Control of Externally Provided Processes, Products and Services

#### **Chapter 9**

## Mediation Impact of Supplier Quality on Association between Top Management Commitment and Resource Utilization in Indian Automotive Sector

*Gaurav Goyal*

#### **Abstract**

The study intends to investigate mediating role of supplier quality improvement on relationship between top management commitment and resource utilization in Indian automotive sector. It is a given that the management of an organization plays a vital role in the success of an organization, which includes managing strategic resources and forming strategic alliances with key stakeholders. For manufacturing organizations where suppliers become an indispensable stakeholder in the organization's value chain, maintaining supplier quality leads to sustainable profits for the organization. Hence, a conceptual framework based on extant literature review is proposed for extracted constructs, namely top management commitment, supplier quality improvement, and resource utilization to analyze a possible relationship between the three constructs. To validate the proposed hypothesized relationships, data were collected by sending research instrument to senior management executives of Indian automotive organizations. Results of data analysis suggest that supplier quality improvement mediates the impact of top management commitment on resource utilization. Study strongly recommends that for optimum utilization of resources, automotive organization(s) must develop long-term relationship with selected set of trusted supplier's. Further, results suggest that as much as possible real-time voice of customer ought to be communicated to the selected set of suppliers.

**Keywords:** top management commitment, supplier quality, resource utilization, mediation analysis, automotive industry

#### **1. Introduction**

For manufacturing organizations where suppliers become an indispensable stakeholder in the organization's value chain, maintaining supplier quality is directly associated with sustainable profits for the organization [1]. Global competitive environment has forced these manufacturing organizations to focus on their

inherent resources to be competitive and sustainable. With resources being limited, it becomes pertinent for top management to have a renewed emphasis on utilization of the strategic resources at their disposal. Resource-based view of the firm also advocates the fact that creation and sustenance of competitive advantage are heavily dependent on optimum utilization of the core resources and capabilities by the concerned firm [2–4]. Moreover, resource-based view implies that interfirm activities involved in a supply chain system possess a high impact on resource utilization [5, 6]. One of the prominent ways through which interfirm activities can be improved includes focusing on continual improvement of suppliers' quality based on customer demands. Researchers and industry practitioners (alike) have argued that managing quality from the very beginning of the supply chain results in significant improvement in the firm performance. Researchers have suggested that firm performance is improved by reducing both waste and number of quality inspections required at the same time [1, 7–10].

India in recent time has emerged as one of the favored destinations for manufacturing a quality product at lower cost. Recent report by "Deloitte & Touche" and the Council on Global Competitiveness for global manufacturing competitiveness index has indicated India as one of the potential nations that will emerge as a big manufacturing hub in the time to come [11]. This optimistic view on India arises due to the abundance of cheap labor, favorable demographic profiles, and sustained economic growth. GDP of Indian manufacturing sector has reached an all-time high of INR 5331.94 billion in the first quadrant of 2017, with automotive sector representing a major share [12]. In fact, in post-COVID era as well, automotive sector is one of the major sectors about which Indian government is quite bullish for bailing out its economy from the postpandemic depression. India's strength in this sector emancipates from its large domestic consumption base for automobiles as well as due to its cost-competitive value chain (low labor and material cost) and strategic geographical location [13]. Moreover, few other industry reports suggest that market size of automotive sector is going to quadruple by the year 2026, that is, an increase from INR 4701 billion in year 2015 to INR 20,100 billion by year 2026 [13, 14]. This competitiveness of the Indian automotive sector can also be attributed to the ever-demanding Indian customers who want to have best of both worlds, i.e., price and performance. Researchers have also argued that customers change their buying decision(s) due to late delivery of automobiles caused by quality-related problems of suppliers [14, 15]. Thus to retain and boost their market share, top management of automotive organizations must emphasize on improving suppliers' quality. The improved suppliers' quality will help firm to reduce waste and rejections during quality inspection, thus leading to enhanced utilization of organizational resources.

This paper aims to investigate the same empirically by validating the proposed conceptual framework following the regression process procedure laid out by Preacher and Kelley [16] using Hayes PROCESS [17] for Indian automotive organizations. The presented study's structure includes sections covering literature review, methodology, theoretical and managerial contribution, and conclusion. Literature review section explores the extant literature available on top management commitment and resource utilization in light of supplier quality. Methodology section concentrates on data collection, reliability analysis, correlation analysis, and mediation analysis. Managerial and theoretical contribution section elaborates on importance of results from the presented work to managers and academicians. Last section of the study leads to recommendations and scope for future research in the underlying area.

