Week 5 Information systems for business operations (internal & external) Week aims • Review functional information systems and explain why there is a trend towards crossfunctional information systems • Identify the major cross-functional information systems in business and their main roles • Explain the need for enterprise resource planning (ERP) systems in business • Discuss issues of ERP implementation • Describe the trend and future of ERP systems • Explain why a business could benefit from effective customer relationship management (CRM) systems • Review the features of a CRM system and different types of CRM applications • Discuss challenges and issues involved in implementing a CRM system • Discuss the future trends in the development of CRM systems • Explain why a business could benefit from effective supply chain management (SCM) systems • Review the features of an SCM system and different types of SCM applications • Discuss challenges and issues involved in implementing a SCM system Discuss the future trends in the development of SCM systems. 5.1 Functional and cross-functional information systems Traditionally businesses are operated by dividing the organisation into various functions in a silo structure with each having its own information system and tending to work in isolation. An organisation’s information systems also rarely included vendors and customers (Laudon & Laudon 2005, p. 58) (see Figure 5.1). Figure 5.1 Traditional view of systems. (Source: Laudon & Laudon 2005, p. 58) Functional information systems provide a variety of operational and managerial applications to support the basic business functions of a company (O’Brien & Marakas 2011, p. 284). Functional business systems are composed of a variety of types of information systems (transaction processing, management information, decision support, etc.) that support the business functions of: Accounting; Finance; Marketing; Productions/operations management; Human resource management (see Figure 5.2). Information systems can be grouped into business function categories; however, in the real world information systems are typically integrated combinations of functional information systems (O’Brien & Marakas 2011, p. 287). Figure 5.2 Examples of functional information systems. (Source: O’Brien & Marakas 2011, p. 287) The functional (silo) approach to information systems allows organisations to optimise expertise and avoid redundancy in expertise, e.g. hiring an IT person to solve all the IT problems in all the functions versus an IT person in each function. The functional approach also makes it easier to benchmark with other organisations (Pearlson & Saunders 2004, p. 106). However there are some problems with this approach. Pearlson and Saunders (2004, pp. 106–107) suggest that problems with the silo approach include: (1) information recreation (duplication) (2) communication gaps among departments (3) ingrained organisational culture and structure (4) hands off between silos, e.g. blaming, loss of information, inconsistent services to customers, etc. In order to deal with these problems, managers need to think beyond the walls of the organisation. Thus there is a need for a process or cross-functional approach, which focuses on the big picture, concentrates on the work that must be done to ensure the optimal creation of value and enterprisewide services (O’Brien & Marakas 2011 p. 275). Figure 5.3 depicts a new product development process in a manufacturing firm, which is supported by cross-functional information systems that cross the boundaries of several business functions (O’Brien & Marakas 2011, p. 275). Figure 5.3 An example of cross-functional business process. (Source: O’Brien & Marakas 2011, p. 287) Cross-functional information systems are integrated combinations of information subsystems that share information resources and support business processes across the functional units (Laudon & Laudon 2005, p. 58) (see Figure 5.4). They are a strategic way to use IT to share information resources and improve efficiency and effectiveness and focus on accomplishing fundamental business processes in concert with the company’s customer, supplier, partner, and employee stakeholders. Cross-functional information systems include: cross-functional enterprise applications (i.e. enterprise resources planning (ERP) systems, supply chain management (SCM) systems, customer relationship management (CRM) systems, and knowledge management (KM) systems, transaction processing systems (TPS) and enterprise collaboration systems (ECS). Figure 5.4 Cross-functional information systems. (Source: Laudon & Laudon 2005, p. 58) Transactions are events such as sales, purchases, deposits, withdrawals, refunds, and payments. Transaction processing systems (TPS) are cross-functional information systems that capture and process data describing business transactions (O’Brien & Marakas 2011, p. 278). TPS play a vital role in supporting the operations of an enterprise. Online transaction processing systems, which are real-time systems and capture