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Total Quality Management

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Using a customer-focused
approach to improve quality
across the value chain: The case
of Siderar
Marcelo Paladino , Hilary Bates & Giovani J. C. da
Silveira
Published online: 25 Aug 2010.

To cite this article: Marcelo Paladino , Hilary Bates & Giovani J. C. da Silveira
(2002) Using a customer-focused approach to improve quality across the value
chain: The case of Siderar, Total Quality Management, 13:5, 671-683, DOI:
10.1080/0954412022000002063

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 TOTAL QUALITY MANAGEMENT, VOL. 13, NO. 5, 2002, 671 - 683

Using a customer-focused approach to

improve quality across the value chain: the
case of Siderar

Marcelo Paladino1, Hilary Bates 2 & Giovani J. C.

da Silveira3
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1
IAE Business School, Austral University, Buenos Aires, Argentina, 2Warwick Business School,
University of Warwick, Coventry, UK & 3Faculty of Management, University of Calgary,
Alberta, Canada

abstract This study describes the process of value chain quality improvement carried out by a
leading steel company in Latin America. The longitudinal study explains how the company developed
quality improvement initiatives based on cooperation with customers and suppliers. The importance
of the case is due mainly to the original approach taken by the company, on turning its business
around through quality improvement initiatives in the external value chain, especially towards direct
customers. Data were collected during nine years, from the 1992 privatisation until early 2001. Data
included interviews with managers, observations, and documents. The case provides empirical support
for ideas underlying quality initiatives across the value chain, customer response strategies, and the
use of knowledge as a source of competitive advantage.

Introduction
This study concerns the management of value chain relationships through exploitation of
knowledge: the great balancing act of business. The case of Siderar and the lessons to be
learned from it draw together themes from the disciplines of operations management and
marketing management. The importance of relationships in business has been well researched,
and there is incontrovertible evidence of the link between customer retention and pro® tability
(Zeithaml, 2000). Consequently, there has been a noticeable shift in thinking from transaction
costs to relationships (Christopher et al., 1991). One only has to consider the plethora of
mission statements and charters that abound in every aspect of daily life, to ® nd con® rmation
of this trend. Companies once sought stability and risk avoidance through their organizational
structures; now, in the global marketplace, they need to achieve stability through supplier
and customer loyalty.
In 1985, Michael Porter, building upon the work of Coase (1937) and Williamson
(1975), highlighted the importance of the internal value chain, and that of the external
linkages between organizations, their suppliers and their customersÐ the external value chain.
There has been a wealth of research, particularly in the operations management literature,

Correspondence: Marcelo Paladino, IAE Business School, Austral University, Mariano Acosta S /NÐ Derqui,
(1629) Pilar, Buenos Aires, Argentina. E-mail: mpaladino@iae.edu.ar

ISSN 0954-4127 print/ISSN 1360-0613 online/02/050671-13 © 2002 Taylor & Francis Ltd
DOI: 10.1080/0954412022000002063
 672 M. PALADINO ET AL.

