“Bridging gaps by increasing customers perceived quality”

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“Bridging gaps by increasing customers perceived quality”

Rutger Tichelaar r.tichelaar@student.rug.nl

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“Bridging gaps by increasing customers perceived quality”

Rutger Tichelaar r.tichelaar@student.rug.nl

Business Administration: Business Development

Rijksuniversiteit Groningen Smurfit Kappa Solid Board

Faculty of Economics Sales department

Master Business Development P.O. Box 5

Landleven 5 Halmstraat 1-3

9747 AD Groningen 9745 BC Hoogkerk

Nederland Nederland

Supervisors: Supervisors:

Prof. dr. R.T.A.J. Leenders H. Uildriks

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Preface

‘Writing my thesis will be a project that will last approximately six months,’ at least that was my thought at the start. Looking back I know that it took somewhat longer. It appears to be the most turbulent period of my life so far and therefore I am grateful to say that this period is behind me. On the other hand I believe that this period have provided me some useful experiences and opportunities.

Needless to say I would like to thank the people who have supported me during this period and provided me with the necessary feedback.

First I would like to thank SKSB as a company who provided me the opportunity to conduct my master thesis. My special thanks go out to my supervisor Henk Uildriks and his successor Jan Frans Brouwers. I will not forget our extensive meetings at the office.

Secondly, my special thanks go to my supervisor on the University of Groningen prof. dr. R.T.A.J. Leenders and secondary supervisor dr. C. Reezigt. Thanks for all the helpful insights and feedback you both gave me throughout this process.

Last but certainly not least, I would like to thank my parents and my girlfriend who always supported me along the way. Without your support it would have been impossible to accomplish my study!

Thank you all!

Amsterdam, June 2010

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Summary

Quality is applied as an ambiguous concept in current literature. Every scholar has its own interpretation of the concept. In contrast, in contemporary life everyone appoints the definition of quality as an univocal definition, as if there is one single definition of quality. Garvin, Parasuraman and Zeithaml are renowned researchers and their work on quality and perceived quality shape the basis for this research. Garvin (1984) describe quality from a product based perspective. Parasuraman (1988) and Zeithaml (1987) describe the concept, with their SERVQUAL-model, from a service based perspective. However, a nuance is required when quality is viewed from the perception of customers, in other words customers’ perceived quality.

The literature on customers perceived quality does not provide clear output on this area. Therefore, a combination of both perspectives on quality is applied in this research. This approach connects the work of the aforementioned scholars accompanied with the work of Feigenbaum (1961), Grönroos (1983) and Morgan (1985).

In order to examine how customers’ perceived quality works, a literature study and an empirical research is conducted at SKSB. The central question that forms the basis for this research is: ”To what extent can customer-perceived quality be affected and how is SKSB currently performing and should perform in the future, to improve customers perceived quality?”

It appears that the explanation of the pluriformity of quality lies in the perception of the one who applies it. In other words, customers’ perceived quality may vary among customers. The problem is that managers use quality with the assumption that customers know what is meant by this concept (and vice versa). Consequently, several gaps in people’s perception arise on how quality initially is intended.

This research applies two tools for analysis; the Current Reality Tree, a tool that examines the current situation of SKSB by revealing the root causes of the problems. The second tool is the Service Quality Gap model that analyze the gaps that emerge in business situations.

The major issues that emerge after analysis and form the basis for the recommendations are:

• Bad communication

• Lack of recruiting and training facilities

• Not fulfilling customer needs (unable to bridge the gap between what customers expect and receive).

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5 Based on these major issues the recommendations of these research are:

• Avoid service gap by improving communication

• Recruit & train managers and staff to tackle unwillingness and insufficient skills

• Fulfil customer needs by implementing CRM.

The conclusion of this research is that in order to prevent the emergence of gaps in customers’ perception of quality, quality should be identified by a set of indicators or dimensions. In this way, customers are able to exactly pinpoint the dimensions from which they expect the supplier should make improvements on. If suppliers can fulfill or exceed these expectations the direct consequence is an increase in customers’ perceived quality.

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Chapter 1. Smurfit Kappa Solid Board

Introduction

The input used for this thesis will consist of research that is conducted at Smurfit Kappa Solid Board (SKSB). Hence the (situation of the) organization SKSB will be explained in this chapter accompanied with the management problem.

1.1 Smurfit Kappa Solid Board

The Smurfit Kappa Specialties Division, together with the Smurfit Kappa Corrugated Division and Smurfit Kappa Paper Division, is part of the Smurfit Kappa Group, the leading packaging supplier in Europe and with a dominant position in Latin America (see figure 1). With sales exceeding 7 billion euro’s, operations at approximately 400 locations and over 40,000 employees, Smurfit Kappa Group is the European leader in containerboard, paper, solid board, graphic board, corrugated and solid board packaging.

Figure 1. The Smurfit Kappa Group and her divisions

As can be seen in figure 1, SKSB is a subdivision of the Specialties division and is dedicated on producing solid board products. SKSB produces hundreds of tons of solid board for different applications each year.

The main direct customers of SKSB are the converting and printing companies who in turn sell the solid board applications to marketeers like Canon and Philips. Customers have the opportunity to select the desired solid board product from a product range consisting of eight marketlines. These marketlines are: Bookline, Statline, Packline, Puzzleline, Printline,

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9 Luxline, Displayline and Foodline. Each marketline has a large variety of specifications. Within this thesis the focus will be on the marketlines Printline and Luxline. Examples of applications of these marketlines are Canon camera boxes, exclusive Pizza boxes, jewellery boxes, liquor packaging, etc. The reason for this focus is that these marketlines have high growth potential which can best be explained by the innovative developments and the additional interesting profit margins.

1.2 Mission and Vision of the Smurfit Kappa Group (SKG)

In this section the mission and vision of SKG will be described. SKSB deduces their overall strategies from these mission and vision.

1.2.1 Mission

To be a customer-oriented, market-led company where the satisfaction of customers, the personal development of employees and respect for local communities and the environment are seen as being inseparable from the aim of creating value for the shareholders.