and process transactions immediately, play a very important role in online transactions. O’Brien and Marakas (2011, p. 278) suggest that a transaction processing cycle consists of several basic activities: (1) data entry activities (2) transaction processing activities (3) database maintenance activities (4) document and report generation (5) inquiry processing activities (see Figure 5.5). Figure 5.5 Activities of transaction processing systems. (Source: O’Brien & Marakas 2011, p. 280) Enterprise collaboration systems (ECS) are information systems that use a variety of information technologies to help people work together. Enterprise collaboration systems enhance communication (i.e. sharing information with each other), coordination (i.e. coordinating individual work efforts and use of resources with each other), and collaboration (i.e. working together cooperatively on joint projects and assignments) across the organisation (O’Brien & Marakas 2011, p. 280). Figure 5.6 presents tools available for enterprise collaboration. Figure 5.6 Tools for enterprise collaboration. (Source: O’Brien & Marakas 2011, p. 281) Enterprise applications, such as ERP, SCM, CRM and KM systems, are cross-functional information systems and support the operation, suppliers, partners and employees of the business. They have different focuses but also are inter-related (O’Brien & Marakas 2011, p. 275) (see Figure 5.7). ERP, which focuses on internal business operation, will be discussed in the remaining part of this week. SCM concentrating on suppliers relationships and CRM emphasising building relationships with customers will be discussed in the next section. KMS, which aims at knowledge sharing and decision-making, will be discussed in the next week. Figure 5.7 Enterprise applications. (Source: O’Brien & Marakas 2011, p. 275) Textbook Read pages 284–297 for information on Functional Information Systems and pages 272– 283 for information on cross-functional information systems. Activity 5.1 (a) Describe five activities of Transaction Processing Systems with examples by referring to Figure 5.5 (b) What are some benefits of cross-functional enterprise applications? ERP is not confined to manufacturing companies – ERP equally applies to the service industry e.g. banks, hospitals, and local government authorities. Our discussion will predominantly concentrate on manufacturing organisations due to the breadth of application. 5.2 Enterprise resource planning systems Evolution of ERP ERP has its origin in the MRP (to manage inventory in production) then MRPII, which are mainly for manufactures to plan all the resources for its production. ERP can be seen as an extension of MRPII with integrated functions such as accounting and finance systems although nowadays ERP can be found in all kinds of organisations including those that are not primarily involved in manufacturing, e.g. RMIT’s Academic Management Systems, SAP/3, MySAP. The latest version of ERP systems have included web-based ERP applications and integrated other applications/components/modules, such as SCM and CRM. Major ERP software vendors are SAP, Bann, PeopleSoft, and Oracle. ERP has been implemented in many large corporations. And more and more SMEs are embarking on ERP. Haag, Baltzan and Phillips (2008, p. 136) suggests the three primary forces driving the explosive growth of enterprise resource planning systems are: • ERP is a logical solution to the mess of incompatible applications that had sprung up in most businesses • ERP addresses the need for global information sharing and reporting ERP is used to avoid the pain and expense of fixing legacy systems. Business values of ERP Enterprise resource planning (ERP) is a cross-functional enterprise system that integrates and automates many of the internal business processes of a company, particularly those within the manufacturing, logistics, distribution, accounting, finance, and human resource functions of the business (O’Brien & Marakas 2011, p. 320). ERP systems track business resources and the status of commitments made by the business no matter what department has entered the data into the system. ERP software typically includes integrated modules, such as Manufacturing, Distribution, Sales, Accounting, and Human Resource Management, which give a company a real-time crossfunctional view of its core business processes, such as production, order processing, and sales, and its resources, such as cash, raw materials, production capacity, and people (O’Brien & Marakas 2011, p. 333). It features a set of integrated software modules and normally a central database that allow data to be shared by many different business processes and functional areas throughout the enterprise (Laudon & Laudon 2014, p. 365) (Figure 5.8). Figure 5.8 ERP architecture. (Source: Laudon & Laudon 2014, p. 364) O’Brien and Marakas (2011, p. 320) point out that ERP serves as the vital backbone information system of the enterprise, helping a company achieve the efficiency, agility, and responsiveness required to succeed in a dynamic