Managing Quality Integrating the Supply Chain S. Thomas Foster Chapter 5 The Voice of the Customer Quality is as the customer sees it. 09/16 – 6:00PM © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Chapter 5 Introduction Customer Driven Quality What is the voice of the customer? Customer –Relationship management The “Gaps” approach to Service Design Strategic Supply Chain Alliances Between Customers and Suppliers Communicating Downstream Actively Solicited Customer Feedback Approaches Passively Solicited Customer-Feedback Approaches Managing Customer Retention And Loyalty Customer Relationship Management Systems (CRMS) © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Chapter 5 Customer service is important because: Customers will tell twice as many people about bad experiences as good experiences. 70% of your customers will remain your customers if you resolve the complaint satisfactorily. Service firms rely on repeat customers for 85% to 95% of their business. 80% of new product and service ideas come from customers. The cost of keeping an existing customer is 1/6th of the cost of attracting new customers. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer Driven Quality Customer-driven quality – This is a proactive approach to satisfying customer needs that is based on gathering data about our customers to learn their needs and preferences and then providing products and services that satisfy the customers. Customer needs are constantly changing. If you are attempting to meet customer expectations you are in a reactive mode because you are pursuing a moving target. Reactive customer-driven quality – This occurs when a firm’s quality performance is increasing while customer’s expectations also are increasing. Problems occur when the customer’s requirements increase at a faster rate than quality and service improvement. This places the firm in a reactive mode that may signal the need for major process and service redesign. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer What is the voice of the customer? Voice of the customer – This is the wants, opinions, perceptions, and desires of the customers. This can be a standardized, disciplined, and cyclic approach to obtaining and prioritizing customer preferences for use in designing products and services. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Relationship Management Approximately 90% of the business for service firms is repeat business. The focus of process and system design must be on developing relationships with customers rather than simply providing clean transactions at each stage of the process. Customer relationship management views the customer as a valued asset to be managed. In relationship management, the tangibles (facilities and machinery) meet the intangibles (professionalism and empathy) to provide a satisfying experience for the customer. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Relationship Management Complaint Resolution Feedback Customer Relationship Management Gurarantees Corrective Action Four components of a Customer-Relationship Management Process © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Relationship Management - Complaints Complaints should be viewed as opportunities to improve. Because only a small percentage of customers ultimately will complain, this small percentage may represent a much larger population of dissatisfied customers. Complaint resolution process – This involves the transformation of a negative situation into one in which the complainant is restored to the state existing prior to the occurrence of a problem. The recovery process must document complaints, resolve complaints, document recovery, and provide feedback to the customer and feedback to the firm for system improvement. You must compensate customers for losses. You must show contrition. You must make it easy for complainants to reach resolution to simple complaints. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Relationship Management - Guarantees To design a process that ignores product and service failures is a form of denial. The guarantee is both a design and an economic issue that must be addressed by all companies before the first sale occurs. Guarantees should be designed prior to beginning business so that employees can be trained to implement the guarantee and marketing can advertise the guarantee properly. Guarantees are an important economic issue because of the sales potential that is created by a guarantee and the costs associated with fulfillment of the guarantee. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Relationship Management - Guarantees To be effective, a guarantee should be: Unconditional – No small print exceptions. Meaningful – Customer grievances must be fully addressed. Understandable – The customer must be able to understand easily the parameters of the guarantee and how to achieve resolution quickly. Communicable – The phrasing of the guarantee should resonate with the customer. Painless to invoke – The customer must not be inconvenienced too much. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Relationship Management – Corrective Action Corrective Action – This means that when a service or product failure occurs, the failure is documented and the problem is resolved in a way that it never happens again. Teams should be in place to regularly review complaints and to improve processes so that the problems do not recur. Closed-loop Corrective Action – The loop is in effect closed because a process is in place that ensures that complaint and field repair data is used for improving processes. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer The “GAPS” Approach Gap – This refers to the differences between desired levels of performance and actual levels of performance. Once a gap is identified, it is a candidate for corrective action and process improvement. Gap Analysis – The formal means for identifying and correcting gaps. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Strategic Supply Chain Alliances… Competitive Model – the traditional customer-supplier relationship in which one party attempts to gain advantage over the other. Theoretically, the competition among the suppliers drives costs lower and quality higher. However, this theory ignores the costs associated with variability in materials created by using multiple suppliers which is a major cause of defects. Single-sourcing Model – this model develops relationships with a few suppliers for long contract terms. Strategic Partnership Model – developed from single-sourcing arrangements where the suppliers become de facto subsidiaries to their major customers. These suppliers integrate information systems and quality systems that allow close interaction at all levels. Suppliers also enter into agreements to reduce costs and improve productivity and are graded on an annual basis concerning the attainment of these targets. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Communicating with Customers Marketing views every dollar of income equally. Operations does not view a dollar of income from diverse customers equally with a dollar of income from a single set of homogeneous customers for a single product or service because of the costs and confusion associated with trying to satisfy diverse customer groups with different products or services. Customer rationalization results from marketing and operations focusing on those products and services for the 20% customers that contribute 80% of the profit. © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer-Feedback approaches Actively solicited customer-feedback approaches – includes all supplier initiated contact with customers, such as: telephone contacts focus groups customer service surveys Passively solicited customer-feedback approaches – includes all customer initiated contact, such as: filling out a complaint card, calling a toll-free complaint line, or submitting an inquiry via a company’s Web site © 2007 Pearson Education

Strategic Quality Planning The Voice of the Customer Customer Relationship Management Systems Customer relationship management systems (CRMS) – use data to manage the following phases of the customer life cycle: Acquisition Retention Enhancement CRMS monitor customer interactions and preferences through media such as customer transaction records, call center logs, searches, and Web site clicks. CRMS are used to identify active customers, inactive customers, and the profitability of customers. © 2007 Pearson Education