The IRS Index: A New Metric Tool that Allows the Measuring of a Long Term Business-to-Business Relationship (Supplier - Customer)
A methodology validated in more than 160 industrial companies which allows industrial suppliers to measure and manage the quality and stability of the relationship with their customers.
Roberto Mora Cortez, MsC.
Claudio Saavedra, MBA., PhD.
The importance of this study, developed by Roberto Mora, MSC., and Claudio Saavedra, MBA., PhD. at the Center of Industrial Marketing of the University of Chile, lies in that it offers for the first time a practical method to manage and measure the long-term relationship between a supplier and a customer company.
This study found three factors that determine long-term business-to-business relationships: the importance of the product (including the conditions and manner of delivery), the supplier people's behaviour, and the supplier's market reputation. Each of these factors is composed of several standards that define with precision the underlying concept. These standareds, in turn, are feasible to measure.
The final metric is represented by an indicator that we have termed IRS (Interbusiness Relationship Sustainability Indicator).
The interpretation of the results (scores) obtained upon requesting customers to evaluate a supplier is the following:
IRS from 0 to 60 points: the customer company is actively considering replacing the evaluated supplier.
IRS from 61 to 80 points: the supplier is set to maintain the relationship with the customer, with the condition that no other supplier's competitor exceeds the score.
IRS from 81 to 100 points: indicates a strong position as a supplier. In these conditions, a long-term relationship is prone to be sustained between the customer and the supplier.
The results show that companies with a high IRS also maintain larger and more stable sales with their customers.
This study has 5 relevant implications:
1. The method shows an implicit normative about the factors that are relevant in planning a successful and lasting relationship with customers. By assessing the score of each standard implicit in the IRS mothodology, the supplier can route its efforts to improve its long term competitiveness.
2. The IRS method complements the customer satisfaction concept behind the ISO 9011 standard. ISO 9011 allows certified companies to design their own customer satisfaction surveys, without defining a method nor a metric.
3. IRS re-defines the concept of customer loyalty. This research found that the "product" variable is a determining factor in a B2B relationship. This contradicts the popular notion of customer loyalty programs based only on of socialization, corporate lunches, or corporate gifts.
4. A company with high IRS scores can project with greater certainty the future cash flows that define the value of the company itself.
5. The IRS indicator can be audited and exposed by independent entities to rank suppliers in regards to the quality of their B2B relationships. In this way, potential customers can consider the IRS as an assessment of the risk of doing business with the referred supplier.