business environment. The primary purpose of an ERP is to collect, update, and maintain enterprise-wide information. All of the functional departments access the same information when making decisions and solving problems so every department or functional area can work together and not be a ‘silo’. Successful implementation of ERP can provide organisations with many benefits. O’Brien and Marakas (2011, p. 324) identify the following benefits: • quality and efficiency enhancement by helping improve the quality and efficiency of customer service, production, and distribution by creating a framework for integrating and improving internal business processes • decreased costs by replacing old legacy systems, reductions in transaction processing costs and hardware, software, and IT support staff, and reduction in inventory • decision support assistance through providing cross-functional information on business performance to assist managers in making better decisions • enterprise agility through breaking down many walls and creating a more flexible organisational structure, managerial responsibilities, work roles and integrated financial information. Haag, Baltzan and Phillips (2008, p. 398) also present some ERP benefits, which are basically in line with those discussed by O’Brien and Marakas. The costs of ERP Costs involved in implementing ERP are considerable. Hardware and software costs are a small part of the total costs. O’Brien and Marakas (2011, p. 325) point out the costs of developing new business processes (reengineering) and preparing employees for the new ERP system (training and change management) could be very high (more than 50% of the total implementation costs). Data conversion, i.e. converting from previous legacy systems to the new cross-functional ERP system could also be very expensive. Consulting fees, process rework, customisation, integration and testing, and data warehouse integration and data conversion could also be costly. A recent survey of 63 SMEs and large firms indicates that the average TCO of ERP is $15 million. TCO ranges from 400,000 to 30 million (Pearlson & Saunders 2004, p. 118; Haag, Baltzan & Phillips 2006, p. 282). Figure 5.9 presents the relative size and types of costs of implementing an ERP system (O’Brien & Marakas 2011, p. 325). Figure 5.9 Typical costs of implementing a new ERP system. (Source: O’Brien & Marakas 2011, p. 325) Challenges and issues of ERP implementation ERP systems affect an entire organisation simultaneously rather than a single department as was the case with functional information systems, which were only limited to departmental boundaries (Reimers 2003). However, developing and implementing a new ERP system is definitely not as simple as installing the software packages. Properly implementing ERP systems is a difficult and costly process that has caused serious business losses for some companies, who underestimated the planning, development, and training that was necessary to reengineer their business processes to accommodate their new ERP systems. There have been many failures of ERP implementation. For example, RMIT’s $47 million Academic Management System (ERP Package from People Soft) was a disastrous implementation, e.g. corrupting the financial recording systems resulting in mistakes and errors in billings of international students (Turner 2004). KMART wrote off its $130 million ERP investment. W.L. Gore filed against People Soft and Deloitte & Touche for failing to test and debug its $3.5 million payroll and personnel systems. Tri Valley Growers, an $8.8 billion revenue business declared bankrupt in 2001, kept active its $20 million suit against Oracle for the savings that they were never able to realise from its ERP project. Tri Valley wanted a fully integrated ERP to run its business (Pearlson & Saunders 2004, p. 118). Some causes of ERP failures reported by O’Brien and Marakas (2011, pp. 326–327) are: (1) underestimating the complexity of the planning, development, and training required to prepare for a new ERP system that would radically change their business processes and information systems, (2) failure to involve affected employees in the planning and development phases and change management programs, (3) trying to do too much, too fast in the conversion process (4) insufficient training in the new work tasks required by the ERP system, and (5) failure to do enough data conversion, testing and (6) over-reliance on IT management or on the claims of ERP software vendors or the assistance of prestigious consulting firms hired to lead the implementation. While ERP failures could have been due to technical issues, most of the time they are due to change management and business process implementation issues (Turner 2004). ERP systems require a fundamental transformation of a company’s business processes. People, processes, policies, and the company’s culture are all factors that should be taken into consideration when implementing a major enterprise system. ERP often changes the way an organisation operates because