Chapter 4

IMPORTANCE OF SUCESSFUL

RELATIONSHIPS BETWEEN

CUSTOMERS AND SUPPLIERS

1. Businesses have recognized that supply chain management is crucial for effective operations and meeting customer needs.

2. A supply chain includes the materials and other inputs purchased from suppliers, their use in the production of goods and services, and distribution and services to customers.

3. Quality should start with the customer, and extend back through the supply chain to the sources of procurement.

Performance Excellence

Profile: DYNMCDERMOTT

PETROLEUM OPERATIONS

COMPANYSince 1993, DynMcdermott Petroleum

Operations Company has operated and

maintained the U.S Strategic Petroleum

Reserve (SPR), a cache of up to 700 million

barrels of crude oil. The U.S Department of

Energy's (DOE) oil reserve was designed as

"Energy Insurance" against disruptions to the

availability of crude oil. With a budget for 2006

of $113 million and just over 500 hundred

employees in Louisiana, Texas, and Mississippi,

DynMcdermott works exclusively for DOE.

The SPR stores 700 million barrels of

crude oil in 62 underground salt caverns,

which each hold from about 7 million to 35

million barrels of crude oil, were created by

hollowing out salt with fresh water injected at

high pressure. This approach has won

engineering awards for being a safer and less

expensive than other large-scale above-

ground storage methods, and it is considered

a global benchmark studied by other

countries.

DYNMCDERMOTT PRACTICES TO

DEVELOP CUSTOMER-SUPPLIER

RELATIONSHIPS AND ACHIEVING

PERFORMANCE EXCELLENCE

Routinely updates its oil storage and operations technology to tap the best new technologies, such as using cement lining for brine disposal pipelines to reduce corrosion and erosion.

For DynMcDermott, priority number one is operational readiness.( Drawdown & Fill)

DynMcDermott has achieved success by aligning its purpose,vision, mission, and values to match those of its customer, DOE.

The two organizations hold joint

planning and performance reviews and

share computer networks and critical

information.

DynMcDermott's values-based strategic

planning process is integrated with the

DOE planning process, and

DynMcDermott employees are involved

in the DOE strategic planning activities.

Importance of Customers

according to Don Peppers and

Martha Rogers

The only value your company will ever create is

the value that comes from customers-the ones you

have now and the ones you will have in the future.

Businesses succeed by getting, keeping, and

growing customers.

Customers are the only reason you build factories,

hire employees, schedule meetings,lay fiber-optic

lines, or engage in any business activity.

Without customers, you don't have a business.

According to Deming, developing strong and

positive relationships with customers and

suppliers within the supply chain is a basic

principle of total quality

Design and redesign consumer

research

Suppliers inputs outputs

customers

Finding special touch

Many companies in industries not known for great customer service, such as auto dealership, banks and hospitals are learning lesson from luxury hotels that have long prided themselves on exceptional service such as two time Baldrige winner “The Ritz-Carlton or Four Season’s Hotels. After receiving the Baldrige Award, the Ritz Carlton began offering training courses in it’s legendary service strategies such companies as Macy’s and Starbucks signing up.

“We are Ladies and Gentlemen

serving Ladies and Gentlemen”

The company’s focus is to develop

“Skilled and Empowered workforce

operating with pride and joy” by

ensuring that all employees knows what

they are supposed to do, how well they

are doing, and have the authority to do

whatever is necessary for the customer.

THE BOOMERANG

PRINCIPLE Feargal Quinn is the executive chairman of

Superquinn, a 5,600 persons, 19 store chain supermarkets in Ireland. In every dead, Quinn’s focus is on persuading the customer to return. Quinn calls it the “BoomeringPrinciple” . His tireless and inventive exploration of this principle has earned him a reputation as Ireland’s “Pope Customer Service”. Superquinn inspired such intense devotion that many customers say that they drive out of their way-and past several of it’s biggest competitors to shop there

PRACTICES FOR

DEALING WITH

CUSTOMERS

The most basic practices for

dealing with customers are:

To collect information constantly on

customer expectation

To disseminate this information this

information widely within the

organization

To use this information to design,

produce, and deliver the organization's

products and services.

