240 1.934 1.913 4.096 1.057 4.131 4.168 5.184 2.315 7.257 0.453 0.536 6.135 6.866 6.313 0.435 1.427 1726.899 0.156 0.015
%SupOpt 3.890 3.336 0.932 8.191 4.615 3.908 1.393 1.936 8.310 0.933 1.924 0.76 1.093 3.591 2.022 0.042 3.676 4.414 4.320 7.200 7.462 4.483 4.346 182.189 786.213 0.179
MatTyp 0.009 0.251 0.109 0.219 0.051 0.037 0.117 0.021 0.125 0.010 0.030 0.064 0.035 0.003 0.021 0.029 0.111 0.060 0.027 0.028 0.018 0.008 0.048 0,293 2.309 0.212
*
p < 0.05.
**
p < 0.01.
+
p < 0.001.
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64 61

Table D.1
Survey items, item means, standard deviation, item loadings and t-values
Items Mean S.D. Loading a t-Value
Competitive pressure: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
CP1 Used multiple suppliers for the purchased item to create 4.228 1.969 1b 20.688
competitive pressure for this supplier
E&C1 Assessed this supplier’s performance through a formal 5.516 1.844 0.949 15.568
supplier evaluation system with established guidelines and procedures
E&C2 Provided this supplier with feedback about the results of the evaluation 6.005 1.602 0.748 11.683
E&C3 Used a supplier certification program to certify this supplier’s quality 4.684 2.516 0.564 8.453
Future business incentives: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
FBINC1 Promised increased volume order of items supplied by this supplier 4.544 1.838 0.695 9.154
for improving current performance
FBINC2 Promised consideration for improved business in the 4.856 1.583 0.908 11.241
future for delivered improvements in performance
Operational knowledge transfer activities: measured as frequency of use on a 7-point scale (1—never, 4—sometimes, 7—always)
OKTA1 Used site visits by your organization’s personnel to 4.981 1.772 0.702 8.904
this supplier’s premises to help them improve performance
OKTA2 Invited supplier’s personnel to your site to increase 5.164 1.464 0.594 7.646
their awareness of how their product is used
OKTA3 Conducted training and education programs for supplier personnel 3.120 2.081 0.516 6.620
Collaborative communication: measured as degree of agreement with the item on a 7-point scale (1—strongly disagree, 4—neutral, 7—strongly agree)
ColComm1 It is expected that any information that might help 6.316 0.8713 0.590 8.714
the supplier will be provided to them
ColComm2 It is expected that the supplier will provide your 5.990 1.260 0.709 10.998
organization with any information that might help you
ColComm3 It is expected that the supplier will be provided with 5.577 1.520 0.365 5.053
proprietary information if it might help them c
ColComm4 It is expected that the supplier will provide 5.404 1.626 0.512 7.369
proprietary information if it helps your organization c
ColComm5 Exchange of information with this supplier takes place frequently 5.884 1.160 0.746 11.757
ColComm6 Exchange of information with this supplier takes place in a timely manner 5.656 1.224 0.750 11.846
Bilateral management involvement: measured as degree of agreement with the item on a 7-point scale (1—strongly disagree, 4—neutral, 7—strongly agree)
TMI1 Your organization’s management fully supports the efforts 5.781 1.425 0.643 9.551
to improve this supplier’s performance
TMI2 Your organization’s management has formal long-term plans 4.856 1.835 0.647 9.630
with this supplier requiring them to improve their performance
TMI3 This supplier’s top management recognizes and supports 5.265 1.718 0.738 11.312
your efforts to improve their organization’s performance
Performance improvements: measured as degree of improvement on a 7-point scale (1—significant deterioration, 4—no improvement, 7—significant
improvement)
SupPerf1 Number of incoming defects 5.330 1.353 0.682 11.007
SupPerf2 Percentage of on time deliveries 5.298 1.480 0.833 14.646
SupPerf3 Percentage of orders delivered completely 5.274 1.392 0.876 15.863
SupPerf4 Time from order placement to final receipt of order 5.274 1.409 0.781 13.300
SupPerf5 Amount of inventory you have to carry for this supplier’s product 4.940 1.627 0.653 10.401
SupPerf6 Procured product’s cost 4.893 1.586 0.606 9.468
SupPerf7 Procured product’s design 4.641 1.310 0.514 7.769
SupPerf8 Processes and/or technologies used for the procured product 4.930 1.156 0.635 10.412
%ByRq Percent of buyer requirement procured from 39.88 41.55 1b 20.688
the supplier reported as a value between 0 and 100%
%SupOpt Percent of supplier output which the buyer 25.82 28.04 1b 20.688
represents reported as a value between 0 and 100%
MatTyp Standard (coded as 1), made-to-order (coded as 2), 1.777 0.460 1b 20.688
both standard and made-to-order (coded as 3)
a
Completely standardized co-efficients all loadings are significant at p < 0.001.
b
Error term fixed at 0 due to single item scale.
62 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64

