European Journal of Purchasing & Supply Management 8 (2002) 97109

The determinants of service quality: issues for purchasing

Linda L. Stanleya,*, Joel D. Wisnerb
a b

School of Business and Public Administration, Our Lady of the Lake University, 411 S.W. 24th Street, San Antonio, TX 78207, USA Department of Management, Las Vegas, College of Business, University of Nevada, 4505 Maryland Parkway, Box 456009, Las Vegas, NV 89154-6009, USA Received 1 July 1998; received in revised form 8 February 2001; accepted 5 April 2001

Abstract The overall purpose of this research was to analyze internal communication patterns, service quality initiatives, supplier management strategies and internal performance in organizations providing high levels of service quality to their external customers. Data was collected from 118 purchasing executives of manufacturing and service organizations. Respondents were asked to assess external and internal service quality as well as identify a number of internal service quality-oriented activities employed in their rms. Data was summarized for respondents stating a high level of external service quality. Comparative information was also supplied for the respondents stating lower levels of external service quality. r 2002 Elsevier Science Ltd. All rights reserved.
Keywords: External service quality; Internal service quality; Supplier management strategies; Purchasing

1. Introduction In recent years, trade and academic journals alike have stressed the value purchasing adds to organizations as strategic contributors. Bales and Fearon (1996) found evidence of this phenomenon, where approximately 67 percent of company presidents surveyed considered purchasing essential to their overall success. Additionally, Trent and Monczka (1998) revealed strong growth in the percent of purchasing departments making strategy presentations to senior management and board directors. However, as purchasing is continually recognized for its ability to contribute to organizational objectives, it must take a process approach rather than a functional approach to procurement. A process approach requires greater integration within and across organizations through better cross-functional communication and teaming. Integration is not easy and must rst have an organizations internal environment performing optimally. The organizations internal environment consists of the structures, strategies, and communication pat*Corresponding author. Tel.: +1-210-434-6711; fax: +1-210-4340821. E-mail addresses: stanl@lake.ollusa.edu (L.L. Stanley), wisner@ ccmail.nevada.edu (J.D. Wisner).

terns between internal suppliers and internal customers. Organizations must also emphasize and train employees to create a service quality culture. Service quality, dened by Berry et al. (1988) as the capability to exceed customers expectations, is extremely important because it reects an organizations capability to work eectively with external suppliers (who are also customers) and meet external customer needs, i.e., manage supply chains. A recent survey by Deloitte Consulting (Thomas, 1999) revealed that most North American manufacturers placed supply chain management as a high priority for their success. However, only 2 percent considered their supply chains to be world class. How will organizations achieve world class status? Purchasing arguably is a critical link to adding value in the supply chain because it has both internal and external customers and acts cross-organizationally as manager of external suppliers (Giunipero and Vogt, 1997; Kolchin, 1986). Ultimately, the performance of purchasing will determine, to some extent, an external customers satisfaction or dissatisfaction with the rms end products and services. A review of the literature, however, brought to light that few studies have analyzed internal organizational structures and activities contributing to internal performance or overall customer satisfaction with a rms products and services (Stanley and Wisner, 1998). Much of the research is found in the

0969-7012/02/$ - see front matter r 2002 Elsevier Science Ltd. All rights reserved. PII: S 0 9 6 9 - 7 0 1 2 ( 0 1 ) 0 0 0 0 9 - 0

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marketing, management, and total quality management literature, and more often than not focuses on relationships between contact employees and external customers. Research addressing advantages and disadvantages of purchasingsupplier relationships is extensive but limited research has linked supply management strategies to purchasings ability to serve internal customers, such as operations and marketing. As a result, we were interested in those organizational attributes, activities, and supply management strategies correlating to the delivery of high or world class service quality to external customers. We also wanted to determine if a high level of service quality to external customers was related to internal performance. Therefore, we addressed the following research questions: In organizations that deliver high levels of service quality to external customers, (1) Do purchasing departments exhibit common internal communication patterns with their internal suppliers and internal customers? (2) What organization-wide and purchasing department service quality-related activities are performed on a regular basis in organizations? (3) What dimensions of service quality are common among purchasing departments? (4) What dimensions of service quality are shared among internal suppliers of purchasing departments? and (5) What external supplier management practices are prevalent among purchasing departments? Because the research available on internal service quality was limited, this study was considered exploratory in nature and hypotheses were not developed. Rather, our intent was to develop additional insight about organizations delivering high levels of service quality to external customers. A review of the literature is presented, followed by the research methodology and a discussion of results, and concluding with some avenues for further research.

