Quality in Customer- Supplier Relationships Quality & Performance Excellence, 8th Edition Chapter 6 Quality in Customer- Supplier Relationships

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

The Value of Customers “Without customers, you don’t have a business.” – Don Peppers and Martha Rogers

Supply Chain Purgamentum init, exit purgamentum Materials and other inputs from suppliers Use in production Distribution and service to customers

Supply Chain “We have a hard time understanding North American business practices. But the 3 defective parts per 10,000 have been included and are wrapped separately. Hope this pleases.”

Deming’s Emphasis on Customers

Customer-Supplier Chain

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

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 “We build customer loyalty by telling our customers the truth, whether it is good or bad news.”

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.

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

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. Measure customers’ perceptions of satisfactions of satisfaction and levels of loyalty and engagement Exploit CRM technology Don’t ignore internal customers

Collect Customer Information Comment cards and formal surveys Focus groups Direct customer contact Field intelligence Complaint analysis Internet and social media monitoring

Disseminate Customer Information Share information with employees Provide data to product designers and service managers

Use Customer Information

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.

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

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.

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 Train customer contact employees Develop good service standards Deal with complaints

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).

Exploit Customer Relationship Management Technology 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.

Exploit CRM Technology 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.

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.

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

Quality Customer-Supplier Relationships in Action MESA Unique Online Furniture EMC Corporation

Relationships to Organization Theory Roles of customers Resource Worker (or coworker) Buyer Beneficiary (or user) Outcome or product of value-creating transformation activities Resource dependence perspective Integrative bargaining Agency theory

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

Homework Case Study, pp 283-84 Bishop’s Seafood