SupPerf Cornbach a Reliability

The lower half of the matrix shows the estimated correlations between the latent constructs (wij) with standard errors in brackets, the diagonal shows values for the average variance extracted.
Appendix D

0.812
0.743
0.690
0.788
0.540
0.887
Table D.1 shows the loadings and t-values of the final
measurement model. Convergent validity can be
assessed from the measurement model by checking if

0.795
0.790
0.648
0.815
0.720
0.886
each indicator’s estimated loading on its posited
underlying construct is significant (Anderson and

0.264 (0.084) 0.563 (0.058) 0.684 (0.060) 0.5025

Gerbing, 1988). As seen from Table D.1 all the items
load significantly on the hypnotized constructs and
provide evidence of convergent validity. The correla-
tions between the latent constructs are shown in
Table D.2. Discriminant validity can be assessed by

0.446 (0.088) 0.754 (0.048) 0.459

TMI
testing if the confidence interval (2 standard errors)
around the parameter estimates between two factors
includes 1.0. (Anderson and Gerbing, 1988). The

ColComm
confidence interval between none of the constructs

0.240 (0.090) 0.3945

encompasses the value 1.0 showing discriminant
validity of the constructs.
The diagonal in Table D.2 shows the average
variance extracted values for the constructs. A more

OKTA
stringent test for discriminant validity is to test that the

0.357
average variance extracted by the items of a construct
versus than the average shared variance (square of the

(0.087)
(0.078)
(0.081)
(0.073)
correlations in the off diagonals) between two construct
FBINC

(Fornell and Larker, 1981). All constructs pass this test

0.653
0.325
0.293
0.353
0.133
except for bilateral top management involvement, with
the constructs of collaborative communication and
0.296 (0.073)
0.432 (0.078)
0.140 (0.078)
0.288 (0.079)
0.160 (0.073)
performance. Due to the lack of discriminant validity,
Eval&Cert

this construct was dropped from further analysis.

0.5926
(0.071)
(0.074)
(0.084)
(0.076)
(0.080)
(0.071)
Inter construct correlations, average variance extracted and scale reliabilities
COMPPR

0.090
0.096
0.128
0.039
0.108
0.067
(0.068)
(.0600)
(0.074)

(0.076)
(0.080)
(0.071)
(0.83)
MatTyp

0.010
0.300
0.061
0.170
0.022
0.035
0.101
(0.068)
(0.065)
(0.071)
(0.073)
(0.084)
(0.075)
(0.080)
(0.072)
%SupOpt

0.015
0.208
0.079
0.133
0.110
0.084
0.063
0.027
(0.067)
(0.066)
(0.067)
(0.071)
(0.074)
(0.084)
(0.075)
(0.080)
(0.070)
%ByRq

0.156
0.179
0.156
0.069
0.102
0.097
0.078
0.109
0.141
Eval&Cert

ColComm
COMPPR
Table D.2

%SupOpt

SupPerf
%ByRq

MatTyp

FBINC
OKTA

TMI
 S.B. Modi, V.A. Mabert / Journal of Operations Management 25 (2007) 42–64
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