improving the quality of external service encounters is clearly important and leads to a supply chain management or holistic orientation. When service quality levels are high, benets are found to include greater protability, cost savings, and increased market share (Thompson et al., 1985). However, internal service quality is equally important because an organizations ability to meet the needs of external customers relies on employees internal capabilities to satisfy the needs of internal customers (Hallowell et al., 1996; Pfau et al., 1991). Hart et al. (1990), through several case studies, also argues that high levels of internal service quality lead to employee satisfaction, enabling those employees to deliver higher service quality to external customers. Subsequently, Hallowell et al. (1996) looked at the nancial services industry testing the relationship between internal service quality, service capability and customer satisfaction. They found that tools, policies, procedures, teamwork, and training were signicantly related to service capability. They also argued that, based on Schlesinger and Hesketts (1991) work, service capability was linked to customer satisfaction. To understand internal service quality further, the literature related to the service quality, internal organizational environment, purchasing service quality and purchasing-supplier strategies was reviewed. 2.2. Dimensions of service quality Service quality is dicult to quantify because of the very nature of service itself. Berry et al. (1988) and Parasuraman et al. (1985, 1988) argue that service quality is a perception resulting when customers compare their expectations to their perceptions of service received. Therefore, employee performance has a major impact on customers perceptions of service quality. They identied ten overlapping dimensions of service quality: tangibles, reliability, responsiveness, communication, credibility, security, competence, courtesy, understanding/knowing the customer, and accessibility. Based on surveys and an extensive case study, Berry et al. (1988) found that reliability was the most important factor to consumers. Harvey (1998) suggested that service quality be comprised of two broad dimensions: actual results and the process to achieve those results. Quality of actual results occurs when service providers are able to satisfy customers consistently, with no unpleasant surprises, i.e. with reliability. (Harvey, 1998, p. 586). Process quality consists of both technical and perceptual aspects. Technical quality results when the process occurs according to specied optimal procedures, while Harvey asserts that perceptual quality encompasses Parasuraman et al.s four broader dimensions of service qualityFempathy, responsiveness, assurance, and tangibles. According to Peters (1997), organizations can

2. Literature review 2.1. Background Within the last 15 years, researchers and practitioners have increasingly focused their attention on customer service and how to improve the quality of external service encounters between the contact employee and external customer. For example, Bitner et al. (1990) was interested in the physical surroundings that improve service encounters, while Parasuraman et al. (1985, 1988, 1991) focused on minimization of organizational gaps that aect customer satisfaction. The value of

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achieve technical quality, in part, through eective cross-functional communication and teaming. Inherent in these denitions and dimensions are the important roles both direct contact and noncontact employees play in delivery of service quality and that service quality problems are often caused by internal organizational conditions. Therefore, the following section addresses the role of support employees, or internal customers and internal suppliers. 2.3. Internal organizational environment Often, rms have viewed employee performance in terms of improving productivity rather than providing service to customers with unique needs (Bowen and Greiner, 1986). Consequently, internal suppliers do not perceive their function as service providers to internal customers, but rather as meeting external demand from consumers. This production line perception has often resulted in unsatisfactory internal service encounters and can lead to dissatised external customers. Therefore, some rms are beginning to recognize the value of viewing the next operation as customer, or an internal marketing perspective, as a competitive weapon to improve service both within the rm and to external customers (George and Gronroos, 1989; George, 1992; Magidson and Polcha, 1992). Their basic argument is that internal service encounters between departments must be eective before a rm can successfully compete in the external market. Implicit in their argument is that rms can only eectively manage supply chains when internal operations are running smoothly. Thus, each employee needs a marketing orientation. An internal suppliers goal should be improving relationships with internal customers and then developing a process to raise the quality of their internal products and services. Benets include improved overall organizational quality and competitive performance. Nagel and Cilliers (1990) dened the internal customer as anyone who receives products or services by others in the organization. For example, in a manufacturing rm, engineering receives information from purchasing regarding supplier qualications and material availability. Service encounters, in general, have been identied as those interactions occurring between customers and service contact people (Bitner et al., 1990; Carlzon, 1987; Czepeil et al., 1985). Within an organization, service encounters also occur between employees similar to external service encounters (Lewis and Entwistle, 1990). These interactions between internal suppliers and their internal customers would be considered internal service encounters, or two-way exchanges between internal customers and internal service providers (Gremler et al., 1994). Heskett and Schlesinger (1994) suggest that internal service quality relates, in part, to the attitudes that people have

toward one another and the way people serve each other inside the organization. Thus, an emphasis on organizational service quality with external customers implies a focus on internal service quality, internal customers and their intraorganizational suppliers have come to some common understanding of what service quality means to their organization, and a starting point for continuous improvement. Lewis and Koula (1995) examined service marketing activities at a commercial bank in Cyprus to determine the quality of service provided to external customers, to what degree service quality was inuenced by bank employees, and to what extent internal marketing was incorporated into bank practices. They found that managers stressed service quality and provided training and development to support this environment. While employees agreed that the bank placed a great deal of emphasis on service quality, they did not feel they were treated as well as external customers and experienced some communication gaps. However, they did have a sense of team spirit and cooperation and felt little improvement was needed in these areas. Overall, the banks recruitment policies and subsequent training were eective in developing a marketing orientation. In contrast, a later study by Lewis and Gabrielsen (1998) examined service quality practices of Norwegian banks and found that no real service quality culture existed, although they recognized the need. Bank employees agreed that improvements were needed in their internal working environment, training, internal communication, and reward systems. To develop a marketing orientation, strategies, activities, and programs are needed requiring cooperation and collaboration among internal suppliers, internal customers, and external suppliers. Companywide initiatives promoting this culture have been cited in the literature, and include developing a capable communication system, providing comprehensive training programs, ensuring regular meetings across functional areas, providing reward and recognition systems, implementing eective performance measurement systems, and developing cross-functional teams (Tucker et al., 1996; Luthans and Kessler, 1993; Hallowell et al., 1996; Handeld and Ghosh, 1994; Lewis and Gabrielsen, 1998). 2.4. The purchasing organization Purchasing operates within an organization, managing the supply of materials and services for other functional areas including operations, engineering, and nance (Fearon, 1988). More recently, purchasings role has begun to play a more strategic role as organizations implement supply chain management concepts. Specically, purchasings relationship with external suppliers has a critical inuence on their ability to serve internal customers, in terms of providing specied quality

