CHAPTE

R
V
QUALITY IN
CUSTOMERSUPPLIER
RELATIONSHIPS
|ANG, ANGELICA |GONG, FEILYN |KHO,
MIKHAELA |
|YU, CHARLES|DIVINA, KEITH|

OBJECTIVES:
To demonstrate the importance of
customer -supplier relationships to
achieving performance excellence.
To identify the principles and practices of
quality customer- supplier relationships.
To give examples of effective partnership
between customer- supplier .
To compare a quality- focused approach
to customers and supplier to
conventional organizational theories.

SUPPLY CHAIN MANAGEMENT

DESIGN & REDESIGN

SUPPLIERS

INPUTS

CUSTOMER
RESEARCH

OUTPUTS
PROCESSES

QUALITY OF OUTPUT
CAN BE NO BETTER THAN
THE QUALITY OF THE INPUT

CUSTOMERS

MERCY
HEALTH
SYSTEM
MISSION
EXCEPTIONAL
HEALTH CARE
SERVICES.
RESULTING IN
HEALING
BROADEST SENSE

ULTURE OF HIGH QUALITY CARE

HEALING IN ITS BROADEST SENSE
USTOMER FOCUS
PATIENTS COMES FIRST
RTNER COOPERATION
TREAT EACH OTHER LIKE A FAMILY
NOVATION
ADVANCE MEDICAL& INFORMATION TECHNOLOGY
OST CONCIOUSNESS
STRIVE FOR EXCELENCE
LISTEN TO THE CUSTOMER
L
EMPHASIZEW/
THE CUSTOMER
E
ACCEPT
CUSTOMER PERSPECTIVE, APOLOGIZE
AKNOWLEDGE
CONCERN, TAKE ACTION TO RECOVER
A
DIRECT THE CUSTOMER TO THE PERSON
D TO RECOVER THE SITUATION
ABLE

CUSTOMER/
SUPPLIER
(coal mine)

CUSTOMER/
SUPPLIER
(steel mill)

CUSTOMER/
SUPPLIER
(auto plant)

CUSTOMER/
SUPPLIER
(car rental agency
/car companys)

Each company is a customer to its supplier &

a supplier to its customer

E CUSTOMER- SUPPLIER CHAIN

FOCUSES ON BOTH ITS
IMMEDIATE CUSTOMERS &
THOSE NEXT IN THE CHAIN
THE IDEA OF CREATING OF
MUTUALLY BENEFICIAL
APPROACH TO CSRS

THE IMPORTANCE OF
CUSTOMERS
From a view of the customer as a BUYER to
increase profitability.
To a view of the customer as an active
partner and the focus of all quality activities.
S
Satisfaction
is an attitude ; loyalty is a behavior
A
T
I
S
F
A
C
T
I
O
N

V
S

L
O
Y
A
L
T
Y

CUSTOMER ENGAGEMENT
BEYOND LOYALTY
COMMITMENT
Willingness to make an effort
Willingness to actively advocate

THE IMPORTANCE OF SUPPLIERS

UPSTREAM PORTION OF THE SUPPLY CHAIN
PROVIDE THE ORGANIZATION OF THE GOODS & SERVICES
VITAL ROLE THROUGHOUT THE PRODUCT DEVELOPMENT

S
U
P
P
L
I
E
R
S

PROVIDE TECHNOLOGY
EARLY DESIGN ADVICE
INCREASED CAPACITY

PRINCIPLES FOR CUSTOMER-SUPPIER

RELATIONSHIPS
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

NDING THAT SPECIAL TOUCH

Many companies in industries not known for
great customer service, such as auto
dealerships, banks, and hospitals, are
learning lessons from luxury hotels that
have long prided themselves on exceptional
service, such as two-time baldrige recipient
the Ritz-Carlton or Four seasons hotels. A
lexus dealer added valet parking, fresh
flowers in the showroom, and a mable floor
in the bathroom; customers picking up their
cars after they have been serviced find
bottled water and Hershey kisses in the
cupholdersamenities that are often found
at these luxury hotels. After receiving the
baldrige award, the ritz-carlton began

Many imployees dont think that its

their job to serve customers beyond
their job descriptions.