focused on the management of the supplier, or downstream links, in the chain. However, the
possibilities for organizations to manage their customers, so gaining equal or greater bene® ts
than those accrued by deft supplier management, has been largely ignored by operations but,
not surprisingly, has been more researched by marketing commentators. Managing customers
to advantage requires considerable dexterity, not merely dependent upon the company’s
knowledge of its customers but also on its understanding of its own core competencies.
Research-based theories of the ® rm (Penrose, 1959; Hamel & Prahalad, 1994; Leonard-
Barton, 1995) stress the importance of core competencies, particularly those that are
distinctive and cannot be easily reproduced. Such competencies form the basis of sustainable
competitive advantage. However, understanding ones’ competencies is only the starting
point; using them and encasing them in a service package to ensure customer loyalty is the key.
This case describes a struggling company in the steel industry in Argentina. Hampered
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by poor product quality and confronted with increasing competition and collapsing world
prices, the management team nonetheless managed to turn an ailing business around and,
using the knowledge they had gained from their own quality improvement eþ orts, secured
their market.
The paper describes the process of value chain improvement carried out by Siderar.
Case data were collected during nine years, from its privatization in 1992 until a ® nal
assessment of business performance in early 2001. This longitudinal case study explains how
Siderar developed a quality improvement strategy based on cooperation with customers and
certi® cation. By reporting a major longitudinal case study on the value chain and, in
particular, customer development, this paper aims to contribute to remedying several
perceived weaknesses in the value chain and supply management literature.
· The lack of documentation about the actual practices of companies developing inter-
® rm cooperation programs (Watts & Hahn, 1993)
· The lack of cases and research discussing management of the upstream elements of
the value chain, and the shortfall in useful case material illustrating how companies
can manage both buyer and supplier relationships, using their own capabilities and
extending proprietary knowledge out into both the supplier and the customer base.
· The limited perspective of existing studies that seldom include a longitudinal analysis
of the long-term impact of inter-® rm collaboration (Stuart, 1997).
The remaining sections are organized as follows. First, the research methodology is presented.
Second, the relevant literature is reviewed. Third, the case of Siderar is presented, with an
emphasis on the initiatives carried out for the development of customers and their operations.
Fourth, the impact of quality improvements in business performance is reviewed. Finally, the
discussion and conclusions are presented.

Case methodology
This research is based on a longitudinal study of one of the leading steel companies in Latin
America. Data were collected through structured interviews with the company’s senior
management, direct observation of company behaviour, and the examination of some
purchasing, technical and other documentation.
The main objective in using a longitudinal case methodology was to provide an in-depth,
context-based investigation of the entire process of conversion of the company (Eisenhardt,
1989; Meredith, 1993). This continued from the privatization of the company in 1992 until
the ® nal assessment of business performance in 2001. The choice of a longitudinal method
evolved from the two main characteristics of this study.
 IMPROVING QUALITY ACROSS THE VALUE CHAIN 673

(1) The use of an explanatory approach aiming to investigate aspects such as (i) why
the company needed to develop a customer-focused improvement process, (ii) how
it improved cooperation with customers, and (iii) how it managed to integrate in-
house and value chain improvement into the same conversion process.
(2) In-depth analysis of the whole process of quality improvement, i.e. design, planning,
implementation and evaluation. This approach aimed to contribute to remedy the
perceived weaknesses in the value chain and supply management literature described
in the previous section.

From hierarchies to customer responsive strategies

The debate over the optimum span of control was initiated by the work of such people as
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Coase (1937) and Williamson (1975). An important feature of this earlier work on the theory
of the ® rm was the need to combat uncertainty and retain control through a highly integrated
organizational structure. The hierarchical ® rm achieves control and minimizes the costs of
transactions by ensuring that much of its supplies are produced in-house, and proximity to
the customer is achieved without the intervention of intermediary companies. Such a
structure is not without ineý ciencies, or `bureaucratic disabilities’ (Williamson, 1975), not
least of which is the cost of operating such a structure. While vertically integrated companies
had their day, the trend over the last 20 years has been to break up these large conglomerates
into smaller more malleable parts, and sell them. Nevertheless, commentators acknowledged
the growing importance of quasi-vertical structures, formed through joint ventures, subcon-
tracting and other less formal relationships; Porter (1985) further emphasized the importance
of such structures and the bene® ts of externalizing elements of the value chain. Large-scale
outsourcing of aspects of the business (even those traditionally kept in-house) began to look
an attractive proposition, and the bene® ts, which could be achieved from collaboration within
the value system, appeared to outweigh the transaction costs (Collins & Bechler, 1999).
Porter (1985) argued that it is impossible to understand the source of competitive
advantage, by looking at the organization as a whole; this is more eþ ectively done by
deconstructing the business into its main activities or processes. In this way, one can identify
those areas that add value to the ® nal product and to the customer, pinpointing the source
of the organization’s competitive advantage. This depiction of the business as a chain of value
adding activities can also be extended out into the wider ambit as a value system that stretches
upstream into the supply base and downstream to the end customer. The organization under
investigation is therefore just one link in a long chain of value adding activities from raw
material extraction to delivery. The purpose of such analysis is not merely to identify
competitive advantage but to focus on the interests of the whole chain and de® ne the role of
each link in improving the value of the chain (Besanko et al., 1996). The whole was assumed
greater than the sum of the parts.
By the early 1990s, it was clear that the debate should be moved on from consideration
of how to minimize transaction costs to how to maximize value through developments of
relationships (Harland et al., 1999). Forming partnerships with a small number of key
suppliers could reduce transaction costs through the creation of trustful relationships. There
was no need to control supplies through vertical integration, which was increasingly being
seen as an ineý cient and costly organizational structure: `real competition is not company
against company but supply chain against supply chain’ (Christopher, 1992).
It is clear that long-term business relationships provide many potential bene® ts. In fact,
close relationships between buyer and supplier can confer signi® cant competitive advantage,
and this advantage, being `invisible’ to other competitors ( Jap & Weitz, 1996), can create a
 674 M. PALADINO ET AL.

