Supplier selection, supplier development, intellectual capital, and manufacturing firms’ sustainability performance

Abstract

Increasing attention to environmental issues has put tremendous pressure on manufacturing organisations to select and develop suppliers based on social and environmental elements, aside from merely based on standard operational practices. Manufacturing organisations invest resources in their suppliers to increase their abilities in order to remain competitive in today’s markets. However, the intellectual capital of manufacturing organisations’ ability to drive supplier capabilities tends to be challenged when it depends on the suppliers’ willingness and ability to adapt to rapid and unpredictable changes in the business environment. Therefore, this study investigates the relationships between supplier selection criteria, supplier development and sustainability performance. Intellectual capital as a moderator is examined on the relationship between supplier development and sustainability performance. In addition, the mediating effect of supplier development was investigated on the relationship between supplier selection and sustainability performance. The conceptual framework was developed in this study based on the Resource-based View (RBV) and Natural Resource-based View (NRBV) theories. Questionnaires were distributed as the main research instrument, and data were collected from 234 manufacturing organisations in Malaysia. The manufacturers were selected randomly from more than 2800 manufacturers in the Federation of Malaysian Manufacturers directory (51st Edition). Research hypotheses were formulated and tested using Partial Least Squares Structural Equation Modelling (PLS-SEM). According to the findings, supplier selection criteria and supplier development directly influence the sustainability performance of manufacturing organisations. Additionally, supplier selection criteria have a direct influence on supplier development. Furthermore, the findings demonstrated that supplier development partially mediates the relationship between supplier selection criteria and sustainability performance. Also, findings indicate that intellectual capital moderates the relationship between supplier development and the sustainability performance of manufacturing organisations. Overall, the findings of this study are expected to assist manufacturing organisations in identifying collaborative suppliers for sustainability performance. Further, the manufacturing organisation can use the conceptual framework offered in this study to develop new supplier selection criteria to facilitate its supplier development program. Through a formal procurement and supplier quality procedure, firms could communicate their expectations to motivate suppliers to improve performance. Lastly, intellectual capital supports manufacturing organisations in identifying, selecting, and retaining practical supplier networks in the best manner so that the firms can maintain their competitive advantages.