Defining External Customer-supplier Chains

Two models which examine customer behaviour from a different perspective are considered. This is followed by a suggested role for sales representatives in helping manage customer processes.

Model 1:

This model assumes that customer behaviour can be looked at in terms of two different dimensions: net price realized and cost to serve. There are four possible categories of customers:

(i) Carriage trade customers cost a great deal to serve but are willing to pay top price;

(ii) Bargain basement customers are sensitive to price and relatively insensitive to service and quality. They can be served more cheaply than the carriage trade customers;

(iii) Passive customers cost less to serve and are willing to accept high prices;

(iv) Aggressive customers demand the highest product quality, the best service and low prices.

In today’s cut-throat market customers are thought to be of the ‘aggressive’ type. This further highlights the importance of being able to provide customers with a mix based on high quality, excellent service and low price.

Model 2

This model assumes that customer behaviour is based on one of the following models:

(i) Always-a-share model: Customer can easily switch from one supplier to another, because of low switching costs. Suppliers assume that as long as they provide products with good quality, quick delivery and low price, they have a good chance of winning an order. This model reflects behaviour which is based on short term commitment;

(ii) Lost-for-good model: This is the opposite to (i) in that it reflects customer commitment to one supplier and the existence of long term relationships. This is because the switching costs are high. The relationship in this instance is considered on a long term basis and supplier capability is likely to be assessed from the point of view of its future development rather than its short term readiness.

(iii) Intermediate types: It is expected that most customer-supplier relationships are hybrids of (i) and (ii). This is because customers are always prospecting and would not tolerate slippage as far as the level of services, quality and price their current suppliers are offering. In fact other research seems to confirm that customer-supplier relationships are always subject to market threats and opportunities. A study which looked at the impact of JIT on customer-supplier relationships concluded that:

'Despite the appearance of an apparently trustworthy buyer/seller relationship, it could be inferred that there is a tendency for one or either of the parties in the relationship to indulge in opportunistic behaviour transactions.'

Roles of Sales representatives: Sales representatives can play a crucial role in helping manage customer processes. Sales representatives can be assumed to play the following three roles:

(i) Contacts developers: Usually sales representatives are the first contact between supplier and customer organisations. In a sense they forge the first link in the customer-supplier chain;

(ii) Relationship controllers: Maintaining regular contacts and monitoring changes in customer behaviour is an important aspect of the sales representative role;

(iii) Crises diffusers: This is a very important role in ensuring Zero Defects and soothing customer discontent. Sales representatives, by assuming this role, have to ensure that no slippage takes place from their organisation, so that customers will not be driven to consider switching.

The management of customer-supplier chains therefore has to consider two important aspects:

•  Making sure that customer satisfaction (short term) is transformed into the commitment (long term) objective;
•  Making sure that supplier management is for a win-win situation.