1.2.2 Vision

SKG’s vision is to be recognized as the most successful paper-based packaging company in its chosen market sectors. To achieve this SKG will:

• act for the general good of the countries and communities in which we are privileged to operate,

• provide the safest possible natural environment, a sense of identity and a rewarding career opportunity for our employees,

• generate the highest level of satisfaction for our customers, • optimize returns to shareholders.

1.3 The value chain of solid board products

Figure 2 is a clear overview of the complete value chain of solid board applications. It starts with the delivery of raw materials such as recovered paper, laminated paper, glue, chemicals and pallets. The recovered paper is supplied by municipalities while the laminated paper, glue, chemicals and pallets are delivered by few suppliers.

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Figure 2. Value chain of solid board products

Currently SKSB operates a project called the “Obelix” project. This project intends to investigate the possibility to make laminated paper in-house in the future. This is related to the ‘make-it-ourselves’ principle, in order to reduce the total costs of production.

The next step in the value chain is the production of the solid board products by SKSB. The output of this production process is a half fabricate which will be used as input for the converter that produces different types of packaging applications. These products will also be provided with a print. The printing process can either be executed by the converter or by a professional printer. When the products have been printed and converted they are transported to the marketeer. The marketeer handles the packaging by putting a product, e.g. a camera, in the box in order to transport it to the retailer. This is the final step before the product will be bought by the end-consumer.

SKSB Converter

/ Printer Marketeer

Distributor

Retailer Consumer Raw materials

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1.4 Management problem

SKSB is an organisation that is fighting its way up in the solid board market after a very turbulent period. The merger between Smurfit and Kappa at the end of 2007 resulted in radical new structures and policies. As with many mergers, SKSB had and still has to focus on internal business processes. As a consequence, the attention has shifted away from the external processes like managing customer relations and keeping up with market developments. Recently, customers have switched over to competitors as the quality of the products, delivery time, reliability and other service aspects have been below par. The damage the merger has elicited to SKSB’s image and performance has reached a critical level. Woodruff (1997) states: “Past attempts to achieve and retain a competitive advantage have largely looked internally within the organization for improvement, such as reflected by quality management, reengineering, downsizing, and restructuring. The next major source for competitive advantage likely will come from more outward orientation toward customers.” Therefore this research is primarily based on the external environment and the relevant processes that have to be considered.

For a business to maximize its economic value it must be completely oriented towards “finding needs and filling them” rather than towards “making products and selling them” (Narver et.al, 2004) or moving from practicing a “make-and-sell” strategy to a “sense-and-respond” strategy (Vargo & Lusch, 2004). These quotes illustrate why the organization is not using its full potential. According to the board of SKSB, the company has become a product-oriented instead of a service product-oriented company.

Therefore the board of SKSB intends to discover how they can regain customer confidence while fulfilling their needs at the same time. There are three main causes behind this target, namely:

a) SKSB operates in a declining market concerning the demand of packaging applications;

b) as a result of a merger, SKSB more or less neglected customer wishes and complaints while focusing solely on internal processes and

c) the financial crisis causes a serious threat for the organization’s survival.

The emphasize in this research will be on the second cause; how the customers are neglected and more important how to regain their buying behavior and confidence by means of increasing customer-perceived quality. In other words, the assumption in this research is that the quality perceptions of the customers should be improved in order to regain their confidence in SKSB and her products.

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Chapter 2. Theoretical Framework

Introduction

In this chapter the literature background on quality and more specific perceived quality will be scrutinized. Before customers’ perceived quality will be discussed, a general explanation of the concept of quality needs to be given. The concept of quality will be defined in section 2.1 followed by the concept of customers’ perceived quality in section 2.2. Whereafter the chapter will be finished with the Service Quality Gap model.

2.1 Quality (versus the improvement of customer quality perception)

Quality is a funny thing, everyone talks about it, everyone lives with it, and everyone thinks that he knows what it is. But what is quality actually (Anand, 1997)?

Many researchers (Crosby, 1979; Deming, 1982; Zeithaml, 1988) state that quality is the concept of “zero defects-doing it right the first time.”

David A. Garvin, one of the founders of the term “product quality,“ adopts quality as a concept which can be approached from five different angles. Three approaches will be discussed here. The first is the manufacturing-based approach, meaning that “quality is conformance to specifications.” This definition is particularly concerned with the engineering and manufacturing practice. The main focus in these practices lies on cost reduction. Once a design or a specification has been established, any deviation implies a reduction in quality. Improvements in quality lead to lower costs, preventing defects is viewed as less expensive then repairing or reworking them (Garvin, 1984).

The second approach is the user-based approach which implies that quality is seen from an individual perspective where consumers have different needs, and those goods that satisfy their preferences in the best manner are those they regard as having the highest quality. This is in fact a personal view of quality and therefore highly subjective.

Parasuraman et. al. (1988) mentioned in relation with their SERVQUAL-model and partly based on the work of many other scholars (Garvin 1983; Dodds and Monroe 1984; Holbrook and Corfman 1985; Jacoby and Olson 1985; Zeithaml 1987) that the manufacturing-based approach can be defined as objective quality, whereas the user-based approach can best be defined as perceived quality.

Finally, the value-based approach defines quality not merely on the cost aspect as well on the price aspect of a product. Thus quality is here defined in terms of costs and prices. A quality product is one that performs at an acceptable price or conforms at an acceptable cost.

A typical conflict that arises within organizations is that marketing people are focusing on the user-based approach while production people are focusing on the manufacturing-based approach (Garvin, 1984). The first group rate quality on elements like higher performance

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13 and innovative product features, whereas the latter rate quality on conformance to specifications and actions that lead to cost reduction like: less downtime, number of failures, durability of products and/or processes. These differences in the way both parties consider quality may in practice lead to conflicts resulting in a paralyzed decision making process and the necessity of making concessions towards quality. In addition, Reeves and Bednar (1994) state, each definition of quality has drawbacks: “conformance to specifications may cause managers to focus on internal efficiency while neglecting external effectiveness, and understanding and measuring consumers' expectations is problematic.” The aforementioned is exactly what occurs in the situation of SKSB, this will be explained more explicitly in a subsequent section. Simultaneously, an organization should embrace the opposing perspectives. Adopting one single definition of quality is a frequent source of problems (Garvin, 1984). Since no definition of quality is best in every situation, managers and researchers must examine the strengths and weaknesses of each before adopting a definition to guide their work (Reeves and Bednar, 1994).

