Academic journal article
By Carter, Joseph R.; Narasimhan, Ram
International Journal of Purchasing and Materials Management , Vol. 30, No. 3
Most organizations compete on the basis of quality and customer satisfaction. It is difficult to think of even a single industry in which these two issues are not paramount to competitive success. Examine the competitive strategies of firms in such diverse industries as automotive manufacturing, banking, consumer electronics, and health care, and what you see is the critical role played by customer satisfaction and quality. Indeed, as we move closer to the twenty-first century, firms rely increasingly on quality and customer satisfaction as the preeminent means of gaining market share and sustaining competitive advantage at home and abroad.(1) As manufacturing executives find it increasingly difficult to establish sustainable, technology-based competitive advantages, they direct greater attention and resources to quality and customer satisfaction as a real source of advantage. In addition, as manufacturers compete on the basis of customer satisfaction, the differentiation between manufacturing and service industries along these dimensions begins to disappear.
Quality and customer satisfaction are also crucial to the future of the United States as a worldwide competitor. The government is counting on a significant growth in exports in the 1990s to play a key role in addressing the balance of trade problem and bringing the economy out of recession into a sustainable period of long-term growth. For this scenario to materialize, American companies must change the manner in which they compete.
It will take hard and dedicated work.... Many of the causes of lost [competitive] position are beginning to appear. Daily we encounter the same inattention to quality, emphasis on scale economies rather than customers' concerns, and short-term financial orientation.(2)
Quality superiority pays off enormously for many reasons. With excellence in quality, everyone benefits--customers, employees, management, stockholders, and the country. For example, a comprehensive and effective management of supply channel quality and competence by purchasing can translate into increased manufacturing flexibility, a technology-based competitive advantage, shelter from price competition in finished goods, and an edge in lead-time-based competition(3)
Does Quality Leadership Reward?
Simply improving quality is not enough. Actually improving quality in the eyes of the customers is what pays off. When quality improvement investments lead to perceived customer service improvements, TQM becomes a viable competitive strategy. Customers do not evaluate quality solely on an item's intrinsic quality. They also consider the process by which that quality is delivered. This is the foundation of customer satisfaction. Only customers judge quality; all other judgments are essentially irrelevant. For example, how well an organization's purchasing function is doing can only be relevant in relation to how well its services and supplier's products meet or exceed customer (user) expectations. Self assessments, although useful for internal purposes, are useless unless tied to customer expectations.
The positive relationship between perceived quality and profitability has been well documented. The Profit Impact of Market Strategy (PIMS) data base shows this correlation unequivocally.(4) Analysis of the PIMS data has shown that in the long term, the most important factor affecting a business unit's performance and market share is the quality of its products compared with that of its competitors. Superior relative quality is the most effective way for a business to grow. Improved quality leads directly to market expansion and increased market share.(5)
In the short term, superior quality leads to increased profitability and even the ability to charge a premium price relative to a firm's competitors.(6) As quality increases, cost per unit invariably decreases at both the buying and the supplying firms. Why? As quality increases, market share goes up, creating an environment for increased economies of scale within the firm and also in supplier firms. …