Chapter 4 - Quality in Customer-Supplier
Relationship
Learning Objectives
The objectives of this chapter are:
To demonstrate the importance of
customer-supplier relationships to
achieving total quality;
To identify the principles and practices of
quality customer-supplier
relationships;
To give examples of effective partnerships
between customers and suppliers;
and
To compare the TQ approach to customer
and suppliers to conventional
organizational theories.
Customer-Supplier Relationship and Total
Quality
Company- a customer to its supplier and a
supplier to its customer,
- must focus on both their immediate
customers and those next in the chain
Your customer’s customer are, in a sense, your
customers as well
Developing partnerships - customer and supplier
can build relationships that will help them
along the customer- supplier chain
The Importance of Customer
As a buyer to increase profitability,
As an active partner and the focus of all quality
activities
Customer who are merely satisfied may often
purchase from competitors because of
convenience, promotions, or other factors
Loyal customers often go out of their way or pay
a premium to stay with the company
Loyal customers spend more, pay higher prices,
refer new clients, and are less costly to do
business with
Poor-quality product and services, lead to
customer dissatisfaction in the form of
complaints, returns, and unfavorable word-
of-mouth publicity
Customers are five times more likely to switch
because of perceived service problems than
for price concerns or product quality issues
(based on a study)
Dissatisfied customer tell at least twice as many
friends about bad experiences than they tell
about good ones
“The Customer Comes First” is a guiding
principle
Focus on customers, rather than internal issues,
is the foundation of the TQ approach to
management
The Importance of Supplier
Suppliers - provide the organization with goods
and services that help them satisfy the
needs of their own customers
The final product cannot be any better than the
parts that comprise it
If a supplier’s performance is of consistently high
quality, its customer can decrease or
eliminate costly incoming inspections that
add no value to the product
Many organizations have increasingly demanded
tangible progress in quality from all their
suppliers
Suppliers provide training, software, or other
goods or services that do not physically
become part of the final product; they will
influence its quality nevertheless by shaping
the quality of the processes used to produce
it
Suppliers play a vital role throughout the product
development process, from design through
distribution
Suppliers can provide technology or production
processes not internally available , early
design advice and increased capacity which
result in;
Lower cost
Faster time-to-market
Improves quality for their customer
Suppliers are viewed as partners with customers,
because there usually is a co-dependent
relationship
Principles For Customer-Supplier
Relationships
3 principles describe CSRs under total
quality:
1st :Recognition of the strategic
importance of customers and
suppliers
2nd :Development of win-win relationships
between customers and suppliers
3rd :Establishing relationships based on
trust
1st Principle
Every organization must recognize that its
customers and suppliers are
absolutely crucial to its success.
Many organizations seem to be driven by
the need to observe standard
operating procedures and maintain
rigid boundaries between jobs, rather
than trying to meet customer
expectations.
Customers must be at the center of the
organizational universe.
Satisfying their need leads to repeat
business and positive referrals.
Suppliers must also be considered crucial
to organizational success since they
make it possible to create customer
satisfaction.
2nd Principle
Develop mutually beneficial relationships
between customers and suppliers.
The goal of building partnerships with
customers and suppliers must be
satisfied if productive long-term
relationships are to be created.
A teamwork relationship results in the
need of fewer suppliers, with many
items being single-sourced.
With fewer suppliers, companies do not have
to rely on annual bidding, and can award
longer-term contracts.
3rd Principle
Suppliers often incur substantial costs in
terms of both money and time due to
multiple levels of review and
inspection.
A certain level of rigidity is to be expected
in the acquisition of weapons.
It is harder to understand when applied to
more ordinary items.
Many Japanese firms do not inspect
items purchased from other
companies in Japan
However, they often inspect those
purchased from America.
Trust depends upon trustworthy behavior
 by both parties in a CSR.
Practices for Dealing with Customers
To collect information constantly on
customer expectations
To disseminate this information widely
within the organization
To use this information to design,
produce, and deliver the
organization’s products and services.
Collect Customer Information
Acquiring customer information is critical
to understanding customer needs
and identifying opportunities for
improvement.
Hideo Suguira – Executive vice president
of Honda.
“We should not try to sell things just
because the market is there, but
rather we should seek to create a
new market by accurately
understanding the potential needs of
customers and society.”
In chapter 1, we cited the model of customer
requirements:
Dissatisfiers
Satisfiers
Exciters/delighters
In trying to understand customer needs, it is
important to go beyond what customers say
they need to anticipate what will really excite
them.
Customers will seldom express enthusiasm for a
product that is different from anything they
have experienced.
Some of the most popular ways to collect
information about customers are surveys,
service evaluation cards, focus groups, and
listening to what customers say during
business transactions.
Getting employees involved in collecting
customer information improves worker skills
and learning, makes work more meaningful,
and enhances motivation.
Having top managers of the company act as
customers of their own organizations is
another way to better understand customer
needs.
A newer approach to collecting customer
information is to monitor the Internet.
Internet is offering companies a fertile arena for
finding out what consumers think of their
products.
Internet can be a good source of information
about competitor’s products.
The cost of monitoring Internet conversations is
minimal compared to the costs of other types
of survey approaches, and customers are
not biased by any questions that may be
asked.
A simple approach is to ask them directly, using a
process called the voice of the customer.
A more formal approach to getting into
customers’ minds is called imprint analysis.
“Imprint” refers to the collection of associations
and emotions unconsciously linked to a
word, concept, or experience.