barrier to entry. Sako & Helper (1997) suggested that building trust between organizations
might foster continuous improvement and learning, as ® rms tend to explore opportunities to
generate mutual (rather than individual) bene® ts. Thomas & Griý n (1996) further suggested
that improving the coordination and integration of product and process decisions across the
chain might reduce costs and improve service levels. According to Dyer (1996), this might
also improve the companies’ response to exogenous shocks due to the increasing amount of
shared resources and information available . Although shared resources may also introduce
risk into the relationship, there is some evidence that integration of independent suppliers
may be more successful in developing new products and new technologies than similar
relationships with wholly owned subsidiaries, or even between departments of the same
company (Clark, 1989). New (1996) indicated that long-term relationships and operational
integration across the business chain might bring in commercial bene® ts due to better
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cooperation and increasing eþ ectiveness of operations.

Although marketing academics and practitioners have been studying customer relation-
ships for more than a decade (Berry, 1983; GroÈnroos, 1990; Levitt, 1983), this work did not
® lter into manufacturing or operations management literature until recently. Arguably, one
could give the credit to the IMP group who made the ® rst major attempt to build a
comprehensive model of business relationships (see HaÊkansson, 1982), viewing them as
interaction processes between buyer and seller companies. Given the inclusion and applicabil-
ity of this work to the supply base, the ideas and hypotheses included therein ® nally came to
the notice of practitioners in production and operations management. Possibly, this was also
because, until very recently, academics and practitioners in this ® eld did not include
service operations within their subject. Now, customer relationships and customer responsive
strategies are the order of the day. For some, customer relationship management (CRM) and
mass customization (MC) are natural developments of 1980s precision marketing, with the
product being developed for the market, rather than just presented to the market in reactive
fashion (Pine, 1993).
In mature markets, such as the steel industry, the opportunity to gain competitive
advantage from innovation is lost or greatly diminished, because the product is well-known
and not proprietary knowledge. Customers tend to make their product choices on price and
quality conformance and do not exhibit much loyalty. In these cases, organizations can try
to build customer responsive strategies and enhance the core oþ ering with quality improve-
ment and service enhancement strategies. Incentives and tailored interactions that re¯ ect the
diþ erence in the prospective lifetime value of each customer may follow.
Despite its many potential bene® ts, increasing inter-® rm cooperation is not a straight-
forward process. Building sustained, long-term cooperation depends on a host of conditions,
besides the ability to reap and share bene® ts in a fair basis among the value chain companies.
According to Edwards & Samini (1997), requirements for sustaining cooperation include (i)
providing bene® ts to each member that will exceed the bene® ts they could get by pursuing
`individual’ strategies; (ii) supporting the business relationships with a network of social
relationships; (iii) developing credible and fair punishment/reward mechanisms, and (iv)
viewing the process as without a clear end-point. Thus, value chain improvement initiatives
must follow the setting up of structure and infrastructure mechanisms to guarantee both an
environment that is appropriate for the development of these initiatives and that the bene® ts
and costs are fairly shared among ® rms.