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materials when they are needed at competitive prices. As an internal supplier, purchasing manages both the inow of materials and information to its internal customers (Cavinato, 1987). Other departments report to or interact with purchasing and are considered internal suppliers of purchasing. Specically, warehousing, inventory control scrap/surplus disposal, and inbound/outbound trac were areas identied as internal suppliers to purchasing (Fearon, 1988). Additionally, purchasing now participates on a number of cross-functional teams that make recommendations regarding sourcing strategies, value analysis, and outsourcing. Giunipero and Vogt (1997) found that purchasing was most often involved on cross-functional teams addressing cost-reduction strategies (74%), supplier evaluation and selection (73%), and support sourcing for selected items (67%). Whether these teams actually operate as teams is also important. Giunipero and Vogt (1997) also revealed that a true team framework existed in teams that addressed cost reduction (50%), quality management (47%), and supplier certication (43%). Results of this study indicated teamwork was past the development stage but not yet universal and communication skills were very important for purchasing to have an impact on decision-making. Jayaram and Vickery (1998) identied, through an extensive literature search, organizational initiatives considered important to purchasing performance. Frequently cited activities were (1) communication of goals, (2) training, (3) cross-functional teams, and (4) empowerment. Manuals, employee orientations, and training seminars that include organizational objectives and goals are some ways to communicate company goals. Formal meetings as well as informal social functions between departments will enhance the eectiveness of cross-functional teams. Performance tracking and rewards can also assure organizations of a service quality environment. As organizations continue to move away from vertical integration and toward outsourcing materials and services, supply chain management initiatives increase in importance and assure another important role for purchasing in managing relationships with an organizations external supply base. Since the late 1970s, there have been some dramatic changes in these relationships. Purchasing has reduced its supply base and focused on strategies that increase cooperation with their suppliers. Four elements of a more cooperative relationship discussed in detail in the literature were (1) supply base reduction, (2) single sourcing, (3) strategic partnerships, and (4) early supplier involvement in product design. 2.5. Supply management strategies As stated earlier, the imperative to integrate purchasing into an organizations strategic management process

is clear. The degree of purchasings sophistication will determine, in large part, its role in the process. Ellram and Carr (1994) provided an extensive review of the strategic purchasing literature and concluded that, among the key strategic issues for purchasing, the type of supplier relationship desired is critical, stating, Suppliers play a key role in supporting a rms competitive strategyy(p. 13). A natural implication of their contention is that, as supply chain management initiatives increase, activities to improve the performance of suppliers also arise. Much of the research has focused on the continuum of purchasingsupplier relationships, ranging from a distinct arms-length arrangement to more cooperative forms. To eectively manage suppliers in a supply chain management environment, cooperative relationships are imperative. Landeros and Monczka (1989) described the cooperative relationship as one where purchasing buys from a small supply pool, partnering arrangements are common, purchasing and their suppliers solve problems jointly, information is exchanged, and both parties adjust together to market conditions. Supply base reduction is a necessary precursor to buying from a small pool of suppliers and considered one way to build stronger, long-term relationships with remaining suppliers (Atkinson, 1989). Partnerships, according to Spekman (1981) are a means to build cooperative relationships and take several forms including evergreen contracts and justin-time purchasing. Hendrick and Ellram (1993) found that purchasing enters into partnerships for three reasons: securing reliable sources of supply, price considerations, and to improve supplier quality. Additionally, partnerships are used to reduce uncertainty, share costs, capitalize on supplier technical knowledge, and shorten the product life cycle (Hagedoorn, 1993). Joint adjustments to competitive conditions imply involving key suppliers early in the design phase of new products. Atkinson (1989) suggested that earlier supplier involvement in product design was actually an outcome of partnering. Purchasings role is one of nding and sharing any new supplier developments that may satisfy customer requirements. Any special capabilities or constraints with the supplier will be understood by the purchasing rm early in the process and improve quality in the long run (ONeal, 1993; Cusumano and Takeishi, 1991). This strategy can shorten the design phase, resulting in faster introduction of new products and ultimately additional sales revenue. 2.6. Service quality measurement Because attention on the internal service environment is relatively new, limited research was available in the area of internal service quality measurement. While many articles addressed the measurement of purchasing

