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 The ultimate measure of value is by customer satisfaction evidenced by customer loyalty.
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Customer loyalty is measure of value achieving customer satisfaction.

We are continuing to build the model and consider measuring value as determined by the customer as evidence of customer satisfaction.   See the graphic.


As  seen  in  the  graphic measuring value  is strictly  a  customer satisfaction  issue.   No matter what the product or service  the  customer determines with  their dollars the value proposition.   It  is  possible  to  change that understanding  through  a  variety of efforts on your  part  but  make no mistake the customer's satisfaction  is the ultimate  value measure of what is offered. Six sigma seeks  to understand that  value from  the  view of the customer and  enhance  the  value  in  a  way that is advantageous to both the customer and to the organization. With increased customer satisfaction the likelihood of customer loyalty increases. 

Some  organizations because of  unusual circumstances  find themselves  in a high sales environment  with  unusually  high margins.  Not infrequently  people  can  practice  enough self delusion to convince themselves that the customer satisfaction is high and customers agree  that  there is adequate value involved,  when  the real reason is some sort of market place discontinuity. That is not  to  say that   there  is  not  a lot of money to be made during these times.

 "Pet  Rocks" were a nice fad that made handsome profits  for  some people   but  no one really thought  that  the value was there for the price paid.  As a fad it died in a very short time.  If your business seeks to capitalize on this sort of market   place,  just  realize  that it is short lived  and the value comes from the unique idea, not  from  some  underlying value or  need  in society.

Any  new  idea  or  product is in the position of trying  to  balance   the true  value  and the "newness" component.  A classic  of  this  is the early  Ford Motor Company. Henry Ford  insisted on driving the cost of cars down and making them inexpensive  so  the  market could become bigger and  bigger  rather  that selling  fewer  cars at  much higher prices.   Yet  when the consumer tastes evolved  to  wanting  colors  other than black, that was seen as a fad that would increase the  cost and would soon disappear.  What almost disappeared was the Ford Motor Company. The changes in customer tastes can be surprisingly fast, if your processes do not have the cycle time capability to respond others are likely to meet the changing customer desires.

Few  organizations  can  wait on the market place to inform them  of exactly what the value of the product  or service, even the Ford Motor Company barely  survived  a  miss reading.   Yet in many cases  if  too  much  time is spent on study and evaluation  the  profitable  opportunity may have passed.   Small  organizations  have the ability to  react  and  change rapidly,  yet a few large companies  are  able  to  keep  their  product pipeline  filled  with profitable innovation.  3M each   year   expects   to have 40% of the sales revenue  from products  that  are less than four (4) years  old.  In some businesses  it  takes  that long to get approval for model changes  of  the  same product.    One of the most important competitive advantages in the market place today is  speed.  Cycle  time reduction in addition to eliminating  waste  has  the  real  benefit  of providing  more  opportunities  to learn.  Every cycle  is a learning opportunity.  For those who learn in  every  cycle, if
they just complete the cycle  one  more time  than you in the same time frame,  will  in  short  order  build   a  huge competitive advantage because they  have learned and know more.

As   can  be  seen  from the graphic the customer value will drive re-design  and  evolution  of  your  products  and services.   This  Voice of  the Customer combined   with  technical  consideration   drive the  product  and service evolution.   Those  who  are  not  staying  ahead of this evolution will soon suffer. Videos are a good  example. The Beta Max from Sony were first to  market and from what I am told  a  superior technical  product   to VHS,  yet VHS  with inexpensive  players   and
a marketing move to get a wider variety of movies drove the Beta Max from the  field.  One  of  the   places that we believe  six  sigma has great potential, that is largely untapped,  is in the marketing functions of  most companies.  When the marketing, design, manufacturing  and   design   all become a team focused on driving customer value breakthrough has generally be achieved.