The goal of building partnerships with customers and

suppliers can be seen an extension of the teamwork
principle that applies to all TQ activities and as
recognition that the needs of both partners must be
satisfied if productive long-term relationships are to be
created.
Customers must be at the center of the
organizational universe. Satisfying their needs
leads to repeat business and positive referrals,
as opposed to one-shot business and negative
referrals.
Edwards Deming advocate
these principles for decades,
as is evident in his 14 points
(Chapter 2). Joseph juran
developed a useful framework
to distinguish between
adversarial and teamwork

PRACTICES
FOR
DEALING
WITH
CUSTOMERS
COLLECT CUSTOMER INFORMATION
KANO MODEL
OF CUTOMER
REQUIREMENT

DISSATISFIERS
SATISFIERS
EXCITERS/DELIGTHERS

DISSEMINATE CUSTOMER INFORMATION

customer information be translated into
the feature of the organization's
products and service.
"Singing from same hymnbook"

PRACTICES
FOR
DEALING
WITH
CUSTOMERS
FIGURE 6.2

CUSTOMER
NEEDS&EXPECTATI
ONS
(EXPECTED
QUALITY)

FEEDBACK

IDENTIFICATION OF CUSTOMER NEEDS

USE
CUSTOMER
INFORMATION

customer
TRANSLATION INTO PRODUCT/ SERVICE SPECIFICATIONSinformati
(DESIGN QUALITY)
on is
OUTPUT (ACTUAL QUALITY)
worthless
unless is
CUSTOMER PERCEPTIONS(PER RECEIVED
used.
QUALITY)

SURE CUSTOMER SATISFACTION, LOYALTY, & ENGAGEM

C
U
S
T
O
M
E
R

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

SATISFACTI ON MEASUREMENT

NET
PROMOTER
SCORE

DevelopedbyFredReiched,Brain&
Company,andSatmetrix.Matricisbaseon
onesimplequestion,"whatisthelikelihood
thatyouwouldrecommendus?"

MANAGING CUSTOMER RELATIONSHIPS

Itreferstopractices,strategiesandtechnologiesthat

companiesusetomanageandanalyzecustomer interactions
anddatathroughoutthecustomerlifecycle,withthegoalof
improvingbusinessrelationshipswithcustomers,assisting
incustomerretentionanddriving...

SET AND USE SERVICE STANDARDS

What are service
standards?
Service standards
outline the specific
delivery targets
established by an
organization, and are
made up of a set of
commitments that an
organization promises

Service standards are

usually defined in terms of
Timeliness
Accuracy
Appropriateness

MANAGE COMPLAINTS
Acomplaintsystem (also known as a
conflictmanagementsystem, internal conflict
managementsystem, integrated
conflictmanagementsystem, or dispute system) is
a set of procedures used in organizations to
addresscomplaintsand
resolve disputes.
EXPLOIT TECHNOLOGY
Anexploit(from the English verbto exploit, meaning
"using something to ones own advantage) The term
exploit is very flexible and can be used both as a noun as
a verb. As a noun, the exploit is the hole in the system
that the hacker used to make the attack.

USEFUL TIPS FOR

DEALING WITH COMPLAINTS

TRY TO REMAIN CALM WHEN DEALING

WITH A COMPLAINT-EVEN IF THE
CUSTOMER BECOMES IRATE OR
CONFRONTATIONAL.
COMPLAINTS SHOULD ALWAYS BE
RESOLVED AS QUICLY AS POSSIBLE.
KEEP COMPREHENSIVE RECORDS OF
ALL CUSTOMER COMPLAINTS, FROM
THE INITIAL PROBLEM TO THE
EVENTUAL SOLUTION.

PRACTICE FOR DEALING WITH SUPPLIERS

Base purchasing decision for quality & cost
Reduce the number of suppliers
Establish long term contracts measure
&certify supplier performance
Develop cooperative relationship &strategic
awareness

3 GUIDING PRINCIPLES

Recognizing the strategic importance of supplier in

accomplishing business objectives minimizing
the total cost.
Developing win-win relationship through
partnership
Establishing trust through openness and honesty,
1. JOINT CONFERENCES
thus leading to mutual advantages.
How to ensure the that
suppliers
can provide high quality and
reduce cost

2.
3.
4.
5.