Since it is clear that quality cannot be captured in one single definition, Garvin (1984) continues his quest by observing eight dimensions that can be used to describe (product) quality. These dimensions are performance, features, reliability, conformance, durability, serviceability and aesthetics.

Later that decade Parasuraman, Zeithaml and Berry (1985) revealed that “the criteria used by customers in assessing service quality fit 10 overlapping dimensions,” namely: tangibles, reliability, responsiveness, communication, credibility, security, competence, courtesy, understanding/knowing the customer, and finally access.

These 10 dimensions formed the foundation for the SERVQUAL-model applied to assess customers perceptions of service quality. Parasuraman, Zeithaml and Berry (1988) refined the SERVQUAL-model by reducing the original 10 dimensions to 5 dimensions: tangibles, reliability, responsiveness, assurance and empathy.

Figure 3 displays both the product quality dimensions as well as the service quality dimensions accompanied with a brief description. This research will be executed by applying the ServQual model from Parasuraman et. al (1988). The argumentation will be explained in section 2.2.1.

It is clear that the concept of quality can be interpreted from different perspectives. The manufacturing based approach differs from the user based approach. Likewise there are differences between product quality dimensions and service quality dimensions. It is therefore that Reeves and Bednar (1994) quote, that every definition of quality and/or perspective on quality has its drawbacks. So, there is no single concept of quality that can be applied. Which implies the pluriformity of the quality concept. The strength of describing quality lies in the combination of several approaches and perspectives.

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Product Quality by Garvin, 1984

Performance: Main operating characteristics

Features: Characteristics that enhance basic functioning of product – the added touches or secondary characteristics

Reliability: Probability that products fail within specified time period

Conformance: Extent to which product characteristics fall within design specifications Durability: Amount of use one gets from a product before it breaks down and

replacement is preferable to continued pair

Serviceability: Speed, courtesy, competence and ease of repair or servicing Aesthetics: Product appearance, feel, taste, etc.

Image:1 Reputation

Service Quality by Parasuraman et. al, 1988

Tangibles: Physical facilities, equipment, and appearance of personnel Reliability: Ability to perform the promised service dependably and accurately Responsiveness: Willingness to help customers and provide prompt service Assurance: Knowledge and courtesy of employees and their ability to inspire

trust and confidence

Empathy: Caring, individualized attention the firm provides its customers

Figure 3. Product and service quality dimensions by Garvin (1984) & Parasuraman et.al.(1988).

It is therefore that when a customer discuss or judge the quality of a companies offering, quality is rated by the perception of that particular customer. Other customers may have an entirely different perception of quality. This research will use quality as a concept approached from a contingent concept of customers’ perceived quality.

2.2 Perceived quality

As the preceding section described the concept of customer-perceived quality plays an important role in this research. Therefore this section will explain the concept of customer-perceived quality for a better understanding of this concept.

A remarkable aspect regarding the concept of quality is that it is characterized to be contingent, depending on certain contextual factors. Quality can be viewed from several perspectives by different individuals and can therefore be seen as subjective. It is the perception of an individual that determines if a product or service meets his or her quality standards.

Oude Ophuis en Van Trijp (1995) state that the universal recognition of quality does not imply that it can be considered as an univocal concept. Quality is defined in many different ways and within organizations different departments (e.g. production and marketing) may even have different views of the meaning of quality.

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Garvin’s original description of reputation is the dimension ‘perceived quality.’ However, “image” is used here to avert a confusion with perceived quality as is intended in this research.

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15 Researchers in the “perceived quality” approach use the term perceived quality instead of quality to stress that quality judgments are dependent on the perceptions, needs, and goals of the consumer (Steenkamp, 1990). Zeithaml (1987) describes perceived quality as “the consumer's judgment about an entity's overall excellence or superiority.” This in turn will result in higher prices and subsequently higher profits for a company to gain. In other words, quality is in ‘the eye of the beholder’ (Crosby, Devito and Pearson, 2003). This section will continue by indicating the different types of customer-perceived quality.

2.2.1. Customer-perceived quality concerning products and/or services

It is clear that customers judge or evaluate the concept of quality based on their own personal criteria and perception. The literature on perceived quality explains the concept by applying definitions of both products and services. This section will clarify how the term customer-perceived quality is applied in this research.

Perceived quality concerns in this study the total offering towards customers including the service aspects. Parasuraman et.al (1988) defined ‘perceived service quality’ as: “Service quality, as perceived by consumers, stems from a comparison of what they feel service firms should offer (i.e., from their expectations) with their perceptions of the performance of firms providing the services. Perceived service quality is therefore viewed as the degree and direction of discrepancy between consumers' perceptions and expectations.”

It is this discrepancy that will be discussed when looking at the results of the interviews with the customers and the marketeer in the value chain of SKSB. “And closing the gap [...] requires that the company view quality the way the consumer does” (Zeithaml, 1988).

For clarity, in this research the terms products and services are used interchangeably with regard to the customers’ perceived quality. Since the total offering of SKSB towards their customers is most often a combination of a product and a service.

This research will proceed by finding ways to improve the perceived quality of customers regarding the total offering of SKSB. The motivation behind this is that when customer- perceived quality can be increased, this will result in an increase of SKSB’s gross profit. By means of interviewing several customers, secondary customers and managers of SKSB a foundation will be laid to obtain relevant and useful data.

2.2.2. Performance vs. Expectations

In the past quality has been described by Feigenbaum (1961) as "the composite of product characteristics of engineering and manufacture that determine the degree to which the product in use will meet the expectations of the customer." Approximately two decades later on, the use of the term ‘expectation’ in the definition of quality has been enhanced by researchers like Grönroos, 1983; Parasuraman, Zeithaml and Berry, 1985 by describing quality as “meeting and/or exceeding customers’ expectations. For the benefit of relevance

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16 of this research it is therefore useful to define the concept of expectation in relation to quality.

