The Impact of Quality Cost on Revenue Sharing in Supply Chain Management
Customer’ needs, quality, and value creation while
reducing costs through supply chain management provides challenges
and opportunities for companies and researchers. In the light of these
challenges, modern ideas must contribute to counter these challenges
and exploit opportunities. Therefore, this paper discusses the impact
of the quality cost on revenue sharing as a most important incentive
to configure business networks. This paper develops the quality cost approach to align with the
modern era. It develops a model to measure quality costs which
might enable firms to manage revenue sharing in a supply chain. The
developed model includes five categories; besides the well-known
four categories (namely prevention costs, appraisal costs, internal
failure costs, and external failure costs), a new category has been
developed in this research as a new vision of the relationship between
quality costs and innovations in industry. This new category is
Recycle Cost. This paper also examines whether such quality costs in
supply chains influence the revenue sharing between partners. Using the author's quality cost model, the relationship between
quality costs and revenue sharing among partners is examined using a
case study in an Egyptian manufacturing company which is a part of
a supply chain. This paper argues that the revenue-sharing proportion
allocated to supplier increases as the recycle cost of supplier
increases, and the revenue-sharing proportion allocated to
manufacturer increases as the prevention and appraisal costs increase,
as well as the failure costs, the recycle costs of manufacturer, and the
recycle costs of suppliers decrease. However, the results present
surprising findings. The purposes of this study are developing quality cost approach
and understanding the relationships between quality costs and
revenue sharing in supply chains. Therefore, the present study
contributes to theory and practice by explaining how the cost of
recycling can be combined in quality cost model to better
understanding the revenue sharing among partners in supply chains.
[1] J. D. Schloetzer, “Process Integration and Information Sharing in Supply
Chains,” The Accounting Review 87 (3), 2012, pp. 1005–1032.
[2] K. R. Balachandran, and S. Radhakrishnan, “Quality implications of
warranties in supply chain,” Management Science 51 (8), 2005,
pp.1266–1277.
[3] G. H. Chao, S. M. Iravani, and R. C. Savaskan, “Quality Improvement
Incentives and Product Recall Cost Sharing Contracts,” Management
Science 55 (7), July 2009, pp. 1122–1138.
[4] S. Baiman, P. E. Fischer, and M. V. Rajan, “Information, contracting,
and quality costs,” Management Science 46 (6), 2000, pp. 776–789.
[5] A. Ramudhin, C. Alzaman, and A. A. Bulgak, “Incorporating the cost of
quality in supply chain design,” Journal of Quality in Maintenance
Engineering 14 (1), 2008, pp. 71–86.
[6] K. Govindan, and M. N. Popiuc, “Reverse supply chain coordination by
revenue sharing contract: A case for the personal computers industry,”
European Journal of Operational Research 233, 2014, pp. 326–336.
[7] A. Arya, and B. Mittendorf, “Supply Chains and Segment Profitability:
How Input Pricing Creates a Latent Cross-Segment Subsidy,” The
Accounting Review 86 (3), 2011, pp. 805–824.
[8] GOV.UK, Department for Business Innovation & Skills, “Future of
manufacturing: a new era of opportunity and challenge for the UK -
summary report,” 2013. Available at: https://www.gov.uk/government/
publications/future-of-manufacturing.
[9] M. T. Dacin, C. Oliver, and J. P. Roy, “The legitimacy of strategic
alliances: An institutional perspective,” Strategic Management Journal
28 (2), 2007, pp. 169-187.
[10] D. Fayard, L. S. Lee, R. A. Leitch, & W. J. Kettinger, “Effect of internal
cost management, information systems integration, and absorptive
capacity on inter-organizational cost management in supply chains,”
Accounting, Organizations and Society 37, 2012, pp. 168–187.
[11] R. D. Ireland, M. A. Hitt, and D. Vaidyanath, “Alliance management as
a source of competitive advantage,” Journal of Management 28 (3),
2002, pp. 413–446.
[12] S. Mamat, “The Role of Accounting in Supply Chains,” Accounting
Group, Warwick Business School. The University of Warwick, January
2012. Available at: http://wrap.warwick.ac.uk
[13] K. Langfield-Smith, and D. Smith, “Performance measures in supply
chains,” Australian Accounting Review 15 (1), 2005, pp. 39-51.