The stronger the emotion, the stronger the
imprint.
By looking deeply into people’s past experiences,
imprint analysis can help companies
understand what drives today’s behavior.
Imprints of current experiences reveal emerging
needs; thus, imprint analysis can actually
forecast customer behavior.
Benefits of customer-supplier partnerships
cont’d.
Benefits of customer-supplier partnerships:
Access to technology or distribution channels not
available internally.
Shared risk in new investments and product
development.
Improved products through early design
recommendations based on supplier
capabilities.
Reduced operations costs due through better
communications.
Quality Customer – Supplier Relationships in
Action
In nine years D.J. went from being one of
100 G.E. suppliers of plastic parts to
being its sole source.
D.J. improve its quality by taking
advantage of G.E.’s supplier
seminars in statistical process control
(SPC).
Early involvement in product design is
commonplace for these two
companies. In one typical case D.J.
recommended a minor change in
product design that reduced the cost
of a part by more than 5 percent and
increased its expected life by 16
percent.
This example typifies the advantages
enjoyed by companies with quality
customer-supplier relationships.
Customer – Supplier Relations in
Organization Theory
Much of the organization literature has argued
that firms should consider customers as
partners for success. As far back in 1973,
Gersuny and Rosengren argued that diverse
customer roles require new bonds of
interdependence and an increasingly
complex social network that crosses
traditional organizational boundaries.
They identified four distinct roles for customers:
Resource
Worker (or coworker)
Buyer
Beneficiary (or user)
A fifth role has emerged from work in human
service area: cutomers can be a key
outcome, or product, of value-creating
transformation activites, such as education
and health delivery.
The first two roles, customers act as inputs.
The last three act, scutomers act as outputs.
Each role is instumental in creating competitive
quality within a firm.
Lengnick-Hall suggests that the following
organizational practices are related to the
competitive quality of production processes
and outcomes:
Practices that deliberately select and
carefully manage cutomer resources,
foster an effective alliance between the
firm and its customer resources, and
improve the quality of its customer
resources.
Practices that provide clear opportunities for
coproduction, enhance customer abilities
as coproducers, and increase customer
motivation toward coproduction.
Activities that foster trust, develop
interdependence, share information, and
initiate friendly, mutually beneficial
customer-organization bonds.
Activities that foster unambiguous
communication with users, focus on
meeting customer needs, offer realistic
previews, achieve dimensions of quality
that customer s truly are about, and
ensure that actual use is consistent with
intended us.
Activities that create opportunities for direct
communication and interaction between
users and production/ core service
personnel.
The resource dependence Perspective (RDP)
Developed by Jeffrey Pfeffer and Gerald
Salancik.
An organizational theory that is most comparable
to TQ view of customer-relations.
A perspective that deals with how organizations
manage to get the resources they need from
their environment.
Between the two perspectives is the similarity on
mutual emphasis on the idea that the
sources of an organization’s success lie
outside its boundaries.
Pfeffer and Salancik point out that much
organization theory focuses on internal
operations of organizations, giving less
emphasis to the organization.
Current writers give only token consideration to
the environmental context of organizations.
The environment is there somewhere
outside the organization, and the idea is
mentioned that environment affect or
constrain organizations. After this, the task if
management is considered. Somehow the
things to be managed are ussually within the
organization, assumed to be under its control
and often have to do with low-level hired
personnel.
When authors get down to the task if describing
the running of the organization, the
relevance of environment fades.
According to RDP, the effectiveness of an
organization should be understood in terms
of how well it meets the demands of external
groups and organizations that are concerned
with its actions and product.
TQ has traditionally focused on the customers,
those who purchase the organizations
products. The RDP however recognizes that
organizations must satisfy the demands of
not only customer but also other entities in
the environment including various
government agencies, interest groups, share
holders, and society as a whole.
Government agencies, a government regulatory
agency can make life miserable for an
organization it does believe is not following
government regulations. In extreme case the
government can even shut them down.
Interest Groups can influence customers to
boycott a product for reasons unrelated to
quality of product itself.
Shareholders of public corporations have
become a constituency to be reckoned with.
They are making increasing demands on
how corporations operate.
From this perspective it is clear that although
customers are important, other
organizations and groups other than
customer can play a major role.
The first would be to enlarge the concept of
customers to include all those who have a
stake in organization.
Second is for TQ advocates to recognize that
although providing quality to customers is
the overriding focus of an organization’s
activities, satisfying customers alone will not
guarantee continued success, due to
potential influences of other constituencies.
This perspective has been incorporated into the
Baldridge award criteria through its core
value of Public Responsibility and
Citizenship.
Another similarity between TQ and RDP is their
recognition of interdependence between
organizations as a fact of organizatonal life
that must be managed effectively.
RDP shares with TQ the idea that managing
interdependencies with other organizations
is a key to success.
Integrative Bargaining
The idea of building cooperative relationships
that benefit both parties to a negotiation is
not something that was created by writers or
practitioners of TQ. The idea of mutually
beneficial relationships and win-win
bargaining comes from a long tradition of
research and writing on conflict management
and negotiation.
The idea behind this research tradition is that
both parties will benefit more in the long run
if they work together to help each other,
rather than each one striving to win each
round of negotiation.
This tradition has been appropriated by writers
on TQ, because it is consistent with the idea
of customer orientation and teamwork.
The key ideas of integrative bargaining (or
principled negotiation) are:
Separate the people from the problem
Focus on interest, not positions
Invent options for mutual gain
Insist on using objective criteria