One  method of measuring value is to consider the defects in the  entire process  of  delivery  to the  customer.  Lower  defect  levels will be of higher  value.  With  six sigma the concept  of rolled   through   yield   is very important. If defects occur in multiple places or stages before reaching  the  customer  they  can  all be added together  to get the total number  of  defect per  unit.   Using  a  Poisson approximation  the

Yield = e **-DPU.  

(Yield is equal to e with  the exponent  of minus the defects per unit).  Note that if you average 1 defect per unit the yield is  0.36788.    Some   have multiple defects and about  36.7%  will  make it through  without any defects.  Where anything that is less than  the expectation  of the customer is a defect.  Doing some simple math 63.3% of the customer interfaces will have a  defect.   There are multiple surveys that  indicate that less  than 4%  of customers will  ever  complain.   4%  times 63.3= 2.532 or approximately 3%.  Which means that if 3% of your customers (each transaction being counted as a unit)  complain  then  you  have  a  defect rate averaging 1 per unit.

In  the  December 2000 issue of Quality Progress Gregory  H. Watson suggests that there are three logical  categories for failures or defects. First  the  product or service does not meet customer expectations, second the price is not appropriate for the customer to see sufficient  value and third  the delivery in not with in the required time frame for the customer. The assumption here is that all defects are the same in the eyes of the customer.

This view of  measuring defects from the perspective of the customer is essential if you are going   to   move  the improvements through six  sigma  from  incremental internal improvements  to  the dramatic customer focused changes  that  are   found   with  World  Class Performance.  All  of  the non-product  related defects  are  now  considered in the yield.  Here our yield is customer satisfaction.

The   implications   of   a  3% complaint rate by customers are terrible. Only  by chance are you able to produce defect free  product  or service 36.7%  of  the  time  and  all  of the remaining products or services have at least one defect and some multiple defects. Few businesses can survive with that level of poor performance.

Measuring  value  is  more than just considering the value  of  a product being delivered to the customer as intended.  The value has to consider  the total customer experience, including  all of the support services such as logistics, accounts receivable, etc.


  Quotes that Inspire

The  greater  the obstacle, the more glory in overcoming it. Moliere

It  is  easier to do a  job right than to explain  why  you didn't."*Martin   Van  Buren {1782-1862 8th President of the US}

"I  long  to  accomplish a great and noble task, but it is my chief duty to
accomplish small tasks as  if  they  were  great  and noble."     Helen Keller  {1880-1968 American Blind/Deaf Author & Lecturer}

If  you  do  not change direction, you may end up where you are heading." Lao-Tzu


Never give up! 

23 publishers rejected Dr.Seuss's  first  book.   
Michael Jordan's high school   basketball  team  cut  him.   
21  publishers  rejected  M*A*S*H  
Henry Ford went broke five times before succeeding.


He who  finds  diamonds must grapple in mud and mire  because diamonds are not found in polished stones. They are made.  Henry B. Wilson

It  is  not  so much our friends' help that helps us as the confident
knowledge that they will help us.--Epicurus

People  who are unable   to   motivate  themselves   must be content
with  mediocrity, no matter how impressive their other talents.     Andrew
Carnegie

The best is good enough.     German Proverb

I  have simply   tried  to do what seemed best each day, as each day
came.       Abraham Lincoln

The Serenity Prayer
Lord, Give Me The Courage To  Change  The  Things  I  Can.
The Serenity To Accept The Things I Can't .
The Wisdom To Know The Difference.

The  smallest  deed  is better than the grandest intention.   Larry Eisenberg

 

 

Cary W. Adams

10A Bayou RD

Lake Jackson, TX 77566

1-979-297-5198

cadams@adamssixsigma.com

 

 

Previous Newsletters

 Customer Loyalty and Customer Satisfaction.

Competitors Competition.

Distribution, Products, Services, Work Flow. 

Suppliers Supply Chain.

Employee Development Empowerment Motivation.

SWOT Analysis Business Plans Strategic Planning.

 Leadership Training Leadership Skills.

 Measure Value Customer Satisfaction.



 

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