Using knowledge for competitive advantage

Adept knowledge management can provide strong competitive advantage to the organization.
`There is some justi® cation in the argument that intellectual capital, or more precisely, the
 IMPROVING QUALITY ACROSS THE VALUE CHAIN 675

organization’s ability to build, integrate and utilize intellectual capital, is the ultimate source
of competitive advantage’ (Quinn, 1992). This is demonstrated by the in¯ ated market value
demonstrated by certain companiesÐ e.g. biotechnology and software companiesÐ which far
exceeds the balance sheet value of the companies’ assets. The diþ erence between the market
capitalization and the book value is, in part, an acknowledgement of the inherent value of
the company’ s perceived intellectual assets. Still, this diþ erential is only sustained over the
short term. Over the medium term, shareholders want to see a return on investment, and
their expectations are that the return was worth the wait.
What constitutes organizational knowledge? Codi® ed information, manuals, statutes,
guidelines and other written documentation that governs the comportment of organizations
is one form of knowledge, that which has been retained and is easily accessible. People who
work within, or for, the organization also contribute knowledge. They bring with them formal
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(accredited) knowledge that can add to the codi® ed knowledge base, and their own abilities,
their tacit knowledge (Wong & Radcliþ e, 2000).
A large and important part of collective knowledge is tacit knowledge. Individual tacit
knowledge is inherent skill. Nelson & Winter (1973) contend that at the organizational level,
the tacit knowledge of individuals becomes the routines of a body of individuals: `An
organizational routine is a set of personal skills that are co-ordinated and integrated in
coherent social action within the context of an organization’ . Organizational routine is
therefore `concerted individual skill’ . Tordoir (1996) states that `change in organizations is
reached by new combinations of skills and routines, rather than by developing completely
new skills’ .
Spender (1996) identi® es collective knowledge as the most valuable to the organization.
Collective knowledge `comprises both meaning (cognitive, aþ ective, symbolic and cultural)
and praxis (i.e. behaviours, rituals and organizational routines)’ . Collective knowledge
develops over time and embeds in the organization. It forms an invisible asset, being hard to
copy by other companies and consequently forms an important component of competitive
advantage.
Hence, competitive strength is provided by the interplay between knowledge and
competence rather than by speci® c knowledge types. In much of the competence literature,
it is assumed that capabilities are primarily home grown, although it is also argued that ® rms
learn from external experiences and dealings (Cohen & Levinthal, 1990). The extent of a
® rm’s capacity to absorb learning from external sources is dependent upon its own knowledge,
the quality of the external knowledge, and the relationship between the ® rm and the external
environment (Christensen, 1996).
In an industry where products and processes can be copied with relative ease, one of the
ways by which a ® rm can achieve competitive advantage (in fact, the only way), is by
exploiting the knowledge and learning of its employees to lock customers into a strong
relationship (de Geus, 1998).

Techint Group and the privatization of Somisa

Techint Group
Founded in 1945, the Techint Group consisted, in early 2001, of more than 100 companies
operating mainly in Argentina and Italy. These companies shared a common philosophy
based on commitment to the development of both local and international markets. The
organization had approximately 27 600 employees. Global sales amounted more than $5.1
billion dollars in 2000. Techint’s ® ve main segments of activity were (i) steel production and
 676 M. PALADINO ET AL.

manufacturing, (ii) engineering and construction of industrial and infrastructure projects,

(iii) mechanical industry, (iv) public utilities and (v) oil and gas production and exploration.
Steel production was one of the group’s major activities. Their two main product lines
in Argentina were pipes for the oil industryÐ produced by Siderca, Metalmecanica, and
SiatÐ and hot-alloy cold-rolled steelÐ now produced by Siderar. The modernization and
updating of facilities and processes was a constant objective for Techint managementÐ more
than $700 million dollars were planned for investments in the steel plants between 1993
and 1997.