[14] K. K. Castillo-Villar, N. R. Smith, and J. L. Simonton, “The impact of
the cost of quality on serial supply-chain network design,” International
Journal of Production Research 50 (19), 2012a, pp. 5544–5566.
[15] S. Srivastava, “Towards estimating cost of quality in supply chains,”
Total Quality Management & Business Excellence 19 (3), 2008, pp.
193–208.
[16] K. K. Castillo-Villar, N. R. Smith, and J. L. Simonton, “A model for
supply chain design considering the cost of quality,” Applied
Mathematical Modelling 36, 2012b, pp. 5920–5935.
[17] K. Zhu, R. Q. Zang, and F. Tsung, “Pushing quality Improvement along
supply chains,” Management Science 53 (3), March 2007, pp. 421–436.
[18] W. S. Lim, “Producer-supplier contracts with incomplete information,”
Management Science 47 (5), 2001, pp. 709–715.
[19] M. K. Omar, and S. Murgan, “An improved model for the cost of
quality,” International Journal of Quality & Reliability Management 31
(4), 2014, pp. 395-418.
[20] A. Schiffauerova, and V. Thomson, “A review of research on cost of
quality models and best practices,” International Journal of Quality and
Reliability Management 23 (6–7), 2006, pp. 647–669.
[21] H. M. E. Abdelsalam, and M. M. Gad, “Cost of quality in Dubai: An
analytical case study of residential construction projects,” International
Journal of Project Management 27, 2009, pp. 501–511.
[22] P. Beigl, and S. Salhofer, “Comparison of ecological effects and costs of
communal waste management systems,” Resources, Conservation and
Recycling 41, 2004, pp. 83–102.
[23] D. J. Tonjes, and S. Mallikarjun, “Cost effectiveness of recycling: A
systems model,” Waste Management 33, 2013, pp. 2548–2556.
[24] A. W. Larsen, H. Merrild, J. Moller, and T. H. Christensen, “Waste
collection systems for recyclables: an environmental and economic
assessment for the municipality of Aarhus (Denmark),” Waste
Management 30, 2010, pp. 744–754.
[25] J. Groot, X. Bing, H. Bos-Brouwers, and J. A Bloemhof-Ruwaard,
“comprehensive waste collection cost model applied to post-consumer
plastic packaging waste,” Resources, Conservation and Recycling 85,
2014, pp. 79– 87.
[26] S. Debnath, and S. K. Bose, “Exploring full cost accounting approach to
evaluate cost of MSW services in India,” Resources, Conservation and
Recycling 83, 2014, pp.87– 95.
[27] N. F. Cruz, P. Simões, and R. C. Marques, “Economic cost recovery in
the recycling of packaging waste: the case of Portugal”. Journal of
Cleaner Production 37, December 2012, pp. 8–18.
[28] C. Chao, and C. Liao, “Approaches to eliminate waste and reduce cost
for recycling glass,” Waste Management 31, 2011, pp. 2414–2421.
[29] G. Parthasarathy, “Minimization of cost of recycling in chemical
processes,” Chemical Engineering Journal 81, 2001, pp. 137–151.
[30] C. Lakhan, “Diversion, but at what cost? The economic challenges of
recycling in Ontario,” Resources, Conservation and Recycling 95, 2015,
pp. 133–142.
[31] J. Henri, O. Boiral, and M. Roy, “Strategic cost management and
performance: The case of environmental costs,” The British Accounting
Review, 2015, pp. 1-14.
[32] A. Henry, and C. Wernz, “A multiscale decision theory analysis for
revenue sharing in three-stage supply chains,” Annals of Operations
Research, 2015, pp. 277–300.
[33] J. Zhang, G. Liu, Q. Zhang, and Z. Bai, “Coordinating a supply chain for
deteriorating items with a revenue sharing and cooperative investment
contract,” Omega 56, 2015, pp. 37–49.
[34] H. Krishnan, and R. A. Winter, “On the role of revenue-sharing
contracts in supply chains,” Operations Research Letters 39, 2011, pp.
28–31.