TRAINING
INCENTIVES
RECOGNITION
LONG-TERM

PURCHASING DECISION ON QUALITY AND

Purchasing
decision
PURC HASI NG PROCESS
should be
based on the
Technical people > purchasing
quality of the
department
product and
(determine the specification
not just for
(price check)
its price
NOT
1. LOW PURCHASE
2. PRESSING SUPPLIERS FOR
REALISTIC
2 EVER-LOWER PRICE WILL
COST OFTEN DOES
P MINIMIZE THEIR PROFITS.
NOT EQUAL LOW
R
OVERALL COST.
O reason: although this benefits

B the customer in he short run,

Eg. if a cheap part
L in the long run, it keeps
causes a large
E suppliers operating so close to
amount of scrap or
M the bone that they forgo
leads to high
S capital investment,
warranty cost, it

REDUCE THE NUMBER OF SUPPLIERS

The type of
intensive CSR
that
characterize TQ
simply cannot
be maintained
with a large
number of
suppliers
A
D
V
A
N
T
A
G
E
S

As it increases of the organization on the

supplier, this weakening its bargaining
position and exposing it to the possibility
of and interruption in supply in the case of
labor stoppage or similar problems.
No bargain, no lost quality.

administrat
ive cost are
greatly
reduced

it reduces the
variability in the
incoming
products, making
it easier to control
the quality of

ESTABLISH LONG-TERM

CONTRACTS
It 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.

DEVELOP
COOPERATIVE
RELATIONSHIP
S AND
STRATEGIC
ALLIANCES

*Suppliers are
viewed as
partners with
customers,
because there
usually is a
codependent
relationship.

SURE AND CERTIFY SUPPLIER PERFORMA

Texas Instruments measures suppliers quality performance by
parts per million defective, percentage of on-time deliveries,
and cost of ownership.
ELECTRONIC REQUESTING
SYSTEM
it allows a paperless
procurement process
PRE-PRODUCTION PLANNING
SYSTEM
used to access the capability of
their process to meet companys
specifications

JOINT CUSTOMERSUPPLIER TEAM

formed to communicate and
improve performance
SUPPLIER CERTIFICATION
is used by many companies as
the focal point of their supplier
management system

FEEDBACKS
is offered the form of recommended changes that
will improve quality, reduce cos or facilitate ease of
manufacture.

long-term partnerships with quality-minded suppliers

QUALITY
CUSTOMERSUPPLIER
RELATIONSHIPS
IN
ACTION
APPLIANCE
AND D.J. INC

Many of the
aspects of
quality CSRs
we have been
discussing are
illustrated in the
following
examples:

CSR is key to the relationship

between GE appliance and
D.J. Inc.,.

EMC
CORPORATION

A manufacturer of data
storage systems.

These competitors offer brand

2. Variety
names and low pricing, they lack 3. Online purchase
close, personal customer
security
relationships and
4. Guarantees or low
communication. Unique online
risk
furniture exploits these
5. Free or low-cost
competitive weaknesses in their
shipping
business model, which is based
Unique online furniture offers over 2000 unique products across
on the key customer
their websites. They handle difficult situations in a timely
requirements they identified:
fashion, specific to the clients needs, and with sincerity and

IQUE ONLINE FURNITU

QUALITY
Unique online
furnitures, inc., Sells a
CUSTOMERvariety of home
furnishing, to
SUPPLIER
individual retail clients
in the united states
RELATIONSHIPS and Canada via
several e-commerce
The company faces competition
websites.
IN
ACTION
from a number of competitors.
1. Affordability

CUSTOMER-SUPPLIER
RELATIONSHIPS IN
Much of the organization literature has argued
ORGANIZATION
THEORY
that
firms should consider customers
as partner
for success. They identified four distinct roles for
customer:

1. RESOURCE
2. WORKER/
COWORKER
3. BUYER
4 BENEFICIARY(USER)
Thus, firm should design systems that involve
and empower customers throughout the inputtransformation-output system rather than
merely rely on customers to define their
preferences and evaluate the products and

I
N
T
E
G
R
A
T
I
V
E

CUSTOMER-SUPPLIER
RELATIONSHIPS IN
ORGANIZATION
THEORY
THE
RESOURCE DEPENDENCE

B PERSPECTIVE
A
The organizational theory most directly
R comparable to the TQ view of the
G customer supplier relations.
A
The similarity between the two
I perspective is their mutual emphasis on
N the idea that the sources of an
I organizations success lie outside its
boundaries.
N
G The resource dependence perspective

I
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T
E
G
R
A
T
I
V
E

B
A
R
G
A
I
N
I
N
G

CUSTOMER-SUPPLIER
RELATIONSHIPS IN
ORGANIZATION THEORY
The key ideas of integrative
bargaining are:
1 separate the people from the
problem
2 focus on interests, not
positions
3 invent options for mutual gain
4 insist on using objective
criteria.