Expectations are formed as a result of prior experiences with and performances of a product or a service. In addition, expectations are the result of a comparison with alternatives and/or competitive products. Expectations have a close relationship with perceived quality; which can be underpinned by Zeithaml (1987) who state that perceived quality is the result from a comparison of expectations with the perceptions of performance.

Although a resemblance with ‘satisfaction’ is regularly assumed, according to Parasuraman et.al. (1988) ‘expectations’ is used in a different manner in service quality literature. Expectations in satisfaction literature are defined as predictions made by consumers about what is likely to happen during an impending transaction or exchange. In service quality literature, in contrast, ‘expectations’ are viewed as desires or wants of consumers, i.e., what they feel a service provider should offer rather than would offer.

In addition to the aforementioned, according to Parasuraman et.al. (1985) expected services consist of worth of mouth, personal needs and the past experiences a customer has had with an offering. This seems to be essential in underpinning the gaps that have been created. The gaps are based on differences between the expected service and the perceived service. For this reason the next section will discuss the service quality gap model.

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2.3 The Service Quality Gap

Although every individual judges quality by their own criteria, business people, researchers and customers still view quality as one comprehensive definition. This contradiction, or rather; this ‘gap,’ is the starting point of this research to investigate how perceptions of customers are affected in the concept of customers’ perceived quality. Furthermore this research will explore ways in which to improve customers’ perceived quality.

Morgan (1985) argued that a “quality perception gap” exists between manufacturers and consumers. This quality perception gap observed by Morgan underlines the necessity of studying quality from the point of view of the consumer ultimately decides which product to buy. Figure 4 furthers the idea of the quality perception gap.

Figure 4. Service Quality Gap model from Parasuraman, Zeithaml and Berry (1985)

The Service Quality Gap (SQG) model as is depicted in figure 4 represents the nature and determinants of service quality as perceived by consumers. There are five gaps that Parasuraman et. al (1985) analyzed:

1. Consumer expectation – management perception gap 2. Management perception – service quality specification gap 3. Service quality specification – service delivery gap

4. Service delivery – external communications gap 5. Expected service - perceived service gap

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18 Figure 4 shows that gap one to four affect gap five, which means that the first four gaps are related to gap five. A customer can encounter a discrepancy between expected and perceived service. If so, the company delivering the service should foster their capabilities to diminish or rather remove this gap.

The SQG model will be discussed in chapter four; where the problems from the CRT model (chapter three) will serve as input for the SQG model.

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Chapter 3. Research Design

Introduction

Chapter three provide the research design. Here the central question and the underlying research questions will be discussed accompanied with the research plan. This chapter will also enclose the conceptual model: the basis for the academic framework.

3.1 Central question

The central question that forms the guidance of this research is:

”To what extent can customer-perceived quality be affected and how is SKSB currently performing and should perform in the future, to improve customers perceived quality?”

3.2 Research questions

The central question will be answered by a theoretical and an empirical research. The latter has been performed with customers and customers’ customers of SKSB. To support the central question the subsequent research questions are applied:

1. Which variables have an influence on customers perceived quality?

As section 2.2 and 2.3 describe, the literature and accompanied scholars on customers perceived quality will be scrutinized to answer this research question. In addition, the data collected by means of interviewing SKSB managers, customers and one customers’ customer will provide relevant information.

2. What is the perceived quality of customers (‘ customer) regarding SKSB’s offering?

The second research question will be answered by analyzing the output of the interviews with customers and customers’ customer.

3. What is the future perspective according to SKSB’s managers and customers regarding improved customers perceived quality?

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20 The subsequent research question is focused on appointing issues that have priority for the development of future strategies for SKSB on improving customers perceived quality.

4. Which elements can improve the customers perceived quality for SKSB customers base?

The final research question has the intention, based on all gathered data from previous research questions, to provide recommendations towards SKSB with regard to the improvement of customers perceived quality.

3.3 Data sources

For the execution of this research two methods have been used. The first method is scrutinizing relevant literature. The second method is focused on empirical research, by means of conducting interviews. This research consists of an extensive research of the literature on the topic of customers perceived quality. In addition, several interviews have been conducted with managers of SKSB, other employees of SKSB, customers and one customer’ customer.

3.3.1 Literature research

In order to provide recommendations towards SKSB on improving customers’ perceived quality the causes of the perceived quality concept should be investigated first. The work of Garvin (1984) on product quality, Zeithaml (1987) on perceived quality, Parasuraman et.al. (1988) on perceived service quality and Parasuraman et.al. (1985) on the service quality gap forms the theoretical background of the literature research. The articles from which all relevant information is abstracted are the result of a search in the literature databases Business Source Premier and Academic Search Premier.

Besides these databases, the work of Goldratt (1994) “It’s not Luck” forms the input for the CRT model which is applied. In addition, the philosophy of Michael Hammer (2001) described in his book “The Agenda, what every organization should do to survive the decade”, is applied. The philosophy can plainly be summarized by the expression ‘making life easier for your customer’. Next to the all academic literature several organizational documents are consulted as well.

3.3.2 Empirical research by means of interviews

The start of the empirical research consists of becoming familiar with the organization SKSB and its employees. Hence the so-called ‘first contact’ meetings are scheduled with employees from various departments and functions within SKSB. During these conversations the

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21 general condition of SKSB become more obvious as well as the visions of its employees. All the names and functions of the persons who were interviewed are listed in appendix 1. After the introduction period an interview scheme was constructed that is employed for face-to-face in dept interviews with managers of SKSB. To optimize the content of the questions, several adjustments were made in the interview scheme after the ‘first contact’ interviews were accomplished.

The type of questions can be classified as semi-structured, meaning that a set of specific questions are formulated while leaving sufficient room for additional information (Van Aken, et.al, 2007:135). The composition of the questions of the semi structured interview can be consulted in appendix 2.

