Value for the customer
Discuss about the Enhancing Customer Value through SCM and Operations Management.
The basic concept of value for the customers is the focus of the business strategy of most of the organizations. The value for the customers can be defined as the benefits that the customers get from the products or services after excluding the price they paid for it. There could be different interpretation of customer value, which can be useful for implementation in different business strategies. Harvey Golub and Jane Henry, two alumni of McKinsey’s New York office define the customer value to be as simple as the maximum money that the customers can pay for the product or service. John L. Forbis and Nitin T. Mehta, two other alumni of the McKinsey’s Cleveland office define customer value of a products or service to be the economic value for the customer, which in turn defines the customer value of a product to be a well-balance between the benefits of the products or services and the cost of the corresponding products or services (Yi, 2013). Martin Christopher defines the customer value to be the difference of the benefits of the product or service perceived by the customers and the actual cost of owning the corresponding product or service. Martin Christopher focuses on the cost of ownership instead of the actual monetary cost of the product as there might be other costs associated with buying the product. Some of these additional costs are inventory costs, maintenance costs and handling charges. So the value of the product for the customer can be defined as the total benefits to the customer after removing the total cost of owning the product. In other words, the value of the product is the extent to which the needs of the customers are fulfilled by the product after excluding the total costs of owning the product (Heinonen, 2013). The concept of customer value is gaining a lot of demand across various industries present in the world, as the increase in the customer value of the products allows the products to provide better value proposition to the customers. This in turn leads to the increase in the sales of the product and hence the profit of the organization. So the organizations operating in various industries focus a lot on the value provided to the customers by the products or services (Tech, 2016).
The concept of customer value in various businesses can be related to the process of quality management, which in turn allows the quality management strategies of the organizations to also focus on the customer value of the products or services. The process of quality management in organizations’ business model focuses on the continuous enhancement of the quality of the products or services provided to the customers (Verhoef, 2013). The process of quality management or total quality management is directly connected to two concepts i.e. customer value and customer satisfaction. As mentioned earlier, the concept of customer value is based on the benefits realized by the customers after removing the costs of owning the product. So the factor of customer satisfaction can also be directly linked with the customer value provided by the products or services created by the organizations (Christopher, 2016).
Customer value relating to quality management
The better the perceived value of the products or services, the more the satisfaction of the customers of owning the product or service. The process of quality management is based on the activities of continuous improvement of the products both in the process of manufacturing and maintenance. So the process of total quality management ensures that the manufacturing and maintenance of the products are aimed at the satisfaction of the maximum quantity of the customer needs (Chacour, 2015).
Figure 1 Quality management (source: https://www.intermediates.basf.com)
The process of total quality management ensures this through effective planning and implementation of the survey and questionnaires for the prototype and the actual product. So the organizations implementing the process of total quality management, goes through an iterative process of improving the quality of the products and in each iteration, the manufacturing or maintenance process of the product aims at providing more value to the customers (Intermediates.basf.com, 2016).
The quality management process in the organization ensures that the quality of the products is acceptable in the perspective of both the customers and organization. The customers’ perception of the product quality considers the efficiency of the various functionalities of the products and the significance to which the products satisfy the needs of the customers of the organization. But in case of the organization’s perspective of product quality, the brand image of the organization along with the capabilities of the product to attract more number of customers, are considered. The process of quality management ensures that both the perspectives of the quality of the products are achieved (Goetsch, 2014). This in turn increases the value provided to the customers of the organization.
The process of supply chain management is another significant component of the business model of an organization, which is directly linked to the customer value provided by the products. The process of supply chain management ensures that the materials, byproducts, partially-finished products and final products along with corresponding information about the business processes flow efficiently among the various entities involved in the product manufacturing and delivery (Stadtler, 2015). The overall objective of the process of supply chain management is to ensure that the organization can satisfy the demand for the products at any point of time through effective flow control and inventory management. This in turn affects the price of the products directly and decreased price of the products of an organization leads to the increase in the value realized by the customers from the products.
