Service Companies Allow Customer Surveys...
Peter E. O'Reilly, C.P.M.
Peter E. O'Reilly, C.P.M., Assistant Vice-President, MetLife, New York, NY, 212/578-2470
81st Annual International Conference Proceedings - 1996 - Chicago, IL
Service Companies Allow Customer Surveys to Measure the Effectiveness of Purchasing Departments
The Issues. A rethinking of the way Purchasing Departments are measured is urgently needed, as most performance techniques are still based on a manufacturing orientation. Purchasing Departments are service entities, and as such, should rely on measurement methods that heavily involve internal customer input. One such model, ServQual, will be proposed that allows Purchasing Departments to be evaluated by means of a wide array of significant service-related factors based on the viewpoint of their customers.
Evolving from the Traditional Manufacturing Mind Set to a Service Mentality. For over one hundred years, the American business economy was based on the manufacturing of goods. While this concept has slowly changed, it has only been over the past ten years that services have emerged as a significant factor in the business world, not just in America, but in the entire world as well.
While services, not just service companies but service functions, are beginning to be recognized as a separate entity to that of manufacturing, it will still be awhile before management concepts change. In relating how to improve the effectiveness of Purchasing Departments, which provide services regardless of the finished products of their companies, some time must be spent discussing the differences between evaluating manufacturing and service entities.
Norman and Richard in 1984 (Gummesson, 1993) pointed out a number of variances between manufacturing and service organizations. Some of the more significant differences are as follows:
- The product is generally concrete.
- Ownership is transferred when a transferred.
- purchase is made.
- Consumption is preceded by production.
- Production, selling and consumption are locally differentiated.
- The service is immaterial.
- Ownership is not generally Production and consumption generally coincide.
- Production, consumption and often export selling are spatially united.
The manufacturing philosophy for measuring results tended to be based on a long reliance on statistical theory and the development of production methods. It has only been since the mid-80s that there has been a movement away from these manufacturing-related concerns towards the measurement of such factors as human resources and customer satisfaction.
Purchasing Departments, operating in manufacturing companies, according to Gummesson (1993), tended to gauge performances solely on the quality of the goods produced and delivered to them. On the other hand, Gummesson saw internal providers, such as Purchasing Departments, that worked for service firms, emphasizing the achieving and retaining of customers, as a benchmark for productivity improvements.
The Uniqueness of Services. Around 1985, three researchers from Texas A&M University, (Parasuraman, Zeithaml and Berry) identified four characteristics of services that they believed were not integral to the manufacturing process.
These features included:
- Intangibility services are performances, in that they can not be seen, felt, tasted or touched in the same way products can.
- Inseparability services are generally produced and consumed simultaneously.
- Heterogeneity the quality and essence of a service can vary greatly, while goods tend to be produced in a more standardized format.
- Perishability services can not be accumulated (Parauraman, 1987).
The measurement of production line results has always been relatively easier to determine than the outcome of services. Some of the difficulties in ascertaining service quality levels have been caused by:
- Services are harder to quantify in the area of quality because they are more complex than the production of goods.
- Customers intermix both service outcome and service delivery when evaluating performances.
- The only criteria that counts in the performance measurements are those set by the customers (Zeithaml et al., 1990).
The Importance of Purchasing Departments Understanding Their Internal Customers. In February of this year, Tully wrote a lead story for Fortune magazine in which he concluded that Purchasing Departments are just "beginning to change the face of American business." While this article paid tribute to a number of ways a few Purchasing Departments in Corporate America have had a positive effect on profits, there was little reference to the key element of any Purchasing Department's reason for existence, their internal customers.
In recent times, most literature like the Fortune article, has been written on the relationships Purchasing Departments have with their external suppliers. Not much attention has been given to the interaction between the internal providers (Purchasing Departments) and internal customers. Sepic and McNabb (1994) believed this omission was due to such internal service entities, as Purchasing Departments, being the "least understood markets" for TQM programs. These programs are needed to address such concerns as identifying customer requirements and establishing performance standards.
This is a remarkable statement when one considers the text of the "Golden Rule of Purchasing Departments"-- to acquire the necessary goods and services that are: the right quality, in the right quantity, at the right price, at the right time and from the right source. What is obviously needed to evaluate how well any Purchasing Department does in achieving these tenets is feedback from their internal customers, both in terms of what is needed, and how effective the delivered good or service was in meeting or exceeding these needs.
According to Brusa and Scheuing (1993), input from internal customers is essential to Purchasing Departments, especially those striving to attain "world-class" performance status, and thereby assist their companies in achieving competitive advantages. There is also an element of self-survival in better understanding the needs of internal customers, with the rise of outsourcing of buying functions by many companies.