3.4 Research plan

The intention of this research is to develop and provide recommendations to SKSB which enhance customers’ perceived quality and consequently improve SKSB’s performance. Several steps have to be undertaken to finally provide these recommendations. This section therefore discusses the steps that are followed in order to conduct this research.

After the introduction of SKSB, the management problem is described. Based on this management problem, which is formulated after questioning several stakeholders of SKSB like the CEO, managers and other employees, a literature research is conducted. The goal here is to develop a theoretical framework that will serve as a guideline for this research. The literature research will be followed by a research methodology that entails a specific explanation of the different sources that are employed for the research as well as how these sources are applied.

Subsequently the research will proceed by discussing a model called the Current Reality Tree to explicitly define the problems that exist in SKSB’s situation. The problems that arise are not merely found by interviewing the director, managers and employees of SKSB. The input is also generated by interviewing a selection of customers of SKSB as well as one customer’s customer.

The next step is to cluster the different problems into main problems where in addition, an interrelation will be made with the different gaps of the Service Quality Gap model. These gaps will be extensively discussed in order to pinpoint the areas with high priority. Once the problems are analyzed a start will be made to develop solutions and recommendations.

3.4.1 Adequate research

Many scholars (De Leeuw, 1996; Gill and Johnson, 2005; Van Aken et.al. 2007) emphasize the significance of an adequate level of pluriformity, triangulation and inter-subjectivity

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22 concerning the data applied for analysis in academic work. First, for a better understanding, the definitions of these three concepts will be explained:

• pluriformity, is defined as: approaching a problem/issue from different perspectives (De Leeuw, 1996:52),

• triangulation, is defined as: strengthening qualitative research findings by combining participant observation, interviewing and documentary sources. Applying multiple methods address the same problems, on the basis that in this way different methodological strengths and weaknesses will be cancelled out to produce more convincing findings (Gill & Johnson, 2005:200) which is well suited for use in business solving projects (Van Aken et.al, 2007:160), • inter-subjectivity, is defined as: Sharing the relevant beliefs by at least two different people, preferably from two different departments, in order to claim reliability (Van Aken et.al, 2007:69).

All three preceded concepts are pursued while gathering and applying the data. Pluriformity is applied by interviewing not merely managers and other employees of SKSB as well (customer) customers’. Triangulation is attained by scrutinizing relevant literature, company documents and interviewing both internal and external stakeholders. Finally, the concept of inter-subjectivity is achieved by discussing the outcomes of interviews and literature findings with three managers of SKSB.

The data gathered in this research is based on the principle of the aforementioned concepts. For example, the selection of SKSB’s customers is processed to meet an adequate level. How the process of customer selection is executed will be discussed in section 3.8.1 that deals with the Current Reality Tree of Goldratt (1994). In order to gather a more complete overview of the value chain two additional interviews have taken place. One with Philips which is an organisation that can be labelled as a marketeer, and a second interview with an internal customer, Smurfit Kappa GSF. Philips is an organisation that can be seen as a good representation of the various marketeers that SKSB has to deal with in the value chain, since Philips sells products with different applications of solid board. The results of these and all other interviews will be discussed in this research. The interview questions can be found in appendix 3.

3.5 Purpose of the study

The goal of the research is as follow: provide a contribution on customers perceived quality by scrutinizing the existing and relevant literature. Subsequently all gathered information will be applied in a specific case concerning the organization SKSB.

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3.6 Conceptual Model

The theory needed for the research can be summarized in the subsequent conceptual model.

Figure 3. Conceptual model

The conceptual model depicts all relevant concepts applied in this research. After an extensive literature study both service and product quality dimensions are related to the concepts of service and product quality.

A third concept, customer needs, is added since it determine the offering a company delivers towards its customer and subsequently is perceived by that customer. As the conceptual model shows, customer perceived quality is affected by all three preceding concepts.

Based on the literature study, the assumption in this research is, that customers’ perceived quality will be positively influenced by improving: service quality dimensions, product quality dimensions and customer needs.

3.7 Contribution to literature

Next to the added value for a single organization like SKSB, the issues dealing with increasing customers’ perceived quality are as well applicable on a higher aggregation level. The literature on customer perceived quality applied in the case of SKSB is therefore not solely a contribution to the industry of solid board however can be administered to many types of companies and industries.

Current literature on customers perceived quality is rather confusing and ambiguous. In this research a combination of dimensions from several authors is applied to operationalize the

Service quality Product quality Customer perceived quality Improved perceived quality Customer needs Service quality dimensions Product quality dimensions

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24 concept of customers perceived quality. This ensures that perceived quality is less ambiguous as is stated so far.

3.8 Data analysis: the Current Reality Tree as an analytical tool

In a certain business situation it is often very difficult to determine what the reason is behind a problem (Goldratt, 1994). The Current Reality Tree (CRT) is a tool that is able to structure the given situation, not necessarily a business situation, and visualize the underlying problem. To quote Goldratt “until the cause and effect connections are established, we don’t have a clear enough picture of the situation. The CRT diagrams the cause and effect relationships that connect all the problems prevailing in a situation. Once you do this, you realize that you don’t have to deal with many problems because at the core there are always only one or two causes.” The CRT will be applied as an analytical tool to find the main cause(s) of several problems that exist with regard to SKSB. Figure 5 displays the CRT based on interviews with managers/employees and (in)direct customers of SKSB.

Before the customer selection method will be explained in section 3.8.1, the relevance of the CRT model with regard to the central question will be clarified first. The current situation of SKSB is far from desirable according to staff, managers, directors and customers of SKSB. Besides, all changes caused by the merger have led to a confusing situation. Therefore, it is necessary for SKSB’s continuation to discover and reveal, by means of the CRT model, core issues on which SKSB should anticipate in order to increase customer perceived quality.

3.8.1 Method of selection

In accordance with the central question, it is only useful to increase the perceived quality for the customer if this is currently at an insufficient level, which can be confirmed. One option of finding out how customers perceive quality is by looking at competitors and see what they offer. Another option is to ask customers themselves if their expectations are fulfilled (or not).

