Managing contract manufacturer quality in the presence of performance ambiguity

Brand-owing firms have been outsourcing the production of complete finished products to contract manufacturers (CMs) for some time. Increasingly, brand-owning firms have been employing CMs to produce products for which performance ambiguity is high. Doing so poses challenges for the management of CM performance. As expected, we find that quality performance ambiguity has a significant negative relationship with CM conformance quality performance, as reported by the buyers (the brand-owning firms). Drawing from and expanding the quality management (QM) literature, we assess the effectiveness of key constructs, derived primarily from the “supplier QM” meta-construct, at mitigating the detrimental effect of ambiguity. Two constructs consistently moderate the ambiguity-CM quality performance link. Heavily emphasizing quality at the time of CM selection moderates this relationship in the expected direction (i.e., it mitigates the challenges created by ambiguity). Surprisingly, we find that using one CM amplifies the negative relationship between ambiguity and conformance quality performance. One possible explanation is that employing only one CM aggravates existing opportunism concerns with regard to conformance quality performance under high levels of ambiguity.