In the final analysis, customers matter most. No company can exist without them. Without customers, we have no earnings, no market share, no returns on investment, and of course, no profit.
If TQM is aimed at anything, it is aimed at winning and retaining customers - keeping them delighted. This is certainly a cost issue as well as a revenue issue. Various studies have shown that generally it costs four to five times more to win new customers than to keep the ones you already have.
Total Quality Management teaches us to “know the customers” - to know what their needs are, to know how we are doing at meeting those needs, and to know what we must do to improve.
Specifically, TQM helps us achieve great advances in:
- Delighting the customers we have and retaining them
- Attracting more and more customers through the most effective marketing strategy that exists: word-of-mouth advertising
- Reducing the costs attributed to dissatisfied customers, such as responding to complaints and processing warranty claims.
In addition, TQM provides an expanded view of the customer. Internal customers, for example, are those company employees supported by other company employees (internal providers). This internal partnership or quality chain of events must be highly efficient and effective if the external customer is to be ultimately delighted.
In many cases, others who exist between a company and the ultimate consumer must be recognized and treated as customers too. This includes distributors, suppliers, insurance agents and so on. Total Quality Management causes us to focus on the extended quality chain of events in order to serve and delight the external customer.
In summary, TQM definitely affects the traditional measures of corporate health as those on Dalal Street see it - revenues, profits, growth, earnings, return on investment and so on. It also affects the internal health of the company in areas such as employee satisfaction, growth and development, and team spirit. Finally, TQM makes a difference to customers and allows us to build and maintain a sizeable force of delighted customers.
Too many managers feel that delighting customers is a nebulous goal. However, if they understand that crores of rupees are wasted getting the product or service produced, delivered and supported, you could have their attention. By measuring the cost of poor quality, you can break through this top management motivational barrier and help motor a company from the status quo to TQM. In 1988, this is precisely what happened to Mr Russi Mody at Tata Steel and Mr Rajesh Shah at Mukand.
The COPQ - the cost of not doing things right the first time - can amount to a sizeable sum. For most companies, the COPQ is at least 20 to 25 per cent of sales revenue, and this usually conservative estimate is supported by extensive research at Bombay Dyeing, Mafatlal Industries; Voltas, Blue Star; Mahindra and Mahindra, Punjab Tractors; and so on. Even if you are only a Rs 50 crores company, we can be talking about Rs 10 crores in wasted effort year after year.
Therefore, I recommend a short study to determine at least a ballpark figure for COPQ. I say short study because it is difficult and unnecessary to be precise. Good estimates should provide the data that will get top management’s attention. In addition, as your TQM process continues, the extent to which you reduce the COPQ represents a satisfying progress report on the most quantifiable results of your efforts.
With an estimate of the COPQ, several companies set a goal to cut the COPQ in half within a three-year period. This is a reasonable goal and provides a hard rupee target to which management can relate. Obviously, if you succeed in addressing many of the COPQ items, customers will be significantly more satisfied. Others, including share holders, employees, and managers will be delighted as well.
CREDITS: Suresh Lulla, Founder & Mentor, Qimpro Consultants Pvt. Ltd.