1

WINTER
Quality in
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Customer-
Supplier
Relationships
CUSTOMER-SUPPLIER RELATIONSHIPS AND
TOTAL QUALITY 2
• From TQ perspective, every company is part
of a long chain of customers and suppliers.
Each company is a customer to its suppliers and
a supplier to its customers, so it does not make
sense to think of a company as only one or the
other.
• One implication of this concept is that the
customer’s customers are, in a sense, your
customers as well. It is important that a
company must focus on both their immediate
customers and those next in the chain.
 The Customer-Supplier Chain

Customer / Customer / Customer / Customer /

Supplier Supplier Supplier Supplier

Car Rental
Coal Mine Steel Mill Auto Plant Agency
THE IMPORTANCE OF CUSTOMERS
3
• The importance of customers has evolved over
the years, from a view of customer as a buyer to
increase profitability, to a view of the customer as
an active partner and the focus of all quality
activities.
• Customer satisfaction translates directly into
increased profits. However, while satisfaction is
important, modern firms need to look further.
• Achieving strong profitability and market share
requires loyal customers – those who stay with a
company and make positive referrals.
• Satisfaction and loyalty are very different
concepts.
 SATISFACTION VERSUS LOYALTY
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• According to Patrick Mehne, “Satisfaction is an
attitude and loyalty is a behavior”
• Customers who are merely satisfied may often
purchase from competitors because of convenience,
promotions, or other factors. Loyal customers place a
priority on doing business with a particular
organization, and will often go out of their way or pay a
premium to stay with the company. Loyal customers
spend more, are willing to pay higher prices, refer new
clients, and are less costly to do business with.
THE IMPORTANCE OF CUSTOMERS (cont’d)
5
• Poor-quality products and services lead to customer
dissatisfaction in the form of complaints, returns, and
unfavorable word-of-mouth publicity.
• Dissatisfied customers purchase from competitors.
• One study found that customers are five times more
likely to switch because of perceived service problems
than for price concerns or product quality issues.
• For many companies, “The Customer Comes First” is a
guiding principle. It is impossible to overstate the
importance of customers to TQ. Customers are at the
very center of every TQ activity, and devotion to
satisfying them is the first principle of TQ. Customers
are recognized as the guarantee of the organization’s
continued existence.
THE IMPORTANCE OF SUPPLIERS
6
WINTER
• The quality of goods and services received from
suppliers, the upstream portion of the supply chain, has a
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significant effect on the quality of goods and services that
downstream customers receive.
• Suppliers are those companies that provide the
organization with goods and services that help them to
satisfy the needs of their own customers.
• 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.
• The importance of suppliers is at least as great when
they 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.
THE IMPORTANCE OF SUPPLIERS (CONT’D)
7
• In business today, operations are often highly
decentralized and dispersed around the world.
Consequently, managing a complex network of suppliers
becomes a critical inter-organizational issue.
• Suppliers play a vital role throughout the product
development process, from design through distribution.
• Increasingly, suppliers are viewed as partners with
customers, because there usually is a codependent
relationship.
PRINCIPLES FOR CUSTOMER-SUPPLIER
RELATIONSHIPS 8
• Three governing principles describe
CSRs under TQ:
• Recognition of the strategic
importance of customers and
suppliers;
• Development of win-win relationships
between customers and suppliers;
and
• Establishing relationships based on
trust.
Recognition of the strategic importance of
customers and suppliers 9
• Every organization must recognize that its
customers and suppliers are absolutely crucial to its
success.
• Many employees don’t think that’s their “job” to
serve customers beyond their job descriptions.
• Suppliers also must be considered crucial to
organizational success, because they make it
possible to create customer satisfaction. Neither
the quality nor the cost of the organization’s
product can be brought to competitive levels and
continuously improved without the contributions of
suppliers.
Development of win-win relationships between
customers and suppliers
10
•The goal of building partnerships with customers and
suppliers can be seen as an extension of the teamwork
principle that applies to all TQ activities and as a
recognition that the needs of both partners must be
satisfied if productive long-term relationships are to be
created.
•Traditionally, customers have used many different
suppliers for the same purchased item, and they typically
have been awarded short-term contracts. This leads to a
competitive situation.
•With few suppliers, companies don’t have to rely on annual
bidding, and can award longer-term contracts. This
enhances the motivation to work together for mutual
benefits.
Establishing relationships based on trust
11
collaboration”
WINTER
•This point is described by Juran as the “pattern of

