Introduction to Industrial Engineering

By Jane M. Fraser

Chapter 4


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4.3 Who does an organization serve?

Any organization needs an ongoing source of revenue in order to continue to exist. The people who provide those revenues are sometimes called:

I’ll use the word “customer” to cover all these situations even though the word can cause problems. For example, you can’t say to me “the customer is always right” when you get a problem wrong on homework. Even in a traditional selling environment, the customer is not always right, but the customer comes first.

Not all organizations provide goods and services directly to consumers. A manufacturer of overhead cranes sells its products to other manufacturers who use the cranes in plants that make consumer goods. Because a clothing manufacturer sells its product through a large department store chain, the manufacturer must consider the ultimate consumer as a customer, but also should think about the department store chain as a customer.

Some people in an organization have internal customers:

[E]verything you do inside a company, whether it’s typing a letter, running an engineering analysis, or attaching a bolt, affects other employees, who are really your internal customer. The people who receive your work depend on you. If your work is bad, they can’t do an excellent job either. ... So within any organization you have to keep two customers in mind: the internal customer, or everyone who will be affected by your work, and the external customer, the person who buys the final product or service. (Petersen, pages 158-9).

Identifying the customer can sometimes be difficult. In health care, the patient receives the service and may also be paying for it, but often payment comes from a health insurer who may, in turn, receive money from the patient’s employer. In the university, the student or the students’ parents pay for a portion of the cost of educating a student; all colleges and universities also receive revenues from other sources, such as state government, federal government, donors, alumni, and foundations. In such situations, the word “stakeholders” indicates that several groups have a stake, or an interest, in what the organization does. The organization has to focus on meeting the needs of each of these groups in order to keep revenues flowing to the organization over the long run.

Most products also have service components that are important to customers. For example, Bodine Electric Company provides CAD files for its products, through CAD Register, where many other companies also provide such files. An engineer considering specifying the purchase of a Bodine product will appreciate the convenience of being able to integrate the CAD file into the larger file of the product being designed.

The customer comes first because customers provide the long term revenue for the organization. Various authors have put this point in different ways.


A key idea in attracting and keeping customers is to provide a product or service that has “high quality.” The word “quality” is used for two concepts that we must distinguish:

An organization can lose customers by either:

Either of these above situations can be called a “lack of quality.” The first concept has many names:

This first concept of quality lets us say that a Masserati is of higher quality than a VW. Juran points out that this concept is from the view of the customer.

The second concept also has several names:

We can talk about whether a particular VW is of high quality. Does the paint finish have any defects? Do the doors open and close well? Juran points out that this concept is the concern of the producer.

As an IE, especially in the first part of your career, you will be more involved with the second meaning of quality. This book has lots about how to create a process that consistently produces a product or service to meet requirements.

As you move up in an organization you will become more involved in the first meaning of quality and more involved in helping the organization select a set of requirements for a product or service that will attract and retain customers. This section focuses on the issues involved in designing a product or service to satisfy customers.

Attracting and keeping customers

How does an organization find out what customers want? How does an organization create goods and services that will satisfy customers into the future? The most important way to know what the customer wants is to ask, by asking the customer directly and by collecting and analyzing data.

The 1982 book In Search of Excellence by Peters and Waterman has some out-of-date examples, but its chapter "Close to the Customer" talks about the way in which top companies are obsessed with customer service, quality, and reliability. For example, they report on their conversations with IBM's marketing vice president:

He says he wants salesmen to "act as if they were on the customer's payroll," and he talks of putting "all IBM resources at the customer's disposal." (page 161)

Customer focused companies are also obsessed with measuring customer satisfaction.

To make sure it is in touch, IBM measures internal and external customer satisfaction on a monthly basis. ... Employee attitude surveys are taken every ninety days, and a check is kept on employee perceptions of the way customer service is being maintained. (page 161)

"Obsession" seems the correct work to describe some of the stories Peters and Waterman tell.

[Frito-Lay] will spend several hundred dollars sending a truck to restock a store with a couple of $30 cartons of potato chips. You don't make money that way, it would seem. But the institution is filled with tales of salesmen braving extraordinary weather to deliver a box of potato chips or to help a store clean up after a hurricane or accident. Letters about such acts pour into the Dallas headquarters. There are magic and symbolism about the service call that cannot be quantified. ...[I]t is a cost analyst's dream target. You can always make a case for saving money by cutting back a percentage point or two. But Frito management, looking at market shares and margins, won't tamper with the zeal of the sales force (pages 164-165).