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performance, most of the research discussed measurement conceptually along the dimensions of cost savings, incoming material quality, or delivery times rather than that of an internal customers perceptions of service. Few studies actually attempted to measure performance. The rst eort to develop dimensions of internal service quality for purchasing was Cavinato (1987), who approached the subject from the viewpoint of nonpurchasing personnel considered customers of purchasing, such as engineering, production, and accounting. Customer service was identied as the most important element of purchasing performance and included the speed products or services were received, the reliability of products/services, price/quality options, advance information about potential problems with either quality, quantity, or delivery, and convenience in processing purchase requisitions. Hendrick and Ruch (1988) identied a more comprehensive list of criteria to measure a buyers performance based on a survey of managers, buyers, customers, and suppliers. Commodity knowledge, cultivation of qualied suppliers, and professionalism were rated as the three most important qualitative criteria. Additionally, an extensive case study performed by Rossler and Hirsz (1995) found that closer interaction with internal customers improved internal customers perceptions of purchasings responsiveness, but technical knowledge was even more important. Additionally, Joag and Scheuing (1995) examined performance issues based on a survey of purchasing executives at an annual conference sponsored by the National Association of Purchasing Management. They discovered that while most of the respondents (78 percent) received informal feedback on their performance from their internal customers, only a small number (14 percent) received formal feedback. Tan et al. (1998) looked further at the relationships between supplier performance and rm performance, with specic attention to customer practices that organizations considered important. Evaluation of customer complaints, follow-up with customers for feedback, and enhanced customer support were the most important practices among those surveyed. These studies indirectly support the work of Kaplan and Norton (1992, 1993) who contend that managers should address measurement from both external and internal perspectives. Essentially, they developed a balanced scorecard approach to include nancial and operational measures that provide a quick but comprehensive overview of an organization. Initially, a balanced scorecard approach directs an organization to translate its goals for customer service into specic measures that matter to consumers, including dimensions of time, quality, performance and service, and cost. Additionally, they argue that managers should develop measures for those internal processes that will

lead to customer satisfaction. Therefore, the second part of the balanced scorecard addresses the internal perspective.

3. Research methodology While the underlying tenets of supply chain management and service quality are well documented in the literature, there is far less empirically-based research substantiating the organization-wide quality initiatives, internal performance levels, and communication attributes of rms oering high levels of service quality. Therefore, an empirical study was designed to determine the internal activities and performance levels of companies providing high levels of external service quality and compare these to companies oering lower levels of service quality. A ve-page survey instrument was developed and rened based on a review of the literature and interviews with several purchasing executives familiar with the internal service quality philosophy. A sample size of 500 was randomly drawn from the membership list of the National Association of Purchasing Management that included approximately 3200 purchasing managers and senior executives. A cover letter was included in the mailing, explaining the purpose of the study, along with the questionnaire and a stamped return envelope. Of the 500 surveys mailed, nine were returned as undeliverable and 118 usable responses were received for a net response rate of 23.6 percent. Survey questions, with the exception of demographic information, required simple yesno answers or sevenpoint interval and Likert scale responses. The rst part of the questionnaire addressed issues related to identication of internal customers and internal suppliers, and communication patterns among purchasing and other departments. The second part addressed activities or programs respondent organizations had in place to assess and improve internal service quality. Questions related to the level of service quality received by user departments and external customers, and the level of service quality purchasing received from internal suppliers were included in the third part of the questionnaire, using a seven-point Likert scale (1=poor to 7=excellent). The fourth part of the questionnaire asked respondents to assess the current implementation of supplier management programs within their organization using seven-point interval scales (1=not at all to 7=fully implemented). Demographic information, including the respondents position within the organization, their rms primary industry, and annual gross revenues of their organization were requested. As shown in Table 1, a majority of the respondents (53.4 percent) were directors of purchasing, while almost 30 percent were vice presidents of

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Table 1 Demographic statistics of respondents Position within the rm % of rms Primary industry Director of purchasing Vice president of purchasing Purchasing manager Sr. buyer Buyer Other 53.4 15.3 12.7 4.2 1.7 12.7 % of rms

Non-prot agencies 14.4 Electronic and 11.0 other/electrical Equipment Metals 9.3 Hospitality 7.6 Paper and allied 6.8 products Food and kindred 5.1 spirits Apparel 4.2 Chemical and 4.2 allied products

Annual revenue (1994) Over $500 million $250 million to $499 million $100 million to $249 million $50 million to $99 million $25 million to $49 million Less than $25 million Non-prot agency

29.7% 13.6 18.6 9.3 13.6 9.3 5.9a

Machinery, except electric Health services Automotive Construction Utilities

3.4 3.4 3.4 2.5 2.5

Furniture 1.7 Bank and insurance 1.7 Other 18.8 Primary internal supplier Warehousing Inventory control Trac Scrap/surplus None Other % of rms 66.1 58.5 38.1 36.4 17.8 14.4

Primary internal customer Operations/mfg. Marketing Accounting Engineering Finance Other

a

% of rms 80.5 64.4 59.3 55.1 40.7 28.8

performed at the 0.05 level for all respondents. As detailed in Table 1, a signicant percentage of the respondents (80.5 percent) indicated that operations/ manufacturing was considered a primary customer of purchasing. A somewhat smaller group of respondents identied marketing, accounting, and engineering as primary internal customers. Signicantly fewer cited nance (40.7 percent) as a primary internal customer and almost 29 percent identied others as their internal customers. Other customer departments cited most frequently included information systems, human resources and sales. Respondents from academic institutions identied the academic community, and university departments, as their primary internal customers. Additionally, several organizations identied all departments as their internal customers. Additionally, respondents were asked to identify their primary internal suppliers. In the survey, primary internal suppliers were dened as those that ...purchashasing interacts with directly. Again, paired t-tests for signicant response rate dierences among internal supplier departments were performed at the 0.05 level for all respondents. Based on these tests, warehousing and inventory control were most frequently identied as purchasings primary internal suppliers (66.1 and 58.5 percent, respectively). Signicantly fewer respondents felt that trac (38.1 percent) and scrap/surplus (36.4 percent) were internal suppliers to purchasing. Several organizations (17.8 percent) indicated that they had no internal suppliers (some or all of these functions are often performed by the purchasing department).