Here the decision is made to analyze the perceived quality according to customers. The motivation behind this is that SKSB operates in a very transparent market. This transparency concerns products that are produced in the solid board market. Every manufacturer knows which machines the other operates with and what the corresponding capabilities and capacities are. However in the Netherlands there is only one large competitor, Eska GraphicBoard. Unfortunately it is not possible to visit this organization since its relationship with SKSB is not good. So conducting an interview with one of their employees is not an option. Since other large competitors are situated abroad and thus beyond the scope of this research, the second option of asking customers how they perceive quality from their supplier is preferred.

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25 To continue, a selection is made of four customers in the Printline and Luxline segments; two customers from each segment. The selection of these customers occurred in consultation with the Director of Sales of SKSB. An expert’s opinion is a common, and suitable, approach to select relevant customers. These customers are selected on the basis of geographic characteristics. Dutch companies are selected because of their accessibility in order to conduct a semi-structured interview. The selection is based on the Printline and Luxline marketlines since these marketlines provide SKSB structurally high profits which makes them attractive to focus on.

Nowadays there is a trend of an increasing diversity of products. The vice-president New Business Development & Marketing of Smurfit Kappa Specialties Division (see figure 1) states: “in the past consumers could choose in a supermarket between two different types of biscuits while in the 21th century a complete shelf is available and filled with all kinds of biscuits with several flavours each. The same applies for digital video cameras and mobile phones, etc. Since all these products are packed in boxes an identical development emerged with regard to the boxes and packaging.” An Area Sales Manager (ASM) of SKSB states that “high profit margins are the result of the features specific to Printline and Luxline (it is easy to print on, it is stronger than corrugated board, it has high sustainability, etc) in combination with the current market conditions.” Furthermore, Printline and Luxline products appear in the top ten of orders placed at SKSB annually.

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26 3.8.2 The CRT model of SKSB

As described in the introduction of section 3.8 the Current Reality Tree is shown in figure 5.

Supplier (SKSB) cannot always stick to delivery term

Marketeers do not know what their exact needs are Unpredictability of demand of raw materials Mismatch between Sales and Production regarding strategy SKSB’s products are not always according the specs Customers have a

“headache”

Marketeers increasingly ask more on-demand orders

Merger resulted in a decrease of the service orientation level Too high costs

for small quantities

Unwillingness of the supplier (SKSB) to find solutions

Insufficient skills of the Sales force to pick up signals and convert this to orders Selling ‘No’ to

customers make them search for other suppliers (also abroad) Lack of innovative and pro-active posture of suppliers regarding the assortment Scarce potential to develop new products in mature solid board market

Employees of SKSB should have a critical posture regarding their organization

Levels of the reststock are not synchronized with the real-time stocklevels

Customer is in a service gap

Outdated order confirmation process. SKSB does not provide online tool. While Eska’s customers can.

Accessibility (e-mail/phone) is not optimal SKSB’s products are frequently lost in stock Implementation of planning system TIPS Infrequent demand of raw materials who are not in stock by the converter

Market demand is unpredictable Lack of strategy with regard to

business development

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Chapter 4. Current Reality

Introduction

This chapter applies the CRT as an analytical tool to find the main cause(s) of several problems that exist with regard to SKSB. As is mentioned before, figure 5 displays the CRT based on interviews with managers/employees and (in)direct customers of SKSB.

4.1 Completion of CRT

The problems that are mentioned during the interviews are partially a consequence of the merger and partially a result of other issues. Regardless of the question where these problems come from, the fact is that these problems exist and should be solved.

To outline the start of the CRT: the model connotes at the bottom a situation where different causes and effects are appointed as a result of the market conditions. Partially, as a consequence of these developments SKSB falls into a merger which forms the soil for new and unexpected challenges. These challenges or as Goldratt (1994) states the “undesired effects (UDE’s)” will be discussed in the subsequent sections.

4.1.1 The merger and unpredictable market demand

The explanation of the CRT model starts at the bottom and is rather twofold. On the lower left hand side the realization of the merger caused a decrease of the service orientation level. On the lower right hand side the second input for the CRT consists of unpredictable market demands and unknown demands of the marketeer in the value chain. The term “marketeer” in this research is commonly used to refer to the organization of Philips where an interview is conducted. Heineken, Canon, HP, Samsung, are other examples of marketeers. The unpredictability in the market demand and the unknown demand of the marketeer results in an increase in the amount of on-demand orders.

This tendency leads to an infrequent demand of raw materials which converters do not have in stock. This, in turn, will cause an unpredictable demand of raw materials by SKSB. In addition, the products of SKSB are not always delivered at the prearranged time, or in compliance with prearranged specifications (specs). These two elements can be related to the infrequent demand of raw materials.

The merger between Smurfit and Kappa has resulted in a decline in the level of service-orientation. The merger created a situation where customers could not get rid of their problems or metaphorically called “headache.” Actually the intensity of the headache has become critical and customers have switched to rivals of SKSB. “The new competition is not between what companies produce, but between what they add in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing, and

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28 other things people value (Johne and Storey, 1998).” The ASM of SKSB states; obviously the task of an organization is to relieve the customer’s headache by delivering and providing products and services in a smooth way.

4.1.2 Implementation and consequences of Order & Planning system TIPS

Several customers list the problem of overdue delivery because products could not be found in the warehouse. One of the main reasons for overdue delivery is the implementation of a new order and planning computer system, called TIPS, during the period of the merger. The implementation did not run smoothly resulting in several problems and many of these problems currently persist. The main problem areas caused by TIPS are: badly managed stocks, poor financial billing, bad planning and order entry.

Moreover SKSB’s customers mentioned several key aspects regarding the value delivery through the value chain. Remmert Dekker stated that the performance of the supplier (SKSB) is determined by the realization of the output that will finally be presented to the end-costumer. SKSB produces top quality material in the printline segment where SKSB has acquired a monopoly position in the Dutch market. As a result, the position of Remmert Dekker is quite vulnerable and dependent on the supply of solid board.