How Internal Customers Picture Purchasing Departments. Any one who has worked in internal provider units, such as Purchasing Departments, could relate to the statement that internal customers are quick to criticize and slow to praise. That is because internal customers are first and foremost, customers. Albrecht (1990) in studying service organizations determined that internal customers often have rather negative views of Purchasing Departments. Some of these opinions include:
- Purchasing Departments are too bureaucratic in that they are routinely insensitive to he time demands of the internal customers.
- Purchasing Departments second-guess the needs of internal customers.
- Purchasing Departments are overly committed to paperwork and unnecessary procedures.
Many of these criticisms are remnants of the "manufacturing rules" days, when Purchasing Departments were usually oriented towards a reactive-tactical-functional way of doing business. What is needed today is a greater appreciation of an internal customer approach that is more proactive and strategic in nature. Purchasing Departments have to actively solicit the requirements of their internal customers if they hope to be successful.
Albrecht (1990) formulated that Purchasing Departments can reverse the negative views of their internal customers by:
- Forming working problem-solving relationships with the internal customers.
- Educating internal customers on how Purchasing Departments work.
- Be willing to streamline operational procedures.
There is an irony here in that many of these recommendations are now used by Purchasing Departments with external suppliers (Brusa and Scheuing, 1993), but not with internal customers. Such customers are insisting in greater numbers that Purchasing Departments be held more accountable in satisfying their business demands (Gremmler et al., 1994).
Two research studies (Pfau, Detzel and Geller, 1991; and, Sepic and McNabb, 1994) both developed similar suggestions for internal providers, like Purchasing Departments, to implement to increase their collective performance levels from the internal customers' viewpoint. Some of these guidelines to enact would include the following:
- Identify each and every internal customer.
- Determine internal customers requirements.
- Measure how well these needs are presently being met.
- Install open communications network between Purchasing Departments and internal customers.
- Ascertain which services are more important than others.
- Assign accountability.
- Establish schedules for action plans.
- Create feedback loops.
This paper will focus on the measurement of internal customer satisfaction, as this data will keep Purchasing Departments knowledgeable on how well they are currently doing with their internal customers, as well as allow them to keep pace with the ever changing needs of these customers.
A Direct Link to Internal Customers--- ServQual. As previously mentioned, in 1985 three professors (Parasuraman, Zeithaml and Berry) at Texas A&M University introduced a model aimed at identifying and improving the customer satisfaction of service providers. This model, termed Service Quality or ServQual, was different than most of the existing performance measurement yardsticks in that in relied on significant input from customers.
Earlier work by this research team had focused on attempting to isolate elements or characteristics closely related to the very core of a service. After much fieldwork, five service "dimensions" were proposed as factors to be considered in evaluating the performance of service entities, such as Purchasing Departments. These service dimensions were comprised of:
- Reliability - the ability to perform the promised service dependably and accurately.
- Responsiveness - the willingness to help customers and to provide prompt service.
- Assurance - deals with process and employee behavior-how to treat your customers.
- Empathy - the caring, individualized attention that a company provides its customers.
- Tangibility - physical facilities, equipment and appearance of personnel providing service.
The research team proposed that there were at least five potential service gaps when there is an exchange between a service provider and a customer. Four of the gaps relate to specific instances of service letdowns. It is the last gap, or Gap 5, that will be applied to Purchasing Departments. Gap 5 relates to the composite differences between a customer's overall expectation of a service performance and a customer's overall perception of how that service was enacted. This gap forms the very back bone of the ServQual approach to measuring the effectiveness of Purchasing Departments.
The ServQual Format. The key element of the ServQual model centers on feedback from internal customers. One part of the survey solicits data from internal customers on various service aspects that are based on the five dimensions. A series of paired statements are proposed to the internal customers. One of the statements asks for the customers' expectation levels for the particular service aspect under review. The second part of the paired statements seeks the actual levels of performance the customers have received for that service factor. Generally, perceptions (or reality) fall short of the expectation levels, thus service gaps are formed.
The ServQual technique also asks for feedback on how important each of the five service dimensions are to the internal customers. Data from this portion of the survey is utilized with the raw service gap numbers to form weighted gap scores, which become the performance measurement marks for the Purchasing Departments. In addition to the expectation/perception statements and the relative importance of the dimensions sections, the ServQual method can include an overall evaluation inquiry and a series of miscellaneous questions, customized to the needs of a particular Purchasing Department.
Concluding Thoughts. Service entities function completely different than traditional manufacturing concerns. Accurate, timely and continuous feedback from internal customers is essential. Therefore, Purchasing Departments, as service organizations, have to understand the numerous requirements of their internal customers, if they are to remain a vital asset to their companies. Employing an accurate measurement device that gets into the minds of their customers is a must.
ServQual allows a Purchasing Department to determine several key operational elements such as: knowing the expected service levels of the internal customers; determining how well they have succeeded in fulfilling these levels; and being able to prioritize which of the service dimensions are more relevant to the customers than others. All of this feedback will allow Purchasing Departments to better allocate their scarce resources and develop a team approach to problem solving with their internal customers.