Somisa
Somisa (now Siderar) was founded in 1948 as a state company, and started to operate in
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1960. At the time of privatization, Somisa was the most important steel company in Argentina,
employing 11 500 people, as well as 5000 subcontractors. Its installed capacity on crude
steel represented 70% of the domestic consumption. Somisa was a full cycle traditional steel
mill, with two coke arid by-products plants, a sinter plant, two blast furnaces, an LD (Linz-
Donovitz) converter, a continuous tapping-trimming machine, cold and hot rolling (CR and
HR) mills, and electrolytic tin coating. Somisa produced HR and CR coils, tin foil,
structural girders, billets, and ¯ at rolled sheet steel. It also included a commercial harbour,
a thermoelectric power plant, and oxygen plants.
By the middle of 1990, Somisa faced important challenges. The 1990 hyperin¯ ation in
Argentina demanded ® scal adjustments that led to strong market recession. In the steel
market, internal demand dropped 30% with respect to the previous year, which was, in turn,
30% lower than historical averages. Neither could Argentina escape from the complex
situation of the steel industry worldwide. Steel products suþ ered dramatic price drops
(between 13% and 27%) in the 1989 - 92 period.
Somisa tried to make up for a shrinking domestic market through record export levels,
but international prices had dropped and there were irregular exchange rates for industrial
exports. In the 1989 - 90 period, over 1 million tons were exported out of 1.7 million tons
produced. In fact, Somisa, burdened by ® nancial diý culties and a shrinking domestic market,
was exporting at a loss to guarantee cash supply, despite the potentially damaging impact of
that strategy in the long-term.

The privatization process

By 1991, the operational and strategic problems faced by Somisa had burdened the company’s
overall competitiveness and long-term ® nancial stability. Management problems associated
to changes in economic policy led the Government to privatize the company.
Propulsora SideruÂrgica, a company that was part of the Techint Group, started produc-
tion by the end of 1969 as a CR mill in Ensenada, Argentina. A few years later, it started a
forward integration process resulting in ® ve subsidiaries focused on diþ erent products. In
November 1992, an international consortium leaded by Propulsora was the successful bidder
for Somisa. The consortium was made up of Propulsora as the major shareholder, Usiminas
(a Brazilian company that supplied iron ore to the former Somisa), and other partners. They
held 80% of the shares; the remaining 20% was sold to company personnel. After the
privatization, Somisa was named Aceros Parana SA.
The main reason for Propulsora’s bid was strategic. Before the privatization, it had to
import the majority of the main raw materialÐ special HR sheet metalÐ to conform to the
quality requirements of customers from such industrial sectors as automobiles and household
 IMPROVING QUALITY ACROSS THE VALUE CHAIN 677

appliances. Before the privatization, Argentine legislation forbade companies other than
Somisa to produce HR sheet metal; however, the output of these companies was of poor
quality, obliging buyers such as Propulsora to import the material. They thus planned to
convert Aceros Parana into a local, reliable supplier to substitute imports.
In May 1994, Aceros Parana and Propulsora joined to form SiderarРthe biggest iron
and steel company in Argentina. Siderar was then composed of seven industrial plants,
including HR mills, CR mills, and some ® nishing plants. Argentina’s iron and steel industry
became concentrated in three main plants: Siderar (plate products), Siderca (pipes)Ð both
belonging to the Techint GroupÐ and Acindar (structural shapes). Together, these plants
supplied 95% of the domestic consumption.

From Somisa to Siderar: a quality improvement process

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As suggested earlier, the problems faced by Siderar (formerly Somisa) were both internal
and external. Internal problems were due mainly to ® nancial and operational frailties resulting
from the pre-privatization period. External problems were due to the competitive weaknesses
of customers downstream in the chain. In spite of the seriousness of both situations,
management realized that internal quality problems were probably easier to solve, simply
because they depended almost exclusively on Siderar’s own eþ orts. Tackling the external
problems, however, required changes in companies across the whole chain, especially Siderar’s
direct customers. However, many of those companies could not properly coordinate their
improvement initiatives, mainly because of human and ® nancial limitations. Thus, Siderar
devised a conversion process consisting in programs on two fronts:
(1) Internal programs, with an emphasis on the implementation of a Quality Assurance
System and ISO 9002 certi® cation, and
(2) External programs, with an emphasis on initiatives to improve products and processes
of customers, via integration and coordination of operations across the value chain.
Nevertheless, as will be described, improving the value chain was seen as so important that
even the `internal process’ involved initiatives toward improved customer services and quality
certi® cation of suppliers.