*Mediation Impact of Supplier Quality on Association between Top Management Commitment… DOI: http://dx.doi.org/10.5772/intechopen.105781*

#### **2. Literature review**

Researchers have articulated on the fact that pertinent way through which organizations compete on competitive performance has shifted from manufacturing to supply chain management [18–21]. Supply chain management has sought to enhance the competitive performance by closely integrating internal functions within a company and effectively linking them to external operations of suppliers, customers, and other channel members for optimum utilization of resources [22, 23]. Resource-based view had also emphasized on the fact that firm can attain competitive advantage (exploiting transaction specific investments) by creating a competitive cost barrier [24, 25]. This signifies that manufacturing firms can attain sustainable competitive advantage by judiciously managing its heterogeneous set of strategic resources (that cannot be easily bought, transferred, or copied) [2, 26–28]. Resource utilization concentrates on deployment of excess buffer capacity so that manufacturing organizations can attain cost minimization [29]. Resource-based view of the firm suggests that creation and sustenance of competitive advantage are dependent on the way core resources and capabilities get utilized in a supply chain system that also involve interfirm activities [2–4, 30]. Researchers have suggested that interfirm activities are dependent on top management commitment and supplier's quality improvement, thus bearing a direct impact on resource utilization [1, 27, 31]. Management of interfirm activities for understanding and improving quality deficiencies of their suppliers involves selection of supplier based on quality, training of suppliers on upgrades in quality improvement and frequent visits of organizational representative to suppliers' facilities. Improvement in supplier's quality helps organizational management not only in reducing waste but also in paving their way toward optimal utilization of resources for delivering finished product at a minimal price to end customers. However, one research question that remains unanswered is whether supplier's quality improvement mediates the relationship between top management commitment and resource utilization or not?

#### **2.1 Top management commitment and supplier's quality improvement**

Customers are demanding superior-quality product at lowest prices in the global competitive environment. This emphasizes on the fact that Indian automotive sector has to deliver quality product at lowest cost possible. The post-COVID forecast for the Indian automotive industry is quite bullish. This bullish forecast for Indian automotive industry is lunged forward by demand of high-quality product at nominal prices [32, 33]. Top management of organization by optimally utilizing the firm's resources in the supply chain system would be in a position to cut short on their internal cost of production, thereby able to offer their respective products at nominal prices [5, 33, 34]. Supply chain presents an ideal area where optimizing activities implemented by strong leadership could yield considerable synergy and competitive advantage [35–40]. One of the prominent ways through which top management of a manufacturing organization can improve interfirm activities include focusing on continual improvement of supplier's quality based on frequent upgrades in customer quality requirements [27, 41–44]. Fulfillment of the customer's expectations ensures that quality standards of the higher order in the supply chain are continuously met [1, 20, 45–47]. Commitment from organization's top management is required to assure that these high customer expectations are repeatedly satisfied by incorporating these expectations into supply chain processes from the very beginning enabling the firm to manufacture the desired quality product

[5, 48–50]. This calls for embedding of quality management in supply chain processes involving interfirm activities as well [20, 51]. The above discussion indicates that top management commitment impact's supplier quality improvement, thereby helping us in postulating our first hypothesis as

#### *H =Top management commitment positively im 1a pacts supplier's quality improvement*

#### **2.2 Top management commitment and resource utilization**

Improvement in supplier's quality helps organizational management not only in reducing waste and number of quality inspections but also in paving their way toward optimal utilization of resources for delivering finished product at a minimal price to end customers. More the top management is focused on utilization of resources, better will be the competitive positioning of the concerned firm. This phenomenon has been well documented by a number of previous researchers in their studies [32, 33, 39, 45, 48, 52–54]. Moreover, resource-based view implies that interfirm activities involved in a supply chain system have a high impact on resource utilization [5, 6]. Indian organizations experience a significant socioeconomic difference with respect to their global counterparts [55]. Thus, the following hypothesis has been conceptualized:

<sup>1</sup> = *H Top management commitment positively impact <sup>b</sup> s resource utilization*

#### **2.3 Top management commitment, supplier's quality improvement, and resource utilization**

Organization must possess a system for collecting complaints and suggestions from their customers and communicating the same to all the related stakeholders as soon as possible [45, 56]. Thus, top management of the organization should periodically share information regarding risk and rewards of quality parameters with its various supply chain partners [43, 48, 57, 58]. This periodic performance feedback serves dual benefit of supplier development as well as maintaining healthy competition among firm's suppliers [23, 56, 59, 60]. Suppliers by getting periodic feedback on quality improvement parameters enable them to develop, which in turn helps the concerned manufacturing organization in meeting the stringent customer quality requirements [5, 6]. This ability of supplier to fulfill the quality demands of customer not only affects the competitive advantage of the said supplier but it also significantly influences the competitive positioning of the manufacturing organization in question [1, 48, 61, 62]. It becomes extremely important for top management to keep motivating their organization's suppliers for continuous improvement on quality front for retaining the dual benefit of suppliers' own development and sharpening their competitive edge as well [23, 62, 63].