Customer Information

Acquiring customer information is critical to understanding customer needs and identifying opportunities.

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. - Hideo Sugiura Executive Vice President of Honda

In trying to understand customer needs, it

is important to go beyond what customers

say they need and anticipate what will

really excite them. It is a well-known

principle of innovation that customers will

seldom express enthusiasm for a product

that is different from anything they have

experienced

Some of the most popular ways

to collect information about

customers are;

Surveys

Service evaluation cards

Focus groups

Disseminate Customer Information

After people in the organization have gathered information about customer needs, the next step is to broadcast this information within the organization. After all, 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 hymn book,” as the sayings goes.

Wainwright Industries has unique approach. A room in the headquarters building, named Mission Control, serves as the company’s key information center. Not only the customer report cards displayed on a wall, but green and red flags are used to designate customers for whom everything is going well or for whom a problem has arisen.

AT&T, whose divisions have won several

Baldrige Awards, is one organization trying to

maintain a constant customer focus.

Customer information must be translated

into the features of the organization’s products

and services. This is the bottom line of quality

customer supplier relations from the supplier’s

point of view: giving the customers what they

want.

Translating customer needs into product

features can be done in a structured manner

using quality function deployment (QFD).

Use Customer Information

Customer information is worthless unless it

is used. Customer feedback should be

integrated into continuous improvement

activities.

Binney and Smith, the company that

produces Crayola crayons and markers,

makes it a point to improve its products by

taking advantage of customer feedback.

Perhaps the most important use of

customer information is in developing

business strategies and in designing goods

and services. In the Malcolm Baldrige criteria,

for example, one of the key questions is how a

company collects and analyzes customer and

market needs, expectations, and

opportunities, and relates them to the

development of strategies. Analyzing

customer information can uncover a myriad of

opportunities for new and improved goods and

services.

Manage Customer

RelationshipA 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. These companies also provide easy access to their employees.

In service, 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. Moments of truth may be direct contacts with customer representatives or service personnel, or when customers read letters, invoice, or other company correspondence.

EXPLOIT CRM TECHNOLOGY

Customer Relationship

Management (CRM)

Is designed to help companies

increase customer loyalty, target their

most profitable customers and

streamline customer communication

process.

Technology is a key enabler of CRM.

A typical CRM system

includes: market segmentation and analysis,

customer service and relationship

building,

effective complaint resolution,

cross-selling goods and services,

order processing, and

field services.

CRM helps firm gain and

maintain competitive

advantage by: segmenting markets based on demographic

and behavioural 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 focus of targeted marketing initiatives with predicted high customer response rates.

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 process around customers rather than traditional functions, resulting in improved flow of information and cycle times.

Don’t ignore

internal customers

PRACTICES FOR

DEALING WITH

SUPPLIERS

SUPPLIERS play a vital role throughout the

product development process from design

through distribution.

SUPPLIERS can provide technology or

production process not internally available

early design advice and increased capacity,

which can result in lower costs, faster time to

market and improved quality for their

customer.

STRONG

CUSTOMERS/SUPPLIERS

RELATIONSHIPARE BASED ON

THREE GUIDING PRINCIPLES 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.

Establishing trust through openness and

honesty, thus leading to mutual advantages.

HOW SUPPLIERS CAN

PROVIDE HIGH QUALITY

AND REDUCE COSTS?

BASE PURCHASING

DECISIONS ON QUALITY AND

COST

The first and most obvious practice

is that purchasing decision should be

base on the quality of the product and

not just it’s cost.

Beyond compramises this creates for the

quality of the final product, there are two

other problems with this approach

First, low purchase cost often does not equal

low overall cost.

Second, pressing suppliers for ever-lower

prices will minimize their profit.