The internal process: quality assurance and certi® cation

The Quality Assurance System was implemented mainly between 1993 and 1994. Set forth
as the key initiative to improve internal operations, it was considered the ® rst step toward a
continuous improvement process based on systematic problem solving and teamwork. The
target was to ensure customer satisfaction and consistent product quality. In its ® rst stage,
the system was focused on ® nished and semi-processed products from the steel mill, to foster
internal supplier- customer practices that would ground subsequent initiatives.
The Quality Assurance System was based on three main initiatives. First, a `new
documentation’ structure was proposed. This consisted of reformulating, eliminating, and
adding planning and control documents such as Process Control Plans and Inspection and Test
Plans. These plans registered knowledge on process and product control for every production
line. Second, a `Supplier’ s Certi® cation System’ was implemented alongside the value chain
programs (discussed later). Third, also with an external impact, the implementation of a
`Nonconformity and Corrective Actions System’ helped to coordinate initiatives on process
and product improvement across the value chain, leading to smoother supplier- customer
relationships. These programs provided the basis for Siderar’s ISO 9002 certi® cation.
 678 M. PALADINO ET AL.
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Figure 1. Outline of Siderar’s Process of Quality Certi® cation.

The new documents were implemented after their redesign. `Quality Facilitators’ had
the main role in that stage. Quality and Operations departments worked jointly to outline
action plans with tasks, responsibilities, and deadlines. External and internal audits helped
to measure progress across departments and to generate corrective plans. Implementation
required long hours of training to enable personnel to work with the new documentation.
The `Supplier’s Certi® cation System’ involved a preliminar y assessment of suppliers’
technology, quality systems and the ® nancial situation. Suppliers who did not qualify for
certi® cation were given a development plan to be implemented under joint supervision until
they could be certi® ed.
The `Non-conformity and Corrective Actions System’ aimed at creating mechanisms to
improve quality faults in a formal and systematic way. Improved documentation allowed
better knowledge diþ usion and integration with customers, expediting responses to complaints
on Siderar’s products and correction of its own quality problems.
Figure 1 outlines the whole certi® cation process. Siderar was the ® rst privatized, and by
that time the biggest, company to achieve ISO 9002 certi® cation in Argentina.

The external process: value chain quality improvement

The development of value chain, customer-based improvement programs was the main part
of Siderar’s conversion process. Soon after the takeover, it realized that improving customers’
competitiveness was, in a strategic sense, as important as improving its own competitiveness.
By 1994, many companies in the next link of the chain were in bad shape. Their closure
would lead the following link (that is, the customers of Siderar’s customers) to buy from
foreign companies that were, in turn, supplied by Siderar’s direct competitors.
This situation led to a well-de® ned problem: how could Siderar transfer knowledge and
 IMPROVING QUALITY ACROSS THE VALUE CHAIN 679
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Figure 2. Working methodology for development groups.

capabilities to customers (and also some key suppliers) to generate growth and competi-
tiveness in the whole chain? The answer consisted of a value chain, quality improvement
strategy focused on three main objectives: (i) identifying the requirements of customers for
improvements in Siderar’ s products and services; (ii) working with customers to re® ne their
own products; and (iii) collaborating to renew customer operations. These objectives were
translated in three programs that were mainly developed between 1994 and 1996. These
were the `Customer Satisfaction Program’ , the `Development Groups’ and the `Personnel
Visits to Customers’ .
The `Customer Satisfaction Program’ , was carried out mainly by Siderar’s Commercial
Department. This consisted in interviewing major customers (about 65% of customers
representing 70% of sales) to identify the main aspects in Siderar’s products and services to
be improved. Interviews covered Siderar’ s sales department and contracts, technical services
and claims, deliveries, product attributes, and administrative services. A large number of
suggestions served as input to the company’ s Quality Assurance System.
The `Development Groups’ went one step further, aiming to improve Siderar’s knowledge
about customer needs and to increase the level of integration across the value chain. A
systematic methodology was developed (Fig. 2) to drive the activities of multi-company teams
and to coordinate improvement initiatives. Improvement teams involved personnel from
Siderar and 17 major customers. Their focus was on improving current products, developing
new products, improving relationships, and lowering transaction costs. They turned into the
main channel of communication between Siderar and customers.
`Personnel Visits to Customers’ were carried out concurrently with `Development
Groups’ . While the latter involved Siderar’s larger customers, the former was directed mainly
towards suppliers and small and medium-sized customers. Visits of Siderar personnel (mainly
engineers and operations managers) to companies allowed the identi® cation of problems and
the development of tailored improvement and learning programs. These were complemented
by educational initiatives focused on managerial practices and strategic planning.
 680 M. PALADINO ET AL.