Customer value relating to supply chain management
Figure 2 Lean manufacturing (source: www.tonex.com)
The concept of lean manufacturing implemented in the supply chain management process ensures that the waste created during the manufacturing process is minimal in order to create the maximum customer value from the products. The concept of lean manufacturing focuses on the removal of certain types of wastes from the manufacturing process such as transport, inventory, motion, waiting, overproduction, over processing and defects (Goetsch, 2014). The minimization of each of these wastes in turn increases the satisfaction of the customers of the product and hence increases the customer value perceived from the product (Tonex, 2016).
Some of the key practices in the implementation of lean manufacturing model in the workplace of the organization are mentioned in this section along with their respective impacts on the value provided by the products to the customers. The initial change in the manufacturing process needed for lean manufacturing is short cycles of manufacturing, which provides a result to the customers after short time intervals. This allows the organizations to get frequent feedbacks from the customers regarding the quality of the product along with the value realized from the product in terms of the satisfaction of the needs of the customers. The short developmental or manufacturing cycles allow the organization to gather a lot of feedback from the customers regarding the quality and value of the product, which in turn allows the organization to increase the quality of the product to provide more value to the customers (Rihova, 2015). The short developmental or manufacturing cycles also allow the organization to satisfy the demand of the product in the corresponding market in an efficient manner. The other two factors in case of lean manufacturing implementation are total quality focus and continuous improvement. The lean manufacturing process focuses on the continuous improvement of the business processes both in terms of the waste removal and performance, which in turn leads to the increase in the customer value provided by the products. The lean manufacturing model focuses three components of the business model in order to provide more customer value of the products along with better performance of the entire manufacturing process. These three components are the people, processes and technologies utilized in the manufacturing of the products of the organization (Coyle, 2016).
Porter’s value chain as shown in the image below, allows effective analysis of the correlation between the customer value creation and the process of supply chain management. This model considers both the primary activities and support activities of the organization for the creation of value for the customers. The activities involved in the process of supply chain management are inbound logistics and outbound logistics, which are considered as primary activities for the value chain model.
Key practices in the implementation of lean manufacturing model
The SMART criteria of the objectives is another significant component for the implementation of lean manufacturing in the organization along with the increase in the customer value provided by the products of the organization. This framework allows the business objectives of each and every business processes to be defined in an efficient manner, which in turn leads to the increase in the performance of the organization and hence to the increase in the value realized by the customers through less costs of the products (Dekker, 2013).
Figure 3 SMART goals (source: https://www.cod.edu)
The goal of the manufacturing process should be as specific as possible in order to minimize the waste creation in the constituting activities. The specific goals of the business processes allow the organization to effectively track the progress of the processes and in turn implement the lean manufacturing model in the workplace of the organization (Smith, 2016). This in turn leads to the minimization of the costs of the business activities along with the price of the products, resulting in more value for the customers. The goals defined for the business processes should be measurable through the usage of specific unit or way. This in turn enhances the quality and performance of the manufacturing process though efficient tracking and control (O’Cass, 2012). This in turn leads to the increase in the value perceived by the customers of the product. The goals of the business processes should be attainable for the effective planning of the manufacturing process, resulting in the increase in the value provided to the customers. The realistic and time-bound nature of the goals of the business processes allow the organization to achieve a lean manufacturing model for its products, which in turn allows the customers to realize more profits from the products (Cod.edu, 2016).
Martin Christopher mentions that the customer value of a product can be defined as a ratio of quality and service to cost and time as shown below.
The terms used in this formula can be defined as mentioned below.