Top management ought to concentrate on interfirm alliances [20] by placing their executives at the business facilities of their upstream supply chain partners for continually enhancing their supplier's quality [57, 64]. This would motivate firm's suppliers for manufacturing according to the customers' quality parameters [49, 57]. Highly motivated suppliers might result in optimal utilization of inventory and minimization of waste, thereby translating into enhanced resource utilization [20, 45, 65]. This clearly highlights that top management commitment impacts supplier's quality

*Mediation Impact of Supplier Quality on Association between Top Management Commitment… DOI: http://dx.doi.org/10.5772/intechopen.105781*

improvement and resource utilization. However, it will be interesting to investigate whether supplier's quality improvement has a mediating impact on the relationship between top management commitment and resource utilization in the context of Indian organizations. Thus, the next hypothesis is formulated as given below:

#### <sup>1</sup> <sup>=</sup> ' . *H Top management commitment positively impact <sup>c</sup> s resource utilizationwith respect to supplier s quality improvement*

Top management of organization from long had been focusing on dealing with a select supplier base that is chosen on the basis of customer feedback related to quality aspects, [27, 56], ISO standards [1], efficient inventory echelon models [66], and improvised supply chain networks [56]. Current extant literature fails to address whether supplier quality improvement mediates the relationship between top management commitment and resource utilization. Both researchers and industry practitioners have considered that top management commitment and supplier's quality improvement play a distinct role in contributing to resource utilization [6, 27, 35, 45, 49, 59, 65]. However, in this study it is proposed that top management commitment is an antecedent to supplier's quality improvement leading to the conceptual research framework as shown below in **Figure 1**. **Table 1** provides description and supporting references of the constructs used in the presented study**.**

**Figure 1.** *Conceptual framework.*


#### **Table 1.**

*Construct description and supporting references.*

#### **3. Methodology**

This section of the study is divided into four subsections. Survey instrument and data collection section emphasizes the development of scale, sampling technique used, and response rate of the study. Reliability section concentrates on determination of Cronbach alpha using SPSS 21.0 software. Correlation matrix section checks whether there exists a significant correlation among constructs of the study. At last, regression analysis section elaborates on mediated regression analysis as proposed by Preacher and Kelley using Hayes [17] PROCESS macro in SPSS 21.0.

#### **3.1 Survey instrument and data collection**

In-depth structured interviews with top management officials of Indian automotive organizations were conducted for identifying the pertinent items for the constructs. These interviews have helped in ensuring that constructs and their relationships are consistent with industry practices. After gathering valuable industry feedback, a draft is prepared and sent for feedback to selected academicians with relevant experience in the automotive sector. The process helped to obtain feedback on comprehensiveness, clarity, face validity, and readability of the scale of survey instrument. This valuable feedback helps in revising and finalizing the questionnaire as presented in **Table 2**.

Five-point Likert scale (1 – Strongly Disagree, 5 – Strongly Agree) was used to capture organizational responses of the questionnaire. Further, the research team distributed the research questionnaire based on snowball sampling. Reason for choosing snowball sampling was that respondent's references were considered for sending questionnaire to other respondents. Respondents of the study include the top level managers, chief executive officer's (CEO's), chief operational officer's (COO's), supply chain manager's and quality manager's; of 300 automotive organizations across India, and they were contacted through various modes, namely email, personal visits, and postal mails. This study has considered that the respondent was replying on behalf of the organization. Hence, the organization is considered as the unit of analysis. One-hundred and thirty automotive organizations responded to the questionnaire. After a careful examination of responses, 98 organizational responses are selected as valid for study. The reason for not selecting the other responses was due to either their incomplete or invalid response. Overall, the response rate of the study is 32.67% that is acceptable as per the literature [56, 57, 70, 71].