4. Results Survey responses were divided into two groups based on the respondents assessment of service quality their rms provided to external customers. Respondents assessing service quality provided to their rms external customers as a 6 or 7 were combined into one group and deemed to be high service quality providers (Group A). This group was compared to respondents rating themselves a 5 or less on external service quality. The second group (Group B) members were deemed to be low-to-moderate service quality providers. To verify the validity of dividing the responses into two groups for comparative analysis, t-tests for signicant dierences between Groups A and B on eight dimensions of external quality were performed. As shown in Table 2, the mean responses for Group A were signicantly higher than Group B across all dimensions, including overall product quality, exibility to meet customers changing needs, and resolution of quality problems. Hence, the two groupings were considered valid for the comparisons that follow.

Some non-prot organizations reported their budgets for 1994 and, therefore, were not included in this gure.

purchasing or purchasing managers. A diverse group of organizations participated in the study. The top four industries were non-prot agencies (including schools and non-prot hospitals), electronic and other electrical equipment, metals, and hospitality. Approximately 62 percent of the respondents cited manufacturing as the dominant business area. Organization size, in terms of annual sales revenue, was well represented. A large percentage (29.7 percent) had gross annual revenues over $500 million, while small rms (less than $50 million) represented almost 23 percent of the sample. Respondents were also asked to identify all primary internal customers. Internal customers were dened in the survey as those that ...purchasing interacts with directly. Paired t-tests for signicant response rate dierences among internal customer departments were

L.L. Stanley, J.D. Wisner / European Journal of Purchasing & Supply Management 8 (2002) 97109 Table 2 Comparison of external service quality Comparison of external quality level between groupsa Dimension of performance Overall product quality Quality of delivered products/services Flexibility to meet customers changing needs Resolution of product quality problems Ability to meet customer expectations Reliable delivery of products/services Resolution of product/service delivery problems Fast delivery of products/services Mean of Group Aa n 6.30 6.15 6.06 6.06 6.04 6.04 6.03 6.01 (63) (66) (67) (63) (67) (67) (66) (66) Mean of Group B n 39 4.74 4.87 4.46 4.41 4.33 4.53 4.23 4.64

103

Signicanceb 0.000*** 0.000*** 0.000*** 0.000*** 0.000*** 0.000*** 0.000*** 0.000***

a All respondents were divided into two groups based on self-ratings of service quality performance to external customers. Ratings were based on a seven-point Likert scale, from 1=poor to 7=excellent. Those respondents rating themselves a 6 or 7 were categorized as Group A; all other respondents were categorized as Group B. b Responses were considered signicant at ***pp0:01:

4.1. Communication patterns Because previous research has argued that external service encounters have an impact on service quality, the researchers were interested in whether internal communication patterns (i.e. internal service encounters) varied signicantly between high and low-to-moderate quality service providers. First, respondents were asked about the formality of communication between purchasing, their internal customers, and internal suppliers based on a seven-point interval scale (where 1=informal, verbal communication with no formal written communication and 7=formal written communication with no informal verbal communication). As shown in Table 3, those respondents identied as providers of high quality service to their external customers (Group A) were compared to those who rated themselves low-tomoderate quality service providers (Group B). The means of Groups A and B were compared based on ttests for equality of means. An analysis of the results indicated that Group A respondents experienced a signicantly greater level of formality in their communication with internal customers, specically nance (with a formality level of 4.31), engineering (4.19), accounting (4.12), and marketing (3.60). Overall, formal communication between purchasing and their internal suppliers did not vary signicantly between high and low-to-moderate quality service providers. In only one caseFbetween purchasing and warehousingFwere more formal communication patterns with internal suppliers found to exist in companies providing high levels of service quality. The second question of interest was whether more eective communication between purchasing and their internal suppliers was characteristic of high quality service providers. Respondents were asked to rate the eectiveness of their communications with other departments based on a seven-point interval scale (where 1 referred to communication that was primarily one-way

and 7 referred to working together as a team; other intermediate denitions appear in Table 3). Based on ttests for signicant dierences between the two groups, communications were found to be signicantly more eective with only one internal customer, namely accounting. Additionally, no signicantly higher levels of communication eectiveness were found to exist with internal suppliers when comparing the two groups.

4.2. Company and purchasing activities To create a culture emphasizing continuous improvement of services and products exchanged between internal suppliers and internal customers, formal and informal service quality-related programs and activities appeared to be an important ingredient. Therefore, respondents were asked to identify companywide and purchasing department activities related to improvements in internal service quality, with a simple yes or no answer. These activities were identied from an extensive review of the academic literature and a content analysis of articles from Purchasing Todays during the past 4 years that pertained to internal service quality (Purchasing Todays is an ocial publication of the National Association of Purchasing Management). Mean responses between high and low quality service providers were compared using t-tests for signicant dierences. As Table 4 illustrates, meetings to resolve problems and issues were more commonly used among companies providing high levels of service quality. Additionally, periodic revisions of job descriptions were performed signicantly more often among Group A respondents. However, higher quality service providers were not tracking the performance of their internal customers or internal suppliers to any greater degree than those respondents of rms providing lower levels of external service quality.