Table 1. SiderarÐ business and operational performance

June June June Growth Growth

1994 1997 2000 1994- 1997 1997- 2000

Sales ($ million) 698.80 1012.00 958.40 44.8% 2 5.3%

Net income ($ million) 31.60 90.90 3.20 187.7% 2 96.5%
Sales volume (000 steel tons) 1263 1967 2086 55.7% 6.1%
Exports (000 steel tons) 111 537 953 383.8% 77.5%
Productivity (men-hours/ton) 7.00 4.40 4.20 2 37.1% 2 4.5%
Labour accidents (units/million hs) 16.00 10.00 9.00 2 37.5% 2 10.0%

Impact on business performance

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Data on Siderar’s business performance refer to June 1997 and June 2000 (Table 1). The
® rst period is concurrent with the improvement program. The second period is characterized
by less intensive value chain initiatives; the company then moved to another stage in business
development, characterized by domestic consolidation and international expansion. Between
1994 and 1997, sales increased by 45% and pro® ts increased from U$32 million to U$91
million. Exports showed a signi® cant growth of 384%, even though total sales increased by just
56%. Signi® cant improvements in productivity and labour accidents were also highlighted. It
is important to notice that, although there were further improvements between 1997 and
2000, these were more modest than in the previous triennial period. These numbers provide
evidence of the positive impact of internal and external quality programs in Siderar’ s business
performance.
Value chain assessments were held in 1995 and 1996. Customer returns dropped by
34% and internal rejects dropped by 41% between 1994 and 1996. A survey of 45 customers
was held in June 1995; satisfaction with Siderar’s products and service averaged 70% (this is
at the limit between `fairly satis® ed’ and `satis® ed’ as de® ned in that survey). Best levels of
satisfaction were achieved in Sales Services (77%), Administrative Services (76%), Product
Quality (73%) and Quality of Delivery (72%). The worst levels of satisfaction referred to
On-Time Delivery (64%), Sales Terms (65%) and Technical Services and Claims (68%).
Concerning the value chain programs, besides the bene® ts registered in the Customer
Satisfaction Survey and, indeed, in the customers’ own operations, management registered
changes in the way factory workers dealt with internal and external customers. According to
the Supervisor of the tin-coating line,

. . . there is permanent communication among all sectors. We get feedback from our
customers, and each line gets direct information concerning complaints. We consider
complaints, pay special attention to some defects per customer, and keep a ® le with
each customer’ s pro® le and the product’s quality features that they deem essential.
There is now an interrelation between the lines and more co-ordination because
teamwork is encouraged. Today, we do listen to the customer.

Adding to these results, Siderar received some important external acknowledgement, ® rst by
the `Carlos Pellegrini’ Award as the industrial company that excelled in investing in people.
In October 1995, the Government of the Buenos Aires Province granted the `Baires Award
of Recognition for Quality’ due to Siderar’s eþ orts toward ISO 9002 certi® cation and its
contribution to the growth of the Province. Siderar also received the `Excellence in Innovation
Management Award’ granted by UNIDO, and the `Investment Award’ granted by FundacioÂn
Invertir due to innovations in the Galvanizing Plant.
 IMPROVING QUALITY ACROSS THE VALUE CHAIN 681