[35] J. Wang, and H. Shin, “The Impact of Contracts and Competition on
Upstream Innovation in a Supply Chain,” Production and Operations
Management 24 (1), January 2015, pp. 134–146.
[36] O. D. Palsule-Desai, “Supply chain coordination using revenuedependent
revenue sharing contracts,” Omega 41, 2013, pp. 780–796.
[37] S. E. Atkinson, L. R. Stanley, and J. Tschirhart, “Revenue sharing as an
incentive in an agency problem: an example from the national football
league,” The RAND Journal of Economics 19 (1), 1988, pp. 27–43.
[38] C. Corbett, and G. A. DeCroix, “Shared-saving contracts for indirect
materials in supply chains: Channel profits and environmental impacts,”
Management Science 47 (7), 2001, pp. 881–893.
[39] B. Van der Rhee, J. Van der Veen, V. Venugopal, and V. Reddy Nalla,
“A New Revenue Sharing Mechanism for Coordinating Multi-echelon
Supply Chains,” Operations Research Letters 38, 2010, pp. 296–301.
[40] R. Yin, “Case Study Research: Design and Methods,” Second Edition,
Sage, London, 1994.
[41] K. Eisenhardt, “Building theories from case study research,” Academy of
Management Review 14, 1989, pp. 532-550.
[42] T. L. Albright, and H. Roth, “The measurement of quality cost: an
alternative paradigm,” Accounting Horizons, June 1992, pp. 15-27.
[43] D. Zimwara, L. Mugwagwa, D. Maringa, A. Mnkandla, L. Mugwagwa,
and T. Ngwarati, “Cost of Quality as a Driver for Continuous
Improvement - Case Study – Company X,” International Journal of
Innovative Technology and Exploring Engineering (IJITEE) 2 (2),
January 2013, pp. 2278-3075.
[44] C. D. Ittner, “Exploratory evidence on the behavior of quality costs,”
Operations Research 44, 1996, pp. 114–130.
[1] J. D. Schloetzer, “Process Integration and Information Sharing in Supply
Chains,” The Accounting Review 87 (3), 2012, pp. 1005–1032.
[2] K. R. Balachandran, and S. Radhakrishnan, “Quality implications of
warranties in supply chain,” Management Science 51 (8), 2005,
pp.1266–1277.
[3] G. H. Chao, S. M. Iravani, and R. C. Savaskan, “Quality Improvement
Incentives and Product Recall Cost Sharing Contracts,” Management
Science 55 (7), July 2009, pp. 1122–1138.
[4] S. Baiman, P. E. Fischer, and M. V. Rajan, “Information, contracting,
and quality costs,” Management Science 46 (6), 2000, pp. 776–789.
[5] A. Ramudhin, C. Alzaman, and A. A. Bulgak, “Incorporating the cost of
quality in supply chain design,” Journal of Quality in Maintenance
Engineering 14 (1), 2008, pp. 71–86.
[6] K. Govindan, and M. N. Popiuc, “Reverse supply chain coordination by
revenue sharing contract: A case for the personal computers industry,”
European Journal of Operational Research 233, 2014, pp. 326–336.
[7] A. Arya, and B. Mittendorf, “Supply Chains and Segment Profitability:
How Input Pricing Creates a Latent Cross-Segment Subsidy,” The
Accounting Review 86 (3), 2011, pp. 805–824.
[8] GOV.UK, Department for Business Innovation & Skills, “Future of
manufacturing: a new era of opportunity and challenge for the UK -
summary report,” 2013. Available at: https://www.gov.uk/government/
publications/future-of-manufacturing.
[9] M. T. Dacin, C. Oliver, and J. P. Roy, “The legitimacy of strategic
alliances: An institutional perspective,” Strategic Management Journal
28 (2), 2007, pp. 169-187.
[10] D. Fayard, L. S. Lee, R. A. Leitch, & W. J. Kettinger, “Effect of internal
cost management, information systems integration, and absorptive
capacity on inter-organizational cost management in supply chains,”
Accounting, Organizations and Society 37, 2012, pp. 168–187.
[11] R. D. Ireland, M. A. Hitt, and D. Vaidyanath, “Alliance management as
a source of competitive advantage,” Journal of Management 28 (3),
2002, pp. 413–446.