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Table 3 Communication patterns Mean of Mean of Group Ab n Group B n Signicancec

4.3. Internal service quality dimensions This study also sought to identify dimensions of internal service quality attributable to high quality service providers. Respondents were asked to assess service quality performance, across nine dimensions, which purchasing was perceived to provide their internal customers, and internal suppliers were perceived to provide purchasing. While subjective measures are sometimes considered suspect, they have been used in previous studies and found to be acceptable when objective data are not available (Cleveland et al., 1989; Fawcett, 1992; Govindaraja and Fisher, 1990). Additionally, data on the measures used in this study is not typically made available to the public. These measures were developed, in part based on Parasuraman et al. (1988) ten dimensions of service quality, including tangibles, reliability, responsiveness, competency, and communication. Three scale items were included to address dierent aspects of communication, including on-time delivery of information, reliable delivery of information, and explanation of problems. We addressed competency by including a measure on-time delivery of products and tangibles by asking respondents to rate quality of products/services. These measures were included because the primary responsibility of purchasing is the procurement of goods and services that have an impact on external customer satisfaction. Comparisons of internal service quality were done between high and low-to-moderate quality service providers using t-tests for signicant dierences (see Table 5 for results). Across all service quality dimensions, Group A purchasing departments (those from companies with high levels of service quality to external customers) provided signicantly higher levels of service quality to their internal customers than Group B (the lower external service quality providers). Specically, Group A delivered higher levels of product and service quality, were more responsive and exible to internal customer needs, and delivered products on time more often. Communication levels among purchasing and its internal customers including issues related to delivery of information and problem solving were also signicantly superior among the Group A respondents, although they rated themselves lowest among the nine service quality dimensions (5.38 and 5.24, respectively). Purchasings internal suppliers also were rated as signicantly stronger performers for the Group A respondents along all dimensions of internal service quality, including the ability to meet customer expectations, reliability, timeliness, exibility, and responsiveness. Furthermore, they delivered higher quality products and services. They also were more reliable and timely in providing new and updated information to purchasing. Communication level, while signicantly

Comparison of communication formality between groupsa Internal customer Finance 4.31 (62) 3.62 (37) 0.027** Engineering 4.19 (52) 3.39 (33) 0.007*** Accounting 4.12 (67) 3.44 (39) 0.014** Marketing 3.60 (62) 3.08 (37) 0.065* Operations 3.52 (62) 3.21 (33) 0.227 Internal supplier Inventory control Scrap Warehousing Trac

3.59 3.54 3.43 3.36

(59) (46) (60) (53)

3.31 3.28 2.86 2.95

(32) (32) (32) (33)

0.399 0.502 0.078* 0.207

Comparison of communication eectiveness between groupsd Internal customer Accounting 4.84 (67) 4.11 (38) 0.019** Operations 4.78 (64) 4.38 (32) 0.255 Engineering 4.67 (55) 4.25 (32) 0.236 Finance 4.51 (63) 4.32 (38) 0.556 Marketing 4.37 (63) 3.78 (36) 0.104 Internal supplier Inventory control warehousing Trac Scrap/surplus

5.18 5.02 4.71 4.71

(60) (63) (56) (52)

4.81 4.61 4.69 4.65

(32) (33) (32) (31)

0.292 0.248 0.944 0.875

a Responses were dened as: 1=informal, verbal communication with no formal written communication, 2=primarily informal, verbal communication, with very little formal written communication, 3=mostly informal, verbal communication, but some formal written communication, 4=equal amount of formal and informal communication, 5=primarily written, but some informal, verbal communication, 6=primarily formal, written communication with little informal verbal communication, 7=formal, written communication with no informal verbal communication. b All respondents were divided into two groups based on self-ratings of service quality to external customers. Ratings were based on a seven-point interval scale, from 1=poor to 7=excellent. Those respondents that rated themselves a 6 or 7 were categorized as Group A; all other respondents were categorized as Group B. c Responses were considered signicant at *pp0:10; responses were considered signicant at **pp0:05; responses were considered signicant at ***pp0:01: d Responses were dened as: 1=communication is primarily oneway, with no consideration for each others objectives or viewpoints, 2=communication is mostly one-way, but each department is beginning to consider each others needs and objectives, 3=communication has moved somewhat to a two-way street, with some consideration to each others needs and objectives, 4=communication is mostly two-way, with some consideration given to each others needs and objectives, 5=communication is mostly two-way, with moderate consideration given to each others needs and objectives, 6=communication is two-way; we usually understand each others viewpoints and continually work to meet respective needs and objectives, 7=we work together with this department as a team to meet each others needs and resolve our conicts and/or problems.

