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Improving the Quality of Purchasing's Service

Author(s):

Dr. David Finn
Dr. David Finn, Assistant Professor, Texas Christian University, Fort Worth TX 76129, 817/921-7557

81st Annual International Conference Proceedings - 1996 - Chicago, IL

The Issue.
A dual challenge facing many firms is to improve the quality of goods and services while simultaneously cutting costs; both manufacturing costs and corporate overhead costs. American businesses have come a long way in improving manufacturing costs. Practices such as partnering, strategic alliances, JIT, EDI, quality teams, process control, etc., have all contributed to reducing costs and improving product quality. And purchasing professionals have been a large part of that success story.

Cutting corporate overhead costs, however, has been a different story. Perhaps the most widely used approach to cutting corporate overhead has been the elimination of people - - across the board cuts in white collar support staff and middle management. In my opinion, this practice goes against the logic that a smooth running company must have efficient internal operations. The approach should be to improve internal service operations rather than to eliminate people.

There are three corporate support departments that can lead the way in improving the quality of internal service: Human Resources, Information Technology, and Purchasing. These departments are in unique positions to lead because of the their breadth of contact with internal customers of their organizations.

For the past several years I have been studying the dynamics of customer service as experienced by customers of purchasing departments in a variety of companies. This paper is my attempt to share some lessons with you.

Unique Characteristics of Internal Services. Every department in a firm has both tangible and intangible outputs. Examples of tangible outputs of purchasing departments are: contracts, completed purchase orders, order cycle time, etc. A characteristic of tangible outputs is that they can be "objectively" measured. Many tangible outputs can be improved with the application of some type of process control.

Intangible outputs are the people parts of the interactions with internal customers - - the true service component of the department. Unlike the more tangible outputs, services are:

  • difficult to measure. Service quality is almost purely perceptual - defined by the customers.
  • highly variable. Because services are performances, they differ from person to person. Even individual people who provide services perform differently from day to day.
  • highly perishable. Good service performances cannot be saved for another day. Because they disappear almost as soon as they are created, services cannot be inspected for quality defects and discarded or re-worked when they are defective.

Why Deliver Quality Service? Every department has customers, and each service provider is charged with responding to the needs of those customers. When the internal service delivery system of an organization is designed to match internal users' needs, the results include more efficient internal exchanges among the various organizational members and departments, lower waste, lower costs, and improved external service quality.

How Poor Service Happens. Because it is the customers themselves who define it, service quality is analogous to "customer satisfaction." We can think of two "levels" of satisfaction:

  • satisfaction with a particular service encounter, and
  • satisfaction with the overall service provided by the purchasing department.

The second, or global, satisfaction level is what we mean by "Service Quality." When internal customers are dissatisfied with the purchasing department, they perceive the department as delivering poor quality service. Figure 1 illustrates how that happens.
(Figure 1 is unavailable in this text-only version)

The bottom portion of Figure 1 depicts the role of the purchasing department. The top part shows the customers' reactions. It works like this: Managers describe the customers' requirements,

  • design delivery systems to match those requirements as closely as possible,
  • communicate the system to internal customers, and
  • instruct department personnel how to deliver the service.

On the customer side, users have certain needs and expectations related to the department's service (What Customers Want), and they evaluate the quality of the delivered service against those expectations (What Customers Experience). When what they experience matches or exceeds what they want, internal customers are satisfied because their expectations of quality service have been met. When what they experience falls below what they hope for, the result is dissatisfied internal customers. The magnitude of their satisfaction or dissatisfaction influences the degree of cooperation they extend to the purchasing department.

As long as managers describe customers' needs and expectations correctly, communicate the design to internal customers, and deliver the designed services, there is a high probability of achieving customer satisfaction.

However, what if management's beliefs about customer requirements are incorrect? In such a case, even superb delivery of the designed service will result in dissatisfied customers.