According to Moorman, it is SKSB’s image that renders value to the final product. In other words, SKSB determines if the final product is acceptable for end-customers since SKSB provides the core of the final product. The products that Moorman produces are not soly produced by them, SKSB contributes as well by providing these reliable products. Moreover, SKSB very often has accurate delivery rates according to prearranged conditions.

However Remmert Dekker and Zaadhof Cartonnage state that since the merger, orders were delivered with a delay more often than before the merger. In addition, product specifications occasionally deviated from prearranged conditions. For example, when Remmert Dekker ordered three tons of 4 mm Printline they received three tons of 2 mm instead.

Zaadhof Cartonnage mentioned value-adding characteristics like runability, quality and communication. Total Packaging admits that they do not always see this added value of SKSB. Yet Total Packaging note one aspect, which is the consistent quality of the products nevertheless this is a precondition for Total Packaging. Perhaps the fact that SKSB has the possibility to quickly supply customers with on-demand orders can be seen as an value adding activity according to Total Packaging. Although this applies for a small volume yet specific type of solid board which can be delivered on-demand.

4.1.3 Mismatch between Sales and Production regarding strategy.

Since the merger, a discrepancy has been created between the high pricing strategy of the Sales department and the strategy applied by Production, the “operation excellence philosophy” which results in a lower pricing strategy and produce as efficient as possible. A

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29 more detailed explanation of this mismatch can be found in section 5.1 where the Service Quality Gap model will be discussed.

4.1.4 Bad synchronization of the rest stock list

Another problem is the rest stock list, who is available for customers. The list is not synchronized with the real-time stock levels in the plants. Customers of SKSB do not have the possibility to be informed at any given time of the current stock level. If these levels are up-to-date the customer will have the possibility to estimate the delivery time of products.

4.1.5 Customer is in a Service Gap

One of the customers (distributor Moorman Karton) mentioned that his company is trapped in a service gap between SKSB, and the next connection in the chain, the converter. The gap arises because SKSB delivers the products with no additional services. However Moorman’s costumer, the converter, expects that Moorman deliver products with sufficient service aspects like flexible delivery from stock, efficient ordering processes, (acceptable) delivery time, etc. which causes this friction or so-called gap. Moorman prefers a higher service level from SKSB so his company can benefit and subsequently satisfy the converter. To illustrate, there are situations where SKSB delivers orders without reporting that there is an overdelivery; which means that the delivery consisted of four tons, although Moorman initially ordered three tons. The same counts for underdelivery. Moorman has to deal with these problems and also has to clarify the situation to their customers. In addition Moorman mentioned SKSB’s slow response in dealing with complaints. It regularly takes a processing time of two to three weeks or even longer, before the customer receives a message that the complaint is in progress or has been solved. As the respondent of Remmert Dekker said: “good complaints handling creates empathy and goodwill if things occasionally go wrong in the future.”

4.1.6 Unwillingness of SKSB and the insufficient skills of its sales force

Furthermore there is sufficient comment concerning the willingness of SKSB, as a supplier, to find solutions for or together with customers. During the interviews customers, like Total Packaging and Remmert Dekker, described situations in which they made clear that the skills of the sales force are not always sufficient.

The abovementioned can be illustrated by the following example: a customer places an order at SKSB that has to be delivered on the 20th_{of that month. The sales department receives the}

request for the order and declines it immediately, since the order cannot be fitted in their production schedule. According to Total Packaging this approach will lead to unsatisfied customers, eventually followed by customers switching to other suppliers.

In addition, according to several customers SKSB sales employees should be more critical towards themselves and their own organization.

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30 During the interview with the Back-office Sales manager of SKSB this was acknowledged by stating that there is “too much variation in the competences of the back-office sales employees”. To illustrate this point; it can be seen that the accessibility of employees is not optimal. Remmert Dekker, in the interview, noted a problem in SKSB’s automatic e-mail reply procedure. Customers receive an automatic reply which states that the person handling the order is absent. The automatic reply consists of an announcement that states that the person handling the order is absent and will process the e-mail when he or she is back in the office. However, the recipient lacks the information which person he could contact in the meantime to answer his question or solve a certain problem.

Another related issue of accessibility is that SKSB was not always easily available by phone. Nevertheless this issue has been resolved and the current situation is sufficient according to an employee of Remmert Dekker. There is another point of interest with regard to the accessibility. The work of an absent contact person is not always intercepted by a colleague according to Zaadhof Cartonnage which is at the expense of the efficiency and effectiveness of communication.

4.1.7 Selling “No” to customers make them search for other suppliers

During the interview with Total Packaging another problem surfaced concerning the inflexibility of SKSB. There are situations where customer needs cannot be fulfilled by SKSB and customers receive “no” for an answer. In such cases, customers will not come back easily because of this negative experience. A direct consequence of saying “no” to a customer is losing the deal to a competitor.

Total Packaging and Remmert Dekker had identical comments concerning the way employees perform their work at SKSB. Many employees of SKSB have been following a traditional and trusted way of performing their job for a long time. Consequently, people show an inflexible mentality towards change. Employees also lack the assertiveness to obtain orders from demanding customers. The sales force does not have the skills and/or is not adequately trained to place themselves in customers’ shoes and subsequently solve their problems. Customers may become frustrated or even worse, they will take their business elsewhere, if this issue will not be improved, which emphasizes the importance of this point.

4.1.8 Lack of strategy concerning business development

One of the main issues is SKSB’s lack of strategy with regard to product innovation and business development as stated by several managers of SKSB. The organisation operates with an ad-hoc mentality. The supply chain manager of SKSB states: “It is not embedded in the organization to focus on business activities for the future.” In addition, the CFO of SKSB state that it is the ASM’s task to initiate and look for new business activities. “The ASM is the direct connection between the organization and the market and consequently have the opportunity to act as initiator of innovative ideas and concepts.” It is striking that an ASM

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31 state in an interview that globally, each business region has its own agent who acts as the connection between the market and SKSB. Except the Benelux where the ASM has direct contact with customers. The intention of an agent is to know market developments and synchronize findings with the ASM.