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Mean (Group A) n 67 Mean (Group B) n 39 Signicanceb Company activity Meetings between departments to resolve problems Cross-functional teams that include purchasing Manuals that address internal service quality Periodic, informal interaction with other departments Orientation that includes overview of purchasing policies and procedures Training seminars on other depts goals, objectives, role Company surveys that measure internal service quality Formal company service quality complaint procedures 0.85 0.64 0.58 0.49 0.43 0.43 0.31 0.27 0.67 0.56 0.54 0.41 0.28 0.31 0.33 0.28 0.04** 0.44 0.67 0.42 0.12 0.20 0.84 0.88

Purchasing activity Formal job descriptions 0.81 Periodic revision of job descriptions 0.79 Interpersonal skills training 0.45 Rewards/recognition tied to internal service quality 0.43 Methods to track internal customers performance 0.36 Periodic retraining on interpersonal skills 0.36 Formal procedures to notify internal suppliers of service improvement needs 0.28 Methods to track internal suppliers service quality 0.27 Surveys sent to internal customers 0.27 Newsletter regarding purchasing activities 0.16
a

0.69 0.51 0.31 0.41 0.28 0.31 0.28 0.15 0.18 0.15

0.13 0 .01*** 0.15 0.82 0.42 0.60 0.99 0.16 0 .28 0 .89

All respondents were divided into two groups based on self-ratings of service quality to external customers. Ratings were based on a seven-point Likert scale, from 1=poor to 7=excellent. Those respondents that rated themselves a 6 or 7 were categorized as Group A; all other respondents were categorized as Group B. b Responses were signicant at **pp0:05; responses were signicant at ***pp0:01:

better, was again rated last and only somewhat greater than acceptable by Group A respondents. 4.4. Purchasings supplier management strategies Purchasing departments today are initiating programs and activities designed to increase the level of service and product quality of their external suppliers with the expectation that this leads to greater customer satisfaction. Thus, the study was designed to identify those supplier management initiatives associated with exceptional levels of service quality to external customers. Respondents were asked to identify the level that eight supplier management tactics, strategies, or programs had been implemented in their companies. These activities were determined to be important contributors to quality based on a search of the literature. As before, comparisons were made between the high and low-tomoderate providers of external service quality using ttests for signicant dierences. The ndings are shown in Table 6. Firms providing exceptional levels of external service quality (Group A) were found to use three supplier management activities signicantly more often than the Group B respondents. The most signicant dierence between the two respondent groups was that high service quality providers held meetings with suppliers

more often to solve problems. Additionally, they involved key suppliers in the design stage of new products more frequently. Finally, the high quality service providers were more likely to operate in a just-intime purchasing environment than their counterparts. In general, Group A respondents were more actively engaged in activities that improved purchasingsupplier relationships. However, neither group practiced any of the supplier activities most or all of the time.

5. Discussion This study provides empirical support for much of the conceptual work done in the general area of service quality. A number of signicant internal organizational dierences did exist between high and low-to-moderate providers of service quality and were identied. While this study concentrated only on purchasing personnel perceptions of internal and external service quality, their interorganizational role provides what can be assumed to be a reasonably accurate assessment of quality across an organization. In general, more formal levels of communication tended to exist between purchasing and its internal customers in those companies providing high levels of service quality. In only one instance, however, did more

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Table 5 Internal service quality ratings Comparison of purchasings service quality level between groupsa Dimension of service quality Quality of products/services Responsive to internal customers needs Flexibility to changing internal customer needs On-time delivery of products Ability to meet internal customers expectations On-time delivery of information Reliable delivery of information Explanation of problems Communication level Mean of Group Aa n 5.82 5.76 5.63 5.63 5.58 5.56 5.49 5.38 5.24 (67) (67) (67) (65) (67 (66) (67) (63) (67) Mean of Group B n 39 5.05 5.13 4.62 4.64 4.49 4.72 4.67 4.64 4.51 Signicanceb 0.000*** 0.013** 0.000*** 0.000*** 0.000*** 0.003*** 0.001*** 0.003*** 0.002***

Comparison of internal suppliers service quality level between groups Dimension of service quality Ability to meet purchasings expectations Quality of products/services Reliable delivery of information On-time delivery of information Explanation of product/service delivery problems On-time delivery of products Responsive to purchasings needs Flexible to purchasings changing needs Communication level Mean of Group Ab n 4.59 4.56 4.54 4.51 4.48 4.47 4.40 4.36 4.23 (59) (57) (59) (59) (56) (57) (60) (59) (61) Mean of Group B n 3.89 4.09 3.91 3.88 4.00 3.80 3.83 3.86 3.80 (35) (35) (34) (34) (35) (35) (35) (35) (35) Signicanceb 0.004*** 0.043** 0.012** 0.014** 0 .059* 0.010*** 0.016** 0.046** 0.096*

a All respondents were divided into two groups based on self-ratings of service quality to external customers. Ratings were based on a seven-point Likert scale, from 1=poor to 7=excellent. Those respondents that rated themselves a 6 or 7 were categorized as Group A; all other respondents were categorized as Group B. b Responses were considered signicant at *po 0:10; responses were considered signicant at **po 0:05; responses were considered signicant at ***po 0:01:

Table 6 Purchasings external supplier management activities Comparison of supplier management activities between groupsa Activity Regular meetings with suppliers to solve problems Single/dual sourcing of key materials Key supplier involvement in product design Periodic audits of supplier facilities Just-in-time purchasing Formal periodic evaluations of suppliers Require supplier certication on key materials Provide training on quality requirements to suppliers Mean of Group Ab n 67 5.07 5.01 4.38d 3.96 3.87 3.73 3.60 3.24 Mean of Group Bb n 39 4.15 4.51 3.49 3.68 2.87 3.10 3.72 2.66 Signicancec 0.007** 0 .180 0.023* 0 .522 0.015* 0.169 0 .794 0.125

a All respondents were divided into two groups based on self-ratings of service quality to external customers. Ratings were based on a seven-point Likert scale, from 1=poor to 7=excellent. Those respondents that rated themselves a 6 or 7 were categorized as Group A; all other respondents were categorized as Group B. b Responses of activity level were dened as 1=not at all; 2=recently started; 4=sometimes; 6=most of the time; 7=always. c Responses were signicant at *pp0:05; responses were signicant at **pp0:01: d n 66:

formal communication also result in more eective communication among purchasing and its internal customers. Curiously, communication eectiveness was not signicantly dierent when comparing the two respondent groups, with the one exception. However, when purchasing was asked to rate communication

levels in general (as shown in Table 5), there were signicant dierences between high and low-to-moderate service providers. The latter nding supports the research of George and Gronroos (1989), George (1992), and Magidson and Polcha (1992) who argued that eective internal communication was necessary to