To maximize the probability that the purchasing department delivers quality service to satisfied customers, managers must conduct an internal service audit. They must use the results of that audit to design and implement the service delivery system.

How to Conduct an Internal Service Audit. The basic goals of an internal service audit are evident from Figure 1.

  • First identify the expectations of internal customers. Find out what it is that excites them about the service they receive and what it is that upsets them. Probe for their "wish list" of service attributes.
  • Second, ask your customers to rate your performance on those issues.
  • Then look for gaps. Recall from Figure 1 that it is the difference between what customers want and what they experience that causes satisfaction or dissatisfaction. Therefore, look for those differences.

The best method to use depends on how frequently your department wants to obtain this feedback. The first time you conduct a service audit use personal, or small group interviews conducted by someone not associated with your department. There are two reasons for using an outside person. First, people close to the department cannot listen objectively. Interviews are meant to gather information, not disseminate it. When an inside person hears something that is incorrect, s/he feels the need to correct it.

The second reason for using outsiders is that unless you are already delivering high quality service, customers will be less than honest with you: After all, if they are not completely satisfied with your department, they have already invented ways to circumvent the process. They may be wary about telling you their secrets, but willing to complain to an unbiased outsider.

Periodic follow-up audits can be conducted with paper and pencil rating forms. Use the results of the personal interviews to discover what to ask about. Then establish departmental benchmarks for tracking improvements in service quality.

What Internal Customers Want. The following list displays some customer requirements that we have discovered. The list is the result of a series of studies (personal interviews, group interviews, and surveys) conducted at different times in three different companies. Although ten different customer requirements are listed, only five to seven were present in any one company.

The most commonly mentioned requirements are related to what I have called the "tangible" side of the department. Internal customers expect the purchasing to:

  • process orders rapidly and correctly and to run an efficient shop.
  • find good prices consistent with delivery and quality requirements of their jobs.
  • handle the details of dealing with vendors, but let them evaluate vendors.

Internal customers have much stronger reactions to lapses in the people dimensions of service, although overall, those dimensions are not as important as the pure performance dimensions listed above. Internal customers expect people in the purchasing department to:

  • understand their problems by getting involved in the process early, and be a member of their team.
  • communicate to them when procedures or delivery dates change.
  • listen to them when they have ideas, evaluations or criticisms.
  • be accessible. Return phone calls, respond to questions, etc.
  • have the competence to find answers to their questions.
  • be courteous and treat them like customers.
  • be flexible when problems arise.

Some Easy Lessons. While the process issues are the most important requirements of internal customers (quality, delivery, cycle time, etc.) lapses in those areas are not seen as lapses in customer service. As long as your customers see you as doing as well as you can, given your resources, their judgments of service quality are governed by the people aspects of the service.

How to fine tune the process issues will be unique to every different purchasing department, depending on its corporate culture, its defined mission, and its resources. However, I believe that the people dimensions can be improved the same way across companies. Here are some of the most important lessons to improve your service quality.

  • Manage expectations. This is sometimes referred to as "internal marketing" or "marketing the purchasing department."
  • Take the credit. If you are going to help, do it with a smile.
  • Feel the pain. Be a member of the team with your customers. Their problems are your problems.
  • Tolerate. Your customers don't care about your problems. Accept it.
  • Don't be defensive. Customers don't want to know why it broke, just how you will fix it.
  • Promote and reward personnel for service excellence. If purchasing personnel are rewarded exclusively for improving processes and cutting costs, tending to customers' needs will interfere with reaching those goals.

Conclusion.
American businesses have come a long way in cutting manufacturing costs and improving product quality. The methods they have used to cut corporate overhead costs, however, are unlikely to contribute to overall quality. Improving the efficiency of white collar support staff and middle management is a more promising direction than eliminating people. One way to improve their efficiency is to treat them as customers. Satisfied internal customers will be more cooperative and less likely to disrupt the system.

Purchasing departments have the opportunity to be the leaders of an internal service quality revolution. I hope this lesson is useful for that revolution.


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