#### **3.2 Reliability**

The research team computed Cronbach's alpha [72] of constructs using SPSS version 21.0. The reliability results are presented along with the questionnaire in **Table 2** above. The construct's Cronbach alpha values presented in **Table 2** were found to be greater than 0.7, which is acceptable as per literature [1, 27, 63, 68, 72]. Thus, Cronbach alpha values validate the reliability of scale for further research usage.

#### **3.3 Correlation matrix**

To perform the regression analysis, it is first required to test the interrelationships between the study constructs. **Table 3** presents the interrelationships among the various study constructs. Top management commitment and supplier's quality


*Mediation Impact of Supplier Quality on Association between Top Management Commitment… DOI: http://dx.doi.org/10.5772/intechopen.105781*

#### **Table 2.**

*Research questionnaire.*


#### **Table 3.**

*Mean, standard deviation (SD) and correlations.*

improvement are significantly correlated with resource utilization (p < 0.01). It is also evident from **Table 3** that top management commitment is significantly correlated to supplier's quality improvement (p < 0.01).

#### **3.4 Regression analysis**

Three-step mediation analysis procedure as proposed by Baron & Kenney [73] has been considered to be the most traditional approach to mediation analysis with a limitation of use of descriptors such as "complete" and "partial" mediation [16]. Researchers had advocated that bootstrapping, a nonparametric resampling method, is a robust alternative to overcome this shortcoming [16, 74, 75]. Therefore, it is being recommended that constructs of bootstrapping confidence intervals (CI) for the indirect effect must exist between the limits.

Indirect, direct and total effects mediation analysis procedure [16] is used to investigate the mediating role of supplier's quality improvement using PROCESS macro [17] in SPSS version 21.0. Proposed framework with various notable research values is presented in **Figure 2**.

It is evident from **Figure 2** that regression coefficient of top management commitment (β = 0.7834, p < 0.05) with respect to supplier's quality improvement is positive. Additionally, top management commitment accounts for 63.92% of the variance in the supplier's quality improvement. Moreover, the results presented in **Table 4** below suggest that the "p" value for hypothesis H1a is significant (p < 0.05), thereby validating hypothesis H1a.

**Figure 2** also highlights that the coefficient of top management commitment (β = 0.7981, p < 0.05) with respect to resource utilization is significant. Furthermore, the results presented in **Table 4** validate the hypothesis H2a, which states that top management commitment positively influences the resource utilization of the firm.

Preacher and Kelly's regression method suggests that the total effect and the direct effect must be significant (p < 0.05) to validate the mediating impact of supplier's quality improvement. To significantly validate the indirect impact, boot standard error (SE) values must be within the boot upper limit confidence interval and lower limit confidence interval, and it is a must that the limits must not possess zero [16]. Thus, standard error must be positive and must be between positive control limits. Total and direct effect results presented in **Table 5** given below significantly validate that top management commitment impacts resource utilization with respect to supplier's quality improvement. Further, **Table 6** proves that there exists an indirect impact of supplier's quality improvement on the relationship between top management commitment and resource utilization, thereby validating hypothesis H3a. Therefore, it can be said that there exists a mediating role of supplier's quality improvement on the relationship between top management commitment and resource utilization.

**Figure 2.** *Framework with notable research values.*

*Mediation Impact of Supplier Quality on Association between Top Management Commitment… DOI: http://dx.doi.org/10.5772/intechopen.105781*


**Table 4.**

 *Regression model results.*


*\*The bold values represent significance level at p < 0.05.*

*\*\*Bootstrap sample size = 1000 (α = 0.05), LLCI = Lower limit confidence interval, ULCI = Upper limit confidence interval.*

#### **Table 5.**

*Total and direct effect results.*


*\*Bootstrap sample size = 1000 (α = 0.05), LLCI = Lower limit confidence interval, ULCI = Upper limit confidence interval.*

#### **Table 6.**

*Indirect effect and Preacher and Kelly results.*

#### **4. Theoretical and managerial contributions**

#### **4.1 Theoretical contribution**

The study validates the mediating role of supplier's quality improvement on the relationship between top management commitment and resource utilization in the context of Indian automotive organizations. The resource-based view has focused on economies of scale but somehow lacks in its coverage of the role played by top management in improving the supplier's quality for achieving better resource utilization. This research has enriched the literature by investigating the same for Indian automotive sector. India is a major contributor in the Asian automotive sector [13, 14, 76], thus researchers primarily working in the area of Asian automotive sector can use this model in various other Asian countries.