Quality – Performance, specifications of the product along with the features provided by the product
Service – Post-purchase support and maintenance provided to the customers
Cost – The price of purchasing and maintaining the product
Time – The time required to provided support to the customers after the purchase of the product
Along with the conventional factors of quality and cost of the product, this formula considers on the support provided to the customers after the purchase and time required to provide the support to the customers for the definition of customer value of a product. This in turn allows the definition of the customer value of a product to be the value realized by the customers in terms of the quality of the product and support for the usage of the product after the removal of the cost of owning the product and the time required for receiving the support for the usage of the products. This formula can be applied to different products available across the world but not all (Zhuang, 2015). The products like the equipment manufactured by Caterpillar, cars manufactured by Volkswagen, smartphones or laptops manufactured by Apple. In case of these products, the customer doesn’t consume the product, but use it for a long amount of time. In such cases the value realized by the customers can be defined in terms of the difference between the benefits of the products along with the support provided by the organization and costs of owning the product along with the time taken by the organization to provide adequate support to the customer (Kumar, 2016). In case of these products, the customer satisfaction also considers the support provided by the organization along with the quality of the product. This in turn allows the value realized by the customers to be defined in terms of the service provided by the organization and quality of the products manufactured by the organization (Christopher, 2016).
But in case of a number of other products, this formula mentioned by Martin Christopher can’t be applied for the definition of the value provided to the customers of the product. These products are generally consumed by the customers i.e. not used for a long period of time or doesn’t require any support activities for the customers of the product. Some of the examples of this type of products are shower gel or soap manufactured by Dove or Adidas (Eggert, 2015). These products are used by the customers till they are completely consumed and don’t have any physical existence. In case of these products, the formula mentioned above can’t be implemented for the definition of the customer value provided by the customers. The customer value of these products is defined on the quality of the product and the cost of buying the product. So the better the capability of these products to satisfy the needs of the customers in comparison to the price of the products, the better the value provided to the customers. In such scenarios, the time required for the service or the services required for the products aren’t considered for the definition or determination of the value provided to the customers (Christopher, 2016).
Figure 4 Value-adding and non-value-adding activities (source: textbook)
Martin Christopher mentions a classification of the manufacturing activities in terms of their capabilities to add value to the final product. The figure above shows that a number of activities included in the manufacturing process add values to the end-product. So the enhancement of the quality of the product in turn increases the cost of the product due to the increase in the number and performance of the activities involved in the manufacturing process. So Christopher suggests the cost and quality of the products are same and the value of the products can be defined in terms of a time and space utility. This argument by the author of the book can be backed by the manufacturing process of a number of products such as smartphones, cars and laptops, in which the quality of the products defines the costs of the products to be high as well (Rushton, 2014). In such scenario, the value provided to the customers of the products can be defined in terms of the services provided to them before and after the purchase along with the efficiency and effectiveness of those support activities. But in case of the products like shower gels and soaps the quality of the products can’t necessarily be translated into the cost of the product as the manufacturing process can include some activities which can increase the cost of the products, but not the quality of the products. There are a number of other factors like the brand image and demand of the customers in the corresponding market segment, which can lead to the mismatch of the quality and cost of the products (Islam, 2013).
As Christopher mentioned in the book, there are a number of competing businesses in the same industry and same market segment providing similar features to the customers. The fierce competition among these organizations results in the similarity between the products in terms of the features provided to the customers. This in turn confuses the customers in the corresponding market segment to define the value of the products with the presence of the similar features. So the author proposes that the value of the products of an organization can be defined in terms of their differences from the products of the competitors. This differentiation of the products of an organization from that of the competitors can be defined in terms of the services provided to the customer before and after the purchase process along with the effectiveness and efficiency of the services provided to the customers. This in turn can be defined as a time and space utility to define the value of the products sold by the organization (Christopher, 2011).
Conclusion
The value proposition provided to the customers in the target market segment by the products sold by an organization defines the sales of the corresponding products. So the organizations operating in various industries are focusing a lot on the value proposition of the products by integrating them into various business strategies implemented in the business model of the organization (Verhoef, 2015). The concept of customer value is involved in the implementation of quality management, supply chain management and operations management strategies of the organization in order to maximize the value provided to the customers. The utilization of the SMART criteria to define the objectives of the various business processes also allows the organization to create maximum value for the customers. The argument made by Martin Christopher applies to a number of products provided by various organizations and the corresponding formulation can be utilized for the determination of the value provided to the customers (Stadtler, 2015).