Discussion
The aim of this study was to describe the process of value chain improvement carried out by
a leading steel company in Latin America. The importance of the case was due mainly to the
original approach taken by the company, on turning its business around through quality
improvement initiatives in the external value chain, especially towards direct customers. The
case provides empirical support for ideas underlying customer response strategies and the
use of knowledge as a source of competitive advantage.
The ® rst key aspect of the case was the acknowledgement by the company that survival
required improvements across most of the value chain, especially in the performance of direct
customers. Not only should Siderar invest into improving its own quality; it also had to
secure a market to give a return to that investment. The inability or hesitation of some
customers to direct initiatives of improvement, on one hand, and the need to integrate the
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actions of individual companies, on the other, justi® ed the development of improvement

initiatives to be coordinated by Siderar and implemented in customers and supplier’ s plants.
Its approach conforms to Porter (1985) and Christopher (1992) who pointed out the role of
value chains, rather than individual companies, as sources of competitive advantage.
Second, uniting the value chain around a sustained process of improvement required the
set-up of an environment that was appropriate for that process, and the guarantee that costs
and bene® ts would be fairly shared among ® rms. Siderar’s ® rst step was to implement a
Quality Assurance System, together with ISO 9002 certi® cation, to state its responsibility
and engagement in the process. A methodology was developed to support improvement
teams formed by people from the diþ erent companies. Tailored programs were provided to
small companies that did not take part in core projects. All these activities aimed at developing
a sense of trusted cooperation between companies, conforming to the requisites of sustainable
relationships proposed by Edwards & Samini (1997).
The third relevant aspect of the case was the emphasis given to knowledge codi® cation
and transfer to gear improvement across the companies. Siderar’s approach to knowledge
management consisted mainly of (i) redesigning documents to register process control and
quality inspection data and (ii) gathering and codifying collective knowledge that was then
disseminated across the network via improvement teams, education, and other collaboration
activities. In other words, there is evidence that Siderar did recognize the value of tacit and
collective knowledge as a source of competitive advantage, ® rst by turning tacit knowledge
into explicit knowledge (via documents), second by gathering and disseminating collective
knowledge (via team work). This is congruent with the literature, e.g. de Geus (1998)
and Spender (1996), prescribing the use of knowledge as an instrument for operations
improvement.
Finally, besides the broad topics of customer response and knowledge, other speci® c
elements from the literature of supply chain management could also be identi® ed in the case.
For example, the roles of trust to foster continuous improvements and learning (Sako &
Helper, 1997), value chain relationships to create barriers to entry ( Jap & Weitz, 1996), and
supply chain coordination to reduce costs and improve quality across the value chain (Thomas
& Griý n, 1996). Overall, the Siderar case provides evidence of an emerging framework in
the supply chain management literature pointing to the role of customer focus, learning,
coordination and close relationships as sources of continuous improvements and competi-
tiveness. What is more important, the case describes a process that was geared by suppliers
towards customers, as an alternative to the more traditional approach of `supplier develop-
ment’ , e.g. Hand® eld et al. (2000), Krause et al. (2000), Quayle (2000).
 682 M. PALADINO ET AL.

Conclusions
This case provides evidence that value chain management, more than an `extension’ of a
® rm’s internal practices, may sometimes be the only approach able to guarantee the success
of quality improvement programs. Beginning with the recognition that Siderar’ s survival
depended on the survival of customers, Siderar realized that any strategy aiming to guarantee
its future should contemplate improvements in processes and products across the value chain.
Hence, it devised an improvement strategy directed toward customers as much as to its own
processes and products.
Contrary to earlier studies focused on supplier development from the customer perspec-
tive, this study shows that value chain development can be also oriented from suppliers to
customers. Companies that are well informed about their market and suý ciently close to
their customers can use their customer relationships to stimulate the internal improvements
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that enable them to compete more eþ ectively for their customer’ s business. A particularly
strong customer might even impose this stimulus. If this improvement activity is exploited to
the point where it enhances the company’s fundamental technical or market knowledge, it
could be used to engage the attention of suppliers. This may establish the opportunity for a
company to integrate its own learning with that of its suppliers, to mutual bene® t.
This process has an inherent element of risk, in that it also allows knowledge to be
shared with others (possibly competitors) outside the company, but that this is a small price
to pay if the action creates greater loyalty between companies. It is more normal in
relationships to experience a high level of mutual trust before sharing proprietary knowledge.
Knowledge is power, and a willingness to share knowledge can be the catalyst needed to
initiate trust and develop buyer- supplier relations towards sustainable quality improvements
across the value chain.

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