Quality, Service and Cost

Over the past several years, the emphasis at most freight transportation companies has been placed almost exclusively on cutting costs and providing lower pricing to customers. Necessity forced most companies to concentrate on cost cutting and lowering pricing. Smart companies only made cuts that didn’t damage their ability to provide quality and service to their customers.

The three critical success factors are service, quality and cost. We have some degree of control over all three of them, but have the most control over the way we treat our customers. This is an element of the service factor. In freight transportation, it is at least as important as product quality (good transit time, low claims ratio, etc.,) and low cost. It is hard to say which of the three critical factors are the most important, but we can always control how we treat our customers, even when costs and quality aren’t meeting our standards.

Quality exists when a product or service meets customer expectations, at the minimum. It increases as customer satisfaction increases. In order to retain existing customers and attract new customers, an organization must produce high-quality products and/or services. If quality is poor, a company must identify the problems and bottlenecks, redesign their products/services, or lose customers by allowing their products/services to be sold as less than acceptable. Therefore, when quality is poor, costs increase and customers are lost. Talking about quality is common in most firms and a great deal of time is devoted to quality discussions at meetings. However, unless concrete steps are taken to improve quality, it will not improve.

The traditional view assumes that improving quality always trades off against lowering costs and that costs will increase with attempts at quality improvements. The quality-based view believes that firms should always try to improve quality and that higher quality products/services pay back the costs required to get them. Improving quality may initially increase costs, but quality improvements reduce costs in the long run.

The cost of lost customers cannot be exactly calculated. The lost revenue from each lost customer can be approximated, as well as the costs associated with securing new customers. However, the damage to a company’s reputation cannot be easily approximated. Once a reputation is damaged, it is very difficult to repair the damage, even if quality is improved. Companies with bad reputations must offer lower prices to sell their products than do companies with better reputations. Delivering products and services that meet or exceed customer expectations is essential for the survival of a firm today. Exceeding customer expectations may lead to your company becoming a preferred provider for your customers. In the long run, quality improvements pay for themselves.

It is hard to say which of the three critical factors are the most important; quality, service, or low cost. Freight transportation firms should continuously try to improve all three. Higher quality products/services pay back the costs required to get them. Improving quality may initially increase costs, but the quality improvements reduce costs in the long run. Cost cutting is necessary and healthy, as long as you’re not cutting too deeply. However, price slashing will not help your company to grow in the long run. Finally, we can always control customer service (how we treat our customers), even when costs and quality aren’t meeting our standards.