[12] S. Mamat, “The Role of Accounting in Supply Chains,” Accounting
Group, Warwick Business School. The University of Warwick, January
2012. Available at: http://wrap.warwick.ac.uk
[13] K. Langfield-Smith, and D. Smith, “Performance measures in supply
chains,” Australian Accounting Review 15 (1), 2005, pp. 39-51.
[14] K. K. Castillo-Villar, N. R. Smith, and J. L. Simonton, “The impact of
the cost of quality on serial supply-chain network design,” International
Journal of Production Research 50 (19), 2012a, pp. 5544–5566.
[15] S. Srivastava, “Towards estimating cost of quality in supply chains,”
Total Quality Management & Business Excellence 19 (3), 2008, pp.
193–208.
[16] K. K. Castillo-Villar, N. R. Smith, and J. L. Simonton, “A model for
supply chain design considering the cost of quality,” Applied
Mathematical Modelling 36, 2012b, pp. 5920–5935.
[17] K. Zhu, R. Q. Zang, and F. Tsung, “Pushing quality Improvement along
supply chains,” Management Science 53 (3), March 2007, pp. 421–436.
[18] W. S. Lim, “Producer-supplier contracts with incomplete information,”
Management Science 47 (5), 2001, pp. 709–715.
[19] M. K. Omar, and S. Murgan, “An improved model for the cost of
quality,” International Journal of Quality & Reliability Management 31
(4), 2014, pp. 395-418.
[20] A. Schiffauerova, and V. Thomson, “A review of research on cost of
quality models and best practices,” International Journal of Quality and
Reliability Management 23 (6–7), 2006, pp. 647–669.
[21] H. M. E. Abdelsalam, and M. M. Gad, “Cost of quality in Dubai: An
analytical case study of residential construction projects,” International
Journal of Project Management 27, 2009, pp. 501–511.
[22] P. Beigl, and S. Salhofer, “Comparison of ecological effects and costs of
communal waste management systems,” Resources, Conservation and
Recycling 41, 2004, pp. 83–102.
[23] D. J. Tonjes, and S. Mallikarjun, “Cost effectiveness of recycling: A
systems model,” Waste Management 33, 2013, pp. 2548–2556.
[24] A. W. Larsen, H. Merrild, J. Moller, and T. H. Christensen, “Waste
collection systems for recyclables: an environmental and economic
assessment for the municipality of Aarhus (Denmark),” Waste
Management 30, 2010, pp. 744–754.
[25] J. Groot, X. Bing, H. Bos-Brouwers, and J. A Bloemhof-Ruwaard,
“comprehensive waste collection cost model applied to post-consumer
plastic packaging waste,” Resources, Conservation and Recycling 85,
2014, pp. 79– 87.
[26] S. Debnath, and S. K. Bose, “Exploring full cost accounting approach to
evaluate cost of MSW services in India,” Resources, Conservation and
Recycling 83, 2014, pp.87– 95.
[27] N. F. Cruz, P. Simões, and R. C. Marques, “Economic cost recovery in
the recycling of packaging waste: the case of Portugal”. Journal of
Cleaner Production 37, December 2012, pp. 8–18.
[28] C. Chao, and C. Liao, “Approaches to eliminate waste and reduce cost
for recycling glass,” Waste Management 31, 2011, pp. 2414–2421.
[29] G. Parthasarathy, “Minimization of cost of recycling in chemical
processes,” Chemical Engineering Journal 81, 2001, pp. 137–151.
[30] C. Lakhan, “Diversion, but at what cost? The economic challenges of
recycling in Ontario,” Resources, Conservation and Recycling 95, 2015,
pp. 133–142.
[31] J. Henri, O. Boiral, and M. Roy, “Strategic cost management and
performance: The case of environmental costs,” The British Accounting
Review, 2015, pp. 1-14.
[32] A. Henry, and C. Wernz, “A multiscale decision theory analysis for
revenue sharing in three-stage supply chains,” Annals of Operations
Research, 2015, pp. 277–300.
