1. Chapter 4

2. 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.

3. Performance Excellence
Profile: DYNMCDERMOTT
PETROLEUM OPERATIONS
COMPANY Since 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.

4. 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.

5. 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.

6.  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.

7. 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.

8. 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

9. 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.

10. “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.

11. 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 “Boomering
Principle” . 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

12. PRACTICES FOR
DEALING WITH
CUSTOMERS

13. 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.

14. 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

15.  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

16. Some of the most popular ways
to collect information about
customers are;
 Surveys
 Service evaluation cards
 Focus groups

17. 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.

18. 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).

19. 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.

20. 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.

21. Manage Customer
Relationship
A 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.

22. 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.

23. 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.

24. 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.

25.  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.

26. Don’t ignore
internal customers

27. PRACTICES FOR
DEALING WITH
SUPPLIERS

28.  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.

29. 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.

30. HOW SUPPLIERS CAN
PROVIDE HIGH QUALITY
AND REDUCE COSTS?

31. 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.

32. 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.

33. REDUCE THE NUMBER
OF SUPPLIERS

34. 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.

35. QUALITY CUSTOMER-SUPPLIER
RELATIONSHIPS IN
ACTION

36. 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.

37. 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.

38. KEY CUSTOMER
REQUIREMENTS THEY
IDENTIFIED
 Affordability
 Variety
 Online Purchase Security
 Guarantees or low risk
 Free or low cost shipping

41. Customer-Supplier Relations in
Organizational Theory
In 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

42. 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;

43.  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

44.  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.

45. 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.

46. 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.

47. 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.

48. 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.