The existing literature has already captured the competitive edge attainment by dwelling on selecting supplier based on quality customer feedback [27, 56], ISO standards [1], efficient inventory echelon models [66], supply chain flexibility issues [15], supply chain networks [56], supply chain risk [77], and flexible supply chain capabilities at various tiers [78]. However, the findings of the presented study add another dimension to the same by suggesting that suppliers' quality improvement can mediate the relationship between top management commitment and resource utilization, thereby providing better competitive positioning to the concerned firm.

#### **4.2 Managerial contributions**

The mediating role of supplier's quality improvement in the Indian automotive sector suggests that top management must be committed to improve the supplier's quality for optimum utilization of resources. The automotive management must ensure the same so that they can obtain a sustainable competitive advantage through

#### *Mediation Impact of Supplier Quality on Association between Top Management Commitment… DOI: http://dx.doi.org/10.5772/intechopen.105781*

various ways covering employee commitment on quality issues, shortening of product development time, and communicating the updated customer requirements to suppliers in real time or as soon as possible. The achieved sustainable advantage will not only improve the manufacturing capability but also help automotive organizations on achieving the customer delight. The delighted customer will enable automotive organizations to enrich their market positioning not only at national level but also at the Asian level.

The top management of the automotive organization must assure that all organizational employees are also committed toward supplier's quality improvement so that they can obtain a sustainable competitive advantage through utilization of resources [79]. The committed employee will enable the automotive organization to cut short on their internal cost of production, thereby able to offer their respective products at nominal prices [5, 33, 34]. This will help the automotive organizations to attain a strong competitive advantage in the Asian market.

Report by India Brand Equity Foundation [14] considered India to be a potential manufacturing choice by most of the leading automotive organizations, and these organizations are expanding their product portfolio in the Indian Market as well. The top management of automotive units must work along with their trusted set of suppliers for solving quality-related issues in the development phase of an automobile itself, thus shortening the product development time. For doing so, top management of the firm is required to communicate the updated customer quality requirements as well as the customer's quality feedback as quickly as possible to all the respective suppliers. This will ensure that suppliers remain updated for delivering the demanded product by modifying their interfirm quality processes for delivering the said product. The automotive units will be able to reduce the internal cost of production as per the resource advantage theory leading to the manufacturing success resulting in higher utilization of resources and building of long-term relationships with the trusted set of suppliers.

The discussed strategies can be used by researchers as well as management professionals for boosting the manufacturing capability of the Asian automotive sector. The researchers can perform the same research in the various Asian markets and compare the results with the current study.

#### **5. Conclusion and future scope**

This study validates the mediation impact of supplier's quality improvement on the relationship between top management commitment and resource utilization in the context of Indian automotive organizations. Results of the data analysis suggest that top management of automotive organizations must focus on building long-term relationships with trusted set of suppliers so that they can improve quality of supplies, which translates into optimum utilization of inventory and minimization of waste.

Another recommendation of the study is that organizations must provide up-todate quality expectations of customers to their supplier in real time, if possible. By doing so, suppliers have a chance to update their system for quality improvements, which will ultimately result in reducing the internal cost of production in-line with the resource advantage theory. Management can utilize these savings for further improving supplier's quality that will help automotive organizations in fulfilling high expectations of customers. These accrued savings can further be utilized by the firms in strengthening their research and development wing helping the firm concerned

with attaining a sustainable competitive advantage in today's dynamic and volatile business environment.

However, there are a few limitations of this study. Firstly, the sample collected for this study was relatively small, but an effort has been made to cover a substantial number of units in terms of market share. Secondly, this research had not captured the secondary data (like internal manufacturing data) to crosscheck the resource utilization issues. The reason for not using secondary data was the unwillingness of the Indian automotive organizations to provide the secondary data due to their organizational policies.

The study being done in the automotive area provides an opportunity for researchers to carry out research studies of similar nature in the other industrial manufacturing sectors such as food and beverages, electronics, furniture, and pharmaceuticals. Another opportunity for researchers can be to work on a comparative analysis by comparing results across geographical locations for automotive organizations and thus coming out with a comprehensive model suiting the global requirements. Lastly, the researchers can work on the limitations of the study.

### **Author details**

Gaurav Goyal LM Thapar School of Management, Thapar Institute of Engineering and Technology, Derabassi, India

\*Address all correspondence to: ggoyal@thapar.edu

© 2022 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

*Mediation Impact of Supplier Quality on Association between Top Management Commitment… DOI: http://dx.doi.org/10.5772/intechopen.105781*

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## Section 5