The same idea can be applied for the creation of sustainable relationships with customers. It is the task of an ASM to invest in customers and to create a business relationship. Another ASM states: “the customer should have the feeling that there is a click and that most of his headache can be relieved or preferably removed.”

4.1.9 Lack of innovative and pro-active state-of-mind

Currently, there is a strong need in the graphic market for an innovative and pro-active state-of-mind of suppliers with regard to their assortment since this is lacking. One customer remarked on the fact that SKSB is a supplier of materials to large manufacturers like Unilever and Sara Lee. These organizations have large R&D departments, yet how is the R&D department of SKSB involved in innovation projects? SKSB does not seem to allow R&D to operate actively on these purposes. Sara Lee for example, developed and introduced the product: Liquid Coffee. Remmert Dekker is opting for more of these collaborative product innovations with SKSB. The engineers of Remmert Dekker work with CAD and CAM software and therefore have the possibility to start with such projects right away. Other examples of innovations are the “Susceptor liner”, which is a packaging for snacks that can be heated in an oven without losing its crispy wrapping. Or the “Holographic liner” that have a beautiful optical effect. Holding the packaging with different angles into the light results in various colours of the packaging.

4.1.10 Outdated order process

With regard to the process of ordering, there are still some possibilities left to act upon. During the interview with Moorman a comparison was made with Eska Graphic Board who is also a supplier of Moorman. Eska Graphic Board provides their customers with the possibility to check the status of their order via a computer system. Thus the customer is aware of the progress of the order. SKSB does not have this facility and all order confirmations are sent by traditional mail. In the current situation customers are expecting easy ways to do business. If customers have to wait for an order confirmation because this is send by mail, they may get frustrated. There are also situations where small adjustments have to be made while the order is already placed or produced. With the traditional mail communication several days elapse until adjustments are implemented.

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32 4.1.11 Conclusion CRT

Comment on CRT

Prior to the start of this section a brief comment will be placed with regard to the CRT model. As is depicted in the CRT model (figure 5), the most important UDE’s are situated at the bottom of the model. It should be noted that a distinction should be made between UDE’s caused by the merger and UDE’s caused by other factors. Being part of a larger organisation, SKSB is a subdivision that has to deal with decisions made on a higher hierarchical level. Therefore issues caused by merger related decisions are outside the scope of SKSB. However the issues are of vital importance of SKSB which implies why they are included in the CRT model. Since SKSB is not capable of changing the merger related issues, it is important for the organization to anticipate on these issues.

To continue with the conclusion of this section: the CRT model demonstrate numerous undesirable bottlenecks, the so-called UDE’s. Since there is a difference in the importance of each UDE it is useful to select major UDE’s. Based on interviews both with customers and managers of SKSB the selection will be made.

It can be concluded that the major issues are:

• SKSB’s customer is in a service gap, • unwillingness of SKSB to find solutions, • insufficient skills of the sales force.

After collecting data (by means of interviewing managers and customers of SKSB) and processing the results in the CRT model, a reality check is performed. Several additional meetings are scheduled to evaluate the outcome of the interviews. The Director of Sales, the Supply Chain Manager Packaging, the Backoffice Manager and an ASM participated during these one-on-one meetings. During these meetings it appears that many of the findings are a confirmation of what SKSB’s managers at forehand expected or already are aware of. Almost immediately the following inevitable question raises one’s mind; if the issues are recognized, why do they still exist? The forthcoming chapters will attempt to answer this question and provide recommendations.

First, section 4.2, 4.3 and 4.4 will finalize chapter four by ranking the criteria that customers have in selecting a supplier. Subsequently, chapters five and six will proceed by analysing the results and findings of the interviews in order to map the situation of SKSB.

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4.2 Customer’s criteria for selecting a supplier

The results of the interviews with customers is analyzed together with the CRT model. However not all relevant information from the interviews is addressed. Therefore, this section will deal with an aspect that would otherwise be overlooked, namely the different motivations that customers have in selecting a supplier. The justification for dealing with this aspect is that once SKSB has gained an insight in what customers value most, the organization will have the possibility to pay extra attention to these aspects and, if necessary, work towards improvements.

Table 1 is an overview of the supplier criteria that are important for the customers who have been interviewed. These criteria are based on elements that customers find important in selecting a supplier. During the interviews customers graded a range of supplier criteria with a mark from 1 to 5. The numbers correspond with the importance a customer attaches to this criteria. This is measured with an ordinal scale meaning that the ratings of the respondents are ranked. Criteria valued with 1 have more priority than criteria valued with 5. However the differences between for example “1” and “2” on the one hand and “4” and “5” on the other hand are undefined neither interpretable (Cooper & Schindler, 2006). These criteria are mainly focussed on service aspects with the exception of quality and price. The results will be discussed in this section.

Table 1. Supplier criteria of SKSB’s customers

One of the most prominent criteria is the quality of the products. Quality is here defined as: “produced according the prearranged specifications concerning; weight, thickness, moisture percentage, level of flatness and stiffness, no cutting edges.” Every customer values quality with the highest priority. Total Packaging and Remmert Dekker both mentioned explicitly that quality is a precondition for business relations, stating that if the quality is not sufficient they will not do business with SKSB. For the other customers quality is also very important. Remmert Dekker defined quality as a situation where products are produced and supplied with no flaws, meaning no differences in flatness and thickness and in accordance with prearranged specifications.

Right after the quality criteria three customers prioritized the delivery time as one of the main criteria’s for selecting a supplier. Remmert Dekker made a comment with regard to the

Supplier criteria Customers quality price

delivery

time reliability continuity flexibility

acces-sibility communi-cation Total Packaging 1 2 3 4 Moorman 1 4 5 2 3 Remmert Dekker 1 3 2 2 4 Zaadhof Karton. 1 3 2 4 5

“Bridging gaps by increasing customers perceived quality”

“Bridging gaps by increasing customers perceived quality”

“Bridging gaps by increasing customers perceived quality”

Preface

Summary

Table of Contents

Chapter 1.

Smurfit Kappa Solid Board

Chapter 2.

Theoretical Framework

Chapter 3.

Research Design

Chapter 4.

Current Reality