Freddy Heineken says bluntly, "I consider a bad bottle of Heineken to be a personal insult to me." (page 181)

Caterpillar offers customers forty-eight-hour guaranteed parts delivery service anywhere in the world; if it can't fulfill that promise, the customer gets the part free. That's how sure Cat is, in the first place, that its machines work. Once again, we are looking at a degree of overachievement that in narrow econmic terms would be viewed as a mild form of lunacy; lunacy, that is, until you look at Caterpillar's financial results. (page 171)

In fact, Peters and Waterman conclude:

[A]ccording to rational analysis, almost every one of our service-oriented institutions does "overspend" on service, quality, and reliability. As David Ogilvy reminds us: "In the best institutions, promises are kept no matter what the cost in agony and overtime." (page 170)

But listening to the customer is not enough because the customer cannot always know the best choice and cannot always know what the customer will want in the future. The organization has to educate a customer and may even create features of a product or service that the customer didn’t know to ask for.

“Average customers don’t know what is possible if they haven’t seen or heard of it” (page 157, Petersen).

For example, customers now expect the ability to track a shipment (by UPS, FedEx, or others) but most customers would not have known to ask for that service before it became available. Innovation is still needed; a customer may not know of a need until seeing what can be done.

Quality Function Deployment is a planning tool that involves identifying customer needs in a product or service and then ensuring that each of those needs is met. Kenneth A. Crow gives a detailed explanation of how a set of matrices are used. For example, in the product planning matrix, a row is a customer need and a column is a feature of the product or service. Entries show the contribution of each feature to each customer need. Value engineering is a similar system in which functions of a product or service are identified. Then the value to the customer of each function is compared to the cost of providing the function.

A Kano analysis classifies features as:

See this article by Kathy Parker for more information.

Peters and Waterman also found that their excellent companies

are superb at dividing their customer base into numerous segments so they can provide tailored products and services. (page 182)

New techniques are enabling organizations to customize products and service for different customers. An organization may focus more on certain customers because often a small percentage of customers provide a large percentage of revenues. For example, business travelers are a small percentage of all the customers of an airline, but because they travel frequently, often paying full fare, they account for a large percentage of the airline’s revenues. Some organizations may choose to focus on a particular type of customer and even to reject some potential customers, but they can make such choices only if they have good data about their types of customers.

A challenge is to provide high quality service and customized products to a large number of customers. “Mass customization” refers to the production of highly personalized products and services with the efficiency of mass production. Information technology is usually key to accomplishing this production process. For example, Dell allows customers to customize any computer. The Ritz Carlton Hotels record the preferences of their customers so that returning customers have their wants met automatically.

Software and databases allow organizations to track customers and to customize the service or product for each customer. Customer Relationship Management (CRM) means learning more about the organization's customers in order to provide goods and services that better meet customer needs. An organization may think it knows who its customers are and what their needs are, but collecting data may lead to some surprises. The organization may discover a market segment it didn't realize existed and thus be able to market to those customers. It may discover that some customers are using the organization's goods or services in a way that the organization had not anticipated. Linking a CRM database to a GIS (Geographical Information Systems) system can map the locations of customers and help determine where to site a new customer service location. The approach has been applied most in organizations that market directly to consumers, but it is applicable to all organizations. Also, CRM can increase customer loyalty and lead to higher sales. For example, online book sellers that track a customer's purchases can use its CRM database to suggest books that this customer might like.

CRM software (Microsoft CRM 3.0, SalesLogix CRM, SAP,, NetSuite CRM+, ) has been developed to track all customer interactions, including marketing, sales, support, account management. The software is used to log and analyze every contact that a customer or potential customer has with the organization. Such a database can help provide service; for example, if a customer calls with a new order, the database would prompt the employee to ask if a previous problem has been resolved satisfactorily. The frequent shopper cards now common at grocery stores enable the company to learn about its customers in great detail. A CRM can make the company more efficient in handling customers and thus lead to better provision of customer service.

Why is customer service so bad?

Any discussion of “the customer comes first” has to recognize that the principle may be more honored as a principle than as truth. I am sure that you have had experiences with organizations where it is clear that the customer did not come first. Why do organizations claim the customer comes first, but we, as consumers, have many complaints about products and services? I have found these possible explanations.