In management accounting literature, there is no research, to the best of the author's knowledge, investigates the relationship between quality costs and revenue sharing in supply chains. However, the relevant literature is examined as follows:
2.1 Quality Cost in Supply Chain
Many firms are now increasingly adopting inter-firm contractual arrangements to achieve competitive advantage. Firms gain many benefits from such arrangements because of the changing of relationships from short-term to long-term, such benefits as increasing market share, cost reduction, improve performance, as well as gain more skills and knowledge [Dacin et al., 2007; Fayard et al., 2012; Ireland et al., 2002; Mamat, 2012; Langfield-Smith & smith, 2005].
Supply chain …show more content…
Although quality cost has been applied within a large number of companies as an in- house measurement, it is crucial to extend quality cost as an external measure and integrate traditional manufacturing costs and distribution costs into supply chain modeling [Castillo-Villar et al., 2012a; Srivastava, 2008].
Quality cost across a supply chain is the sum of the costs incurred across a supply chain in preventing poor quality of product and/or service to deliver to final consumer, the costs incurred to ensure and evaluate that the quality requirements are being met, and any other costs incurred as a result of poor quality [Srivastava, 2008].
Some studies investigated the relation between quality cost and supply chain management, such as Srivastava (2008) which gave the first step towards estimating quality cost in a supply chain. They estimated quality costs in monetary terms, according to P-A-F model and used the standard DMAIC (Define–Measure–Analyze–Improve–Control) methodology for analysis of selected third-party contract manufacturing sites of a pharmaceutical company. Ramudhin et al. (2008) also focused on integration of quality cost in the supply chain. Their study presented a mathematical model for a …show more content…
Ramudhin et al. (2008) focused on total quality cost at suppliers when making a decision of supplier selection. By removing the quality cost terms from the model, a difference of approximately 16 percent in the value of the objective function was obtained. When quality cost is not included, supplier that is running at a high quality failure cost is treated similarly to the one that is operating at a lower quality failure cost, given they both have the same production cost. Therefore, the final optimal network will choose key suppliers who have the lowest operational costs, without considering the quality failure cost from the defective components received from the suppliers. Thus, choices made solely on production cost may sacrifice quality and lead to additional quality failure costs or corrective action costs in the next stages of the supply chain. Fayard et al. (2012) contributed to an understanding of the ability to manage inter-organizational quality cost that gives organizations an advantage over their competition. Moreover, Castillo-Villar et al. (2012a) aimed to develop a strategic-level model for computing the quality cost in a formulation of a single-product, multi-stage,