[33] J. Zhang, G. Liu, Q. Zhang, and Z. Bai, “Coordinating a supply chain for
deteriorating items with a revenue sharing and cooperative investment
contract,” Omega 56, 2015, pp. 37–49.
[34] H. Krishnan, and R. A. Winter, “On the role of revenue-sharing
contracts in supply chains,” Operations Research Letters 39, 2011, pp.
28–31.
[35] J. Wang, and H. Shin, “The Impact of Contracts and Competition on
Upstream Innovation in a Supply Chain,” Production and Operations
Management 24 (1), January 2015, pp. 134–146.
[36] O. D. Palsule-Desai, “Supply chain coordination using revenuedependent
revenue sharing contracts,” Omega 41, 2013, pp. 780–796.
[37] S. E. Atkinson, L. R. Stanley, and J. Tschirhart, “Revenue sharing as an
incentive in an agency problem: an example from the national football
league,” The RAND Journal of Economics 19 (1), 1988, pp. 27–43.
[38] C. Corbett, and G. A. DeCroix, “Shared-saving contracts for indirect
materials in supply chains: Channel profits and environmental impacts,”
Management Science 47 (7), 2001, pp. 881–893.
[39] B. Van der Rhee, J. Van der Veen, V. Venugopal, and V. Reddy Nalla,
“A New Revenue Sharing Mechanism for Coordinating Multi-echelon
Supply Chains,” Operations Research Letters 38, 2010, pp. 296–301.
[40] R. Yin, “Case Study Research: Design and Methods,” Second Edition,
Sage, London, 1994.
[41] K. Eisenhardt, “Building theories from case study research,” Academy of
Management Review 14, 1989, pp. 532-550.
[42] T. L. Albright, and H. Roth, “The measurement of quality cost: an
alternative paradigm,” Accounting Horizons, June 1992, pp. 15-27.
[43] D. Zimwara, L. Mugwagwa, D. Maringa, A. Mnkandla, L. Mugwagwa,
and T. Ngwarati, “Cost of Quality as a Driver for Continuous
Improvement - Case Study – Company X,” International Journal of
Innovative Technology and Exploring Engineering (IJITEE) 2 (2),
January 2013, pp. 2278-3075.
[44] C. D. Ittner, “Exploratory evidence on the behavior of quality costs,”
Operations Research 44, 1996, pp. 114–130.
@article{"International Journal of Business, Human and Social Sciences:71646", author = "Fayza Obied-Allah", title = "The Impact of Quality Cost on Revenue Sharing in Supply Chain Management", abstract = "Customer’ needs, quality, and value creation while
reducing costs through supply chain management provides challenges
and opportunities for companies and researchers. In the light of these
challenges, modern ideas must contribute to counter these challenges
and exploit opportunities. Therefore, this paper discusses the impact
of the quality cost on revenue sharing as a most important incentive
to configure business networks. This paper develops the quality cost approach to align with the
modern era. It develops a model to measure quality costs which
might enable firms to manage revenue sharing in a supply chain. The
developed model includes five categories; besides the well-known
four categories (namely prevention costs, appraisal costs, internal
failure costs, and external failure costs), a new category has been
developed in this research as a new vision of the relationship between
quality costs and innovations in industry. This new category is
Recycle Cost. This paper also examines whether such quality costs in
supply chains influence the revenue sharing between partners. Using the author's quality cost model, the relationship between
quality costs and revenue sharing among partners is examined using a
case study in an Egyptian manufacturing company which is a part of
a supply chain. This paper argues that the revenue-sharing proportion
allocated to supplier increases as the recycle cost of supplier
increases, and the revenue-sharing proportion allocated to
manufacturer increases as the prevention and appraisal costs increase,
as well as the failure costs, the recycle costs of manufacturer, and the
recycle costs of suppliers decrease. However, the results present
surprising findings. The purposes of this study are developing quality cost approach
and understanding the relationships between quality costs and
revenue sharing in supply chains. Therefore, the present study
contributes to theory and practice by explaining how the cost of
recycling can be combined in quality cost model to better
understanding the revenue sharing among partners in supply chains.", keywords = "Quality cost, Recycle cost, Revenue sharing, Supply
chain.", volume = "9", number = "8", pages = "2956-11", }
