Quality & Performance

Excellence, 8th Edition

Chapter 6

Quality in Customer-
Supplier Relationships

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 Outline

 Demonstrate the importance of customer-supplier

relationships

 Identify the principles and practices of quality customer-

supplier relationships

 Give examples of effective partnerships between customers

and suppliers

 Compare a quality-focused approach to customers and

suppliers to conventional organizational theories

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Why are customers
important?

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 Customers

Buyer Active partner and focus of

all quality activities

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 The Value of Customers

“Without customers, you don’t have

a business.”
– Don Peppers and Martha Rogers

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Deming’s Emphasis on Customers

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Customer-Supplier Chain

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Is satisfaction the same as
loyalty?

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Business Case for Customer Focus

 “Satisfaction is an attitude; loyalty is a behavior”

 Loyal customers spend more, are willing to pay higher

prices, refer new clients, and are less costly to do business
with.
 It costs five times more to find a new customer than to
keep an existing one happy.
 Dissatisfied customers tell at least twice as many friends
about bad experiences than they tell about good ones
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 Customer Engagement

 Customer engagement – customers’ investment in

or commitment to a brand and product offerings
 Characteristics
 customer retention and loyalty
 Customers’ willingness to make an effort to do
business with the organization
 Customers’ willingness to actively advocate for
and recommend the brand and product offerings
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 The Importance of Suppliers

 Quality of the supply chain affects the quality that

customers receive
 “Superior quality, consistent service, and
competitive pricing are just the price of entry to
get into the game.”
 Suppliers must continually improve and align
their operations with customer needs.
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 Daimler-Chrysler

 Daimler-Chrysler often finds out about new materials, parts,

and technologies before other automakers.

 Suppliers are involved early in the design process.

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 Suppliers and the Product
Development Process

 Suppliers play a vital role in the product development process:

from design through distribution.

 Suppliers can provide technology or production processes not

internally available, early design advice, and increased
capacity.

 This can result to lower cost, faster time-to-market, and

improved quality for customers.

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 Principles for Customer-Supplier
Relationships

 Recognition of the strategic importance of

customers and suppliers
 Development of win-win relationships
between customers and suppliers
 Establishing relationships based on trust

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Practices for Dealing With Customers

 Collect information constantly on customer expectations

 Disseminate this information widely within the
organization
 Use this information to design, produce, and deliver the
organization’s products and services.
 Manage customer relationships
 Exploit CRM technology
 Don’t ignore internal customers
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 Collect Customer Information

 Comment cards and formal surveys

 Focus groups

 Direct customer contact

 Field intelligence

 Complaint analysis

 Internet and social media monitoring

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 Disseminate Customer
Information

 Share information with employees

 Provide data to product designers and

service managers

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Use Customer Information

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 Measure Customer Satisfaction,
Loyalty, and Engagement

 Customer satisfaction measures may include product

attributes such as product quality, performance,
usability, and maintainability; service attributes such
as attitude, service time, on-time delivery, exception
handling, accountability, and technical support; image
attributes such as reliability and price; and overall
satisfaction measures.

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 Measure Customer Satisfaction,
Loyalty, and Engagement

 Commonly used factors to measure customer loyalty and

engagement are:
 Overall satisfaction
 Likelihood of a first-time purchaser to repurchase
 Likelihood to recommend
 Likelihood to continue purchasing the same products or services
 Likelihood to purchase different products or services
 Likelihood to increase frequency of purchasing
 Likelihood to switch to a different provider

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 Net Promoter Score

 NPS is claimed to correlate strongly with market and revenue

growth. The metric is based on one simple question, “ What is the
likelihood that you would recommend us?” evaluated on a scale
from 0 to 10.
 Scores of 9 or 10 are usually associated with loyal customers who will
typically be repeat customers (“promoters”)
 Scores of 7 or 8 are associated with customers who are satisfied but
may switch to competitors (“passives”); and
 Scores of 6 or below represent unhappy customers who may spread
negative comments (“detractors”).
 NPS is the difference in the percentage of promoters and detractors.

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Manage Customer Relationships

 Develop close relationships and understand

moments of truth- every instance in which a
customer comes in contact with an employee of
the company
 May be direct or indirect
 First moment of truth- where consumers first see the
product on the shelf
 Second moment of truth- consumer’s experience at
home
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 Set and use service standards

 Service standards- measurable performance levels or

expectations that define the quality of customer contact.
 Technical standards
 Behavioral standards

 Train customer contact employees

 Develop good service standards

 Deal with complaints

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 Service Standards

 Service standards are measurable performance

levels or expectations that define the quality of
customer contact. Service standards might
include technical standards such as response
time (answering the telephone within two
rings) or behavioral standards (using a
customer’s name whenever possible).

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 Exploit CRM Technology (1 of 2)

 Segmenting markets based on demographic and behavioral

characteristics.
 Tracking sales trends and advertising effectiveness by customer
and market segment.
 Identifying and eliminated non-value-adding products that
would waste resources as well as those products that better meet
customers’ needs and provide increased value.
 Identifying which customers should be the focus of targeted
marketing initiatives with predicted high customer response
rates.
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 Exploit CRM Technology (2 of 2)

 Forecasting customer retention (and defection) rates and

providing feedback as to why customers leave a company.
 Studying which goods and services are purchased together,
leading to good ways to bundle them.
 Studying and predicting which Web characteristics are most
attractive to customers and how the Web site might be
improved.
 Streamlining processes around customers rather than
traditional functions, resulting in improved flow of
information and cycle times.
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 Guiding Principles in Supplier
Relationships

 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, and
 Establishing trust through openness and honesty,
thus leading to mutual advantages.
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 Practices for Dealing
With Suppliers

 Base purchasing decisions on quality as well as cost

 Reduce the number of suppliers

 Establish long-term contracts

 Measure and certify supplier performance

 Develop cooperative relationships and strategic alliances

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