REDUCE THE NUMBER

OF SUPPLIERS

ESTABLISH LONG-TERM

CONTRACTS Establishing long term-contracts allows

suppliers to make greater commitments

to improving the quality of products and

provides greater opportunity to joint

improvement efforts and the

development of teamwork across

organizational boundaries.

QUALITY CUSTOMER-

SUPPLIER

RELATIONSHIPS IN

ACTION

GE Appliance and D.J Inc.

CSR is key to the relationship between GE

Appliance and D.J Inc., both of Louisville

Kentucky , In nine years D.J went from being

one of 100 G.E suppliers of plastic parts to

being it’s sole source. D.J recommended a

minor change in product design that reduce

the product design that reduce the cost of a

part by more than 5 percent and increased it’s

expected life by 16 percent.

Unique Online Furniture

Unique Online Furniture Inc., sells

variety of home furnishing. They offers

ever 2000 unique products across their

websites. Their websites offer a secure

online buying experience, and the

company is registered with the Better

Business Bureau.

KEY CUSTOMER

REQUIREMENTS THEY

IDENTIFIED

Affordability

Variety

Online Purchase Security

Guarantees or low risk

Free or low cost shipping

Customer-Supplier Relations in

Organizational TheoryIn 1973, Gersuny and Rosengren argued

about that diverse customer roles require new

bonds of interdependence and an increasingly

complex social network that cross traditional

organizational boundaries.

4 distinct roles for customers:

Resource

Worker

Buyer

Beneficiary

A fifth role has emerged from work in the human service area: customers can be a key outcome, or product, of value-creating transformation activities, such as education and health delivery.

In reviewing the organizational literature for those roles, Lengnick-Hall suggests that the following organizational practices are positively related to the competitive quality of production processes and outcomes.

Practices that deliberately select and carefully manage customer resources, foster an effective alliance between the firm and its customer resources, and improve the quality of its customer resources;

Practices that provide clear opportunities for co-production, enhance customer abilities as co-producers, and increase customer motivation toward co-production;

Activities that foster trust, develop interdependence, share information, and initiate friendly, mutually beneficial customer-organization bonds,

Activities that foster unambiguous communication with users, focus on meeting customer needs, offer realistic previews, achieve dimensions of quality that customers truly care about, and ensure that actual use is consistent with intended use; and

Activities that create opportunities for direct

communication and interaction between users

and production/core service personnel.

Firms should design systems that involve

and empower customers throughout the input-

transformation-output systems, rather than

merely rely on customers to define their

preferences and evaluate the products and

services provided to them.

The Resource Dependence

Perspective (RDP)This is the organizational theory, developed

by Jeffrey Pfeffer and Gerald Salancik, is most directly comparable to the Total Quality (TQ) view of customer-supplier relations.

TQ and RDP have mutual emphasis on the idea that the sources of an organization’s success lie outside its boundaries.

Pfeffer and Salancik point out that TQ focuses on the internal operations of organizations, giving less emphasis to the organization’s environment.

RDP is all about the concept of effectiveness while TQ is about the concept of quality.

TQ has traditionally focused almost exclusively on the organization’s customers. The RDP, however, recognizes that organizations must satisfy the demands of not only customers, but also other entities in the environment including various government agencies, interest groups, shareholders, and to some extent society as a whole.

Although costumers are important, groups and organizations other than customers can play a major role in determining an organizational success. TQ advocates can take two avenues in dealing with this issue: (1) to enlarge the concept of customers to include all those who have a stake in the organization, and (2) to recognize that although providing quality to the customers is the overriding focus of the organization’s activities, satisfying customers alone will not necessarily guarantee continued success, due to the potential influence of other constituencies.

Another similarity between TQ and RDP is in their recognition of interdependence between organizations as a fact of organizational life that must be managed effectively.

Integrative Bargaining

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.

Key ideas of integrative bargaining

Separate the people from the problem;

Focus on interest, not positions;

Invent options for mutual gain; and

Insist on using objective criteria.