References
Chacour, S. and Ulaga, W., 2015. Customer Value Audit in International Business Markets: A Strategic Marketing Tool. In Proceedings of the 1998 Academy of Marketing Science (AMS) Annual Conference (pp. 505-506). Springer International Publishing.
Cod.edu. 2016. Making a Plan. [online] Available at: https://www.cod.edu/people/faculty/osulliva/phys1554/WeightMatters/plan.html [Accessed 21 Aug. 2016].
Coyle, J.J., Langley, C.J., Novack, R.A. and Gibson, B., 2016. Supply chain management: a logistics perspective. Nelson Education.
Christopher, M., 2016. Logistics & supply chain management. Pearson Higher Ed.
Christopher, M. (2011). Logistics & supply chain management. 4th ed. UK: Pearson Education Publications, pp.125-135.
Dekker, R., Fleischmann, M., Inderfurth, K. and van Wassenhove, L.N. eds., 2013. Reverse logistics: quantitative models for closed-loop supply chains. Springer Science & Business Media.
Eggert, A., Ulaga, W. and Drapier, L., 2015. Customer-Perceived Value in Business Relationships: A Cross-Sectional Survey Among Purchasing Managers in Germany. In Proceedings of the 2000 Academy of Marketing Science (AMS) Annual Conference (pp. 395-395). Springer International Publishing.
Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan Page Publishers.
Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. pearson.
Heinonen, K., Strandvik, T. and Voima, P., 2013. Customer dominant value formation in service. European Business Review, 25(2), pp.104-123.
Intermediates.basf.com. 2016. Quality Management: Improve continuously – BASF Intermediates. [online] Available at: https://www.intermediates.basf.com/chemicals/about-us/quality-management [Accessed 21 Aug. 2016].
Islam, D.M.Z., Meier, J.F., Aditjandra, P.T., Zunder, T.H. and Pace, G., 2013. Logistics and supply chain management. Research in Transportation Economics, 41(1), pp.3-16.
Kumar, V. and Reinartz, W., 2016. Creating enduring customer value. Journal of Marketing.
O’Cass, A. and Ngo, L.V., 2012. Creating superior customer value for B2B firms through supplier firm capabilities. Industrial Marketing Management, 41(1), pp.125-135.
Rihova, I., Buhalis, D., Moital, M. and Gouthro, M.B., 2015. Conceptualising Customerâ€Âtoâ€Âcustomer Value Coâ€Âcreation in Tourism. International Journal of Tourism Research, 17(4), pp.356-363.
Rushton, A., Croucher, P. and Baker, P., 2014. The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.
Smith, T.A., 2016. Customer value proposition, corporate transformation and growth in Caribbean financial firms. International Journal of Bank Marketing, 34(6).
Stadtler, H., 2015. Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.
Tech, G., 2016. Logistics and Supply Chain Management.
Tonex Training. 2016. Lean Manufacturing Training Course – Tonex Training. [online] Available at: https://www.tonex.com/lean-manufacturing-training-course/ [Accessed 21 Aug. 2016].
Verhoef, P.C. and Lemon, K.N., 2013. Successful customer value management: Key lessons and emerging trends. European Management Journal, 31(1), pp.1-15.
Verhoef, P.C. and Lemon, K.N., 2015. 4. Advances in customer value management. Handbook on Research in Relationship Marketing, p.75.
Yi, Y. and Gong, T., 2013. Customer value co-creation behavior: Scale development and validation. Journal of Business Research, 66(9), pp.1279-1284.
Zhuang, W. and Babin, B.J., 2015. The Influence of E-Service-Quality on Customer Value Perception and Satisfaction: The Case of Third-Party Web Sites. In Marketing Dynamism & Sustainability: Things Change, Things Stay the Same… (pp. 114-117). Springer International Publishing
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