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•The costs of mistrust are staggering: witness the
tremendous number, detail, and rigidity of rules. Suppliers
often incur substantial costs in terms of both money and
time because of multiple levels of review and inspection (as
in the case of the US Department of Defense’s contracts
with its suppliers)
•If a trusting relationship between customers and suppliers
can be developed so that neither must check up on the
behavior of the other, the costs of monitoring, such as
inspection and auditing can be avoided.
PRACTICES FOR DEALING WITH CUSTOMERS
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• Collect Customer Information
• Acquiring customer information is critical to
understanding customer needs and identifying
opportunities for improvement
• In trying to understand customer needs, it is
important to go beyond what customers say they
need and anticipate what will really excite them.
• 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,
especially when they complain.
• Getting employees involved in collecting
customer information improves worker skills and
learning, makes work more meaningful, and
enhances motivation.
 PRACTICES FOR DEALING WITH CUSTOMERS
(cont’d) 13
• Disseminate Customer Information
• After people in the organization have gathered
information about customer needs, the next step
is to broadcast this information within the
organization. After all, if the people in the firm
are going to work as a team to meet customer
expectations, they must all be “singing from the
same hymnbook.”
• Customer information must be translated into
the features of the organization’s products and
services.
 PRACTICES FOR DEALING WITH CUSTOMERS
(cont’d) 14
• Use Customer Information
• Customer information is worthless unless it is
used.
• Customer feedback should be integrated into
continuous improvement activities.
• Perhaps the most important use of customer
information is in developing business strategies
and in designing goods and services. Analyzing
customer information can uncover a myriad of
opportunities for new and improved goods and
services.
PRACTICES FOR DEALING WITH CUSTOMERS
(cont’d)
15
• Manage Customer Relationships
• A company builds customer loyalty by developing
trust and effectively managing the interactions
and relationships with customers through
customer-contact employees. Truly excellent
companies foster close and total relationships
with customers. These companies also provide
easy access to their employees.
• Customer-contact employees are particularly
important. They are the people whose main
responsibilities bring them into regular contact
with customers – in person, by telephone, or
through other means.
• Despite all efforts to satisfy customers, every
business experiences unhappy customers.
PRACTICES FOR DEALING WITH CUSTOMERS
(cont’d) 16
•
• WINTER
Exploit CRM Technology
Customer relationship management software is
designed to help companies increase customer
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loyalty, target their most profitable customers
and streamline customer communication
processes.
• Technology is a key enabler of CRM. CRM
systems provide a variety of useful operational
data to managers, including the average time
spent responding to customer questions,
comments, and concerns, average order tracking
time, total revenue generated by each customer
from all goods and services bought by the
customer -- the total picture of economic value
of the customer to the firm, cost per marketing
campaign, and price discrepancies.
PRACTICES FOR DEALING WITH CUSTOMERS
(cont’d)
17
• Don’t Ignore Internal Customers
• Individual departments and key cross-functional
processes within a company have internal
customers who contribute to the company’s
mission and depend on the department’s or
function’s products or services to ultimately
serve consumers and external customers.
• The principle of mutually beneficial relationships
also applies to internal customer-supplier
relationships.
PRACTICES FOR DEALING WITH SUPPLIERS
18
• Strong customer-supplier relationships are based on
three guiding principles:

• Recognizing the strategic importance of

suppliers in accomplishing business objectives,
particularly minimizing the total cost of
ownership;
• Developing win-win relationships through
partnerships rather than as adversaries;
• Establishing trust through openness and honesty,
thus leading to mutual advantages.
PRACTICES FOR DEALING WITH SUPPLIERS
(cont’d)
19
• Base Purchasing Decisions on Quality and Cost
• The first and most obvious is that purchasing
decisions should be based on the quality of the
product and not just its cost.
• Purchasing personnel traditionally have been
rewarded primarily for negotiating low prices,
and thus this has been their focus. Supplier
firms have often responded to this situation in
the obvious way: by doing WHATEVER they need
to do to maintain low prices.
• Beyond the comprises this creates for the
quality of the final product, there are two other
problems with this approach:
• Low purchase cost often does not equal low overall
cost, often referred to as life-cycle cost.
• Pressing suppliers for ever-lower prices will
minimize their profits.
PRACTICES FOR DEALING WITH SUPPLIERS
(cont’d)
20
• Reduce the Number of Suppliers
• Firms pursuing TQ also reduce the number of
suppliers they work with to the point of having
only one supplier for some components. This
increases the dependence of the organization on
the supplier, thus weakening its bargaining
position and exposing it to the possibility of an
interruption in supply in the case of a labor
stoppage or similar problem with the supplier.
• However, with this, administrative costs are
greatly reduced. Also cutting the number of
suppliers reduces the variability in the incoming
products, making it much easier to control the
quality of outgoing products.
 PRACTICES FOR DEALING WITH SUPPLIERS
(cont’d) 21
•
•
WINTER
Establish Long-Term Contracts
Related to the idea of fewer suppliers is the
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practice of establishing long-term contracts with
suppliers. Establishing long-term contracts allows
suppliers to make greater commitments to
improving the quality of products and provides
grater opportunity for joint improvement efforts
and the development of teamwork across
organizational boundaries
PRACTICES FOR DEALING WITH SUPPLIERS
(cont’d) 22
• Measure and Certify Supplier Performance
• Supplier certification is used by many
companies as the focal point of their supplier
management system. Formal programs
typically are established to rate and certify
suppliers who provide quality materials in a
cost-effective and timely manner.
PRACTICES FOR DEALING WITH SUPPLIERS
(cont’d) 23
• Develop Cooperative Relationships and Strategic
Alliances
• Increasingly, suppliers are viewed as partners
with customers, because there usually is a
codependent relationship. Thus, the
cornerstone of TQ-style customer-supplier
relationships is cooperation. In a sense,
practices such as long-term contracts and
fewer suppliers create an environment in
which cooperation can flourish.