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
 The Importance of Customer (Con’t)
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
 The Importance of Supplier (Con’t.)
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
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.
1st Principle (Con’t)
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.
2nd Principle (Con’t)
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.
3rd Principle (Con’t)
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.”
Collect Customer Information
(Con’t)
In chapter 1, we cited the model of customer
requirements:
Dissatisfiers
Satisfiers
Exciters/delighters
Collect Customer Information
(Con’t)
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.
Collect Customer Information
(Con’t)
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.
Collect Customer Information
(Con’t)
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.
Collect Customer Information
(Con’t)
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.
Collect Customer Information
(Con’t)
A simple approach is to ask them directly,
using a process called the voice of the
customer.
Collect Customer Information
(Con’t)
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.
Collect Customer Information
(Con’t)
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.
 Disseminating Customer
Information
After people in the organization have
gathered information about customer needs,
the next step is to broadcast this
information within the organization.
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”.

 Information does little good if it stays with the

person or department that brought it to the
organization.
Use Customer Information


Customer information is worthless unless it
is used.


Customer feedback should be integrated
into continuous improvement activities.
The Customer-Driven Quality Cycle

Customer needs and expectations

(expected quality)

Identification of customer needs

Translation into product/service

specifications
(design quality)

Output
(actual quality)
kc abdeeF

Customer perceptions
(perceived quality)
Managing 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.
 In services, customer satisfaction or
dissatisfaction takes place during moments of
truth- every instance in which a customer comes
in contact with an employee of the company.
Managing Customer Relationships
Cont’d.

Service standards are measurable
performance levels or expectations that define
the quality of customer contact.


Companies need to communicate and
continually reinforce their service standards. A
company should implement a process for
tracking adherence to the standards and
providing feedback to employees to improve
their performance.
Managing Customer Relationships
Cont’d.
Complaints can adversely affect business if not dealt
with effectively.
Many customers do not complain because they feel it
wouldn't do any good or they are uncomfortable with
the process.
World-class organizations make it easy for customers to
complain by providing toll-free telephone numbers and
soliciting complaints.
Effective resolution of complaints increases customer
loyalty and retention.
Don't Ignore Internal Customers
Cont’d.

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 customers and external
customers.

The linkages among internal customers build

up the “chain of customers and suppliers”
throughout the company that connect every
individual and function to the external
Practices for Dealing with Suppliers
Cont’d.
Strong customer/supplier relationships are
based on three guiding principles:
1. Recognizing the strategic importance of
suppliers in accomplishing business objectives,
particularly minimizing the total cost of
ownership.
2.Developing win-win relationships through
partnerships rather than as adversaries.
3. Establishing trust through openness and
honesty, thus leading to mutual advantages.
Practices for Dealing with
Suppliers:
1. Base Purchasing on Quality and Cost
2. Reduce the Number of Suppliers
3. Establish Long-Term Contracts
4. Measure and Certify Supplier Performance
5. Develop Cooperative Relationships and Strategic
Alliances.
 Base Purchasing Decisions on
Quality and Cost
The first and most obvious practice is that
purchasing decisions should be based on the
quality of the product and not just its cost.

Purchasing personnel have traditionally been rewarded

primarily for negotiating low prices, and thus this has
been their focus.
Supplier firms have often responded to this situation in
an obvious way: by doing whatever they need to do
(including sacrificing quality) to maintain low cost.
Base Purchasing Decisions on
Quality and Cost Cont’d.
Two problems with the approach:
1. Low purchase cost often does not equal
low overall cost. (ex. high warranty costs)
2. Pressing suppliers for ever-lower prices will
minimize their profits.
Reduce the Number of
Suppliers
Firms pursuing Total Quality are also reducing
the number of suppliers they work with to the
point of having only one supplier for some
components.

As it 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.
Reduce the Number of Suppliers
Cont’d.
Advantages in reducing the number of
suppliers:
• Administrative costs are greatly reduced.
•Cutting the number of suppliers reduces the
variability of in the incoming products.
Why organizations continue to reduce its
number of suppliers:

The type of intensive CSRs that characterize
cannot be maintained with a large number of
suppliers .

The significance of partners is lost if you have
too many suppliers.
Establish Long-Term Contracts
Related to the idea of fewer suppliers is the
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 greater opportunity for joint
improvement efforts and the development of
teamwork across organizational boundaries.
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.
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.
Some forms of customer-supplier cooperation:

Early involvement of suppliers in the design of
new products.

The effort of customers to help suppliers
improve quality. (ex. Quality improvement
seminars; Joint quality planning between
customers and suppliers - Juran)
Develop Cooperative Relationships
and Strategic Alliances Cont’d.
Today, suppliers are being asked to take on
greater responsibilities to help their customers.
As companies focus more on their core
competencies- the things they do best- they are
looking outside their organizations for assistance
with noncritical support processes.
Customer-supplier partnerships represent an
important strategic alliance in achieving
excellence and business success.
Benefits of customer-supplier
partnerships cont’d.
Benefits of customer-supplier partnerships:
1. Access to technology or distribution channels
not available internally.
2. Shared risk in new investments and product
development.
3. Improved products through early design
recommendations based on supplier
capabilities.
4. 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
 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:
1. Resource
2. Worker (or coworker)
3. Buyer
4. Beneficiary (or user)
 Customer – Supplier Relations in
Organization Theory cont’d.
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.
 Customer – Supplier Relations in
Organization Theory cont’d.
Lengnick-Hall suggests that the following organizational practices are
related to the competitive quality of production processes and outcomes:
i. 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.
ii. Practices that provide clear opportunities for coproduction, enhance customer
abilities as coproducers, and increase customer motivation toward
coproduction.
iii. Activities that foster trust, develop interdependence, share information, and
initiate friendly, mutually beneficial customer-organization bonds.
 Customer – Supplier Relations in
Organization Theory cont’d.
iv. 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.
v. 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.
 The resource dependence
Perspective (RDP) cont’d.
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.
 The resource dependence
Perspective (RDP) cont’d.
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.
 The resource dependence
Perspective (RDP) cont’d.
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 resource dependence Perspective
(RDP) cont’d.
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.
The resource dependence Perspective
(RDP) cont’d.
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.
 Integrative Bargaining cont’d.
The key ideas of integrative bargaining (or
principled negotiation) are:
1.Separate the people from the problem

2.Focus on interest, not positions

3.Invent options for mutual gain

4.Insist on using objective criteria