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excel in service to external customers. Our ndings also suggest that respondents may not be aware of the importance of eective communication in improving internal and external service quality. Second, certain organization-wide activities related to total quality management were important contributors to overall service quality and supported by prior research done in this area. Regular meetings to resolve problems were more frequently used by Group A, similar to a study by Choi and Rungtusanatham (1999) who examined continuous improvement in the management of process quality. Consistently reviewing and redening job descriptions also are important to rms as they expand the role of purchasing professionals through empowerment, a philosophy consistent with total quality management (Giunipero and Vogt, 1997). Other initiatives were expected to be more frequently implemented by high service providers. Implementation of cross-functional teaming, while not signicantly dierent between the two groups surveyed, was identied by Giunipero and Vogt (1997) and Jayaram and Vickery (1998) as an important factor to eective purchasing performance. Berry et al. (1988) also argued that service quality can be improved by setting standards as a means to track performance and using symbols, such as a newsletter, to feature accomplishments. While considered important, it will be dicult to ascertain to what extent until these activities become more widespread. Three external supplier management strategies and activities advocated in the literature as important components of a total quality management environment were more frequently implemented among rms oering high levels of external service quality. These rms were more actively engaged in resolving problems with suppliers through regular meetings, involving suppliers in the design stage of their new products and services, and operating in a just-in-time purchasing environment. These ndings support the research of both Atkinson (1989), and Landeros and Monczka (1989). The results of the study also imply that while many external supplier management strategies have received a great deal of attention in the public press and within academic circles, they have not been fully implemented even within organizations that consider themselves high service quality performers. For example, both groups only utilized supplier certication sometimes. However, Tan et al. (1998) found a signicant correlation between supplier certication and organizations actual return on assets, growth in market share, growth in sales, and growth in return on assets. Perhaps the most compelling nding was that purchasing departments in high service quality companies excelled across all quality dimensions to their internal customers. They provided greater exibility, reliability, responsiveness, and the ability to meet

internal customer expectations than purchasing departments in companies oering less than exceptional service quality. Both products and services were judged to be of higher quality as well. Additionally, suppliers to the Group A purchasing departments also outperformed their counterparts in all nine service and product quality dimensions. These ndings provide strong evidence of a correlation between internal service quality and external service quality and should provide signicant support for practitioners seeking justication for improving internal service quality. No previous research had tested these relationships and, until now, could provide no direction for low performing organizations.

6. Conclusions Previous conceptual research strongly advocated the implementation of internal and external supplier quality initiatives, suggesting they would result in stronger organizational service quality. Our research suggests that greater implementation of strategic supplier activities will lead to higher levels of performance. Additionally, we found a higher levels of service quality among internal suppliers and internal customers linked to better external service quality. Unfortunately, the results also show that a greater emphasis needs to be placed on developing internal communication eectiveness and promoting organization-wide and departmental activities to foster improvements in internal and external service quality. The ndings may be due, in part, to the fact that many of these activities are relatively new and therefore have not been adopted by many rms to any great degree. With the advent of downsizing, mergers and restructuring during the 1990s, fewer employees have been given the time to investigate new strategies and implement them when appropriate. If organizations are to be truly committed to total quality management, however, the quality of the internal workplace must become as important as the quality of products and services delivered to external customers. While the focus to date has been on delivering high quality products and services to external customers, providing an environment that values and seeks to improve internal service quality relationships is critical. Further investigation is still needed into the relationships between communication, human resource management activities, supplier management strategies, and service quality. Little research has been done to understand the possible correlation between communication levels and communication eectiveness. Additionally, research is needed to develop a prescriptive model describing relationships that should exist among internal service quality initiatives, external activities with suppliers, and organizational performance levels. Finally,

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Thompson, P., DeSouza, G., Gale, B.T., 1985. The strategic management of service quality. Quality Progress 18 (6), 2025. Trent, R.J., Monczka, R.M., 1998. Purchasing and supply management: trends and changes throughout the 1990s. International Journal of Purchasing and Materials Management 34 (4), 211. Tucker, M.L., Meyer, G.D., Westerman, J.W., 1996. Organizational communication: development of internal strategic competitive advantage. The Journal of Business Communication 33 (1), 5169. Linda L. Stanley received her Ph.D. from Arizona State University. She is an Associate Professor of Operations Management at Our Lady of the Lake University. Her current research interests include purchasing-supplier partnerships, purchasing performance, third-party logistics eectiveness. Joel D. Wisner received his Ph.D. from Arizona State University. He is an Associate Professor of Operations Management at University of Nevada at Las Vegas. His current research interests include supply chain management performance measurement, strategic purchasing issues, and quality management.