ERP developers must create the system without knowing the exact requirements of their future customers (Reimers 2003). Davenport (1998, p. 123) expresses the view that ‘Enterprise systems are basically generic solutions even though they integrate industry best practices in many cases. Of course some degree of customisation is possible, but major modifications are very expensive and impractical. As a result, most companies installing enterprise systems will have to adapt or rework their processes to reach a fit with the system’. On the other hand, inflexibility of ERP packages may sometime lock companies into rigid processes that make it hard, if not impossible, to adapt quickly to changes in the marketplace or in the structure of the organisation. The embedded best practices in ERP packages may also not be able to apply to all businesses (Pearlson & Saunders 2004, p. 118). Many companies are still adjusting themselves to the concept of ‘Cross-functional integration’, using a single database. Furthermore, while the costs and risks of failure in implementing a new ERP system could be substantial, it also takes time to realise benefits (Haag, Baltzan & Phillips 2008, p. 398). In order to avoid ERP failures, organisations should know what they want the ERP system to do, involve staff in the ERP project from the beginning, understand change management, have a balanced project management team with an unswerving project champion, hire consultants with proven track records, conduct extensive conversion and data testing, understand the very complex nature of the enterprise resource planning and implementation, define realistic scope and goals, gain support from top management, provide people with sufficient training and allocate sufficient resources (Turner 2004; Pearlson & Saunders 2004, p. 121; O’Brien & Marakas 2011, pp. 326–327; Blick & Quaddus 2003). Pearlson and Saunders (2004, pp. 119–120) point out that sometimes organisations have to make a decision between (1) letting the ERP drive business process redesign or (2) re-designing the business process first then implementing ERP. The former approach is suitable for new businesses, or for businesses whose processes are not sources of competitive advantage, or for businesses whose current systems are in crisis and there is not enough time, resources or knowledge within the firms to fix them. The latter approach can be applied when business processes, which have to be designed in-house not from the package, give a firm competitive advantage or when features of available packages and the needs of businesses do not fit. Organisations also can use data warehouses (poor man’s ERP) if they don’t want to pay for the costs and risks involved in the ERP (Pearlson & Saunders 2004, p. 120). Integration issues Most organisations have various systems and applications from multiple vendors. Often organisations take the approach of best-of-breed for the reasons that no one vendor can respond to all an organisation’s needs (Haag, Baltzan & Phillips 2008, p. 138). Organisations, who are looking for optimal solutions for individual areas, are more likely to go for the best-of-breed approach for richer functionalities (http://www.olcsoft.com/select_0800.htm). One of the most popular integration tools is enterprise application integration (EAI) (Haag, Baltzan & Phillips 2008, p. 138). EAI is a software (a kind of middleware), which enables two business applications to communicate and to exchange data (Laudon & Laudon 2005, p. 217; O’Brien & Marakas 2011, p. 277). EAI can integrate front-office and back-office applications to allow for quicker, more effective responses to business events and customer demands, thereby improving customer and suppler experience with the business. (O’Brien & Marakas 2011, p. 277) (see Figure 5.10). Figure 5.10 Role of EAI. (Source: O’Brien & Marakas 2011, p. 277) Laudon and Laudon (2005, p. 217) point out that, compared to the traditional approach of integrating where you need to have different and customised software to connect one application to another, EAI connects disparate applications and multiple systems through a single software hub using a special middleware (see Figure 5.11). Figure 5.11 EAI versus traditional integration approach. (Source: Laudon & Laudon 2005, p. 218) Future trends of ERP In the future we will see more open and flexible software packages, i.e. more customisable interfaces to suit individual needs (Haag, Baltzan & Phillips 2008, p. 401). And the Internet will play a more important role in helping organisations integrate data and processes across functional departments. Internet technologies will become more popular in building web interfaces and network capabilities for ERP systems (Haag, Baltzan & Phillips 2008, p. 401; O’Brien & Marakas 2011, p. 327). Another future trend for ERP is the development of inter-enterprise ERP systems that provide web-enabled links between key business systems of a company and its customers, suppliers, distributors, and others (O’Brien & Marakas 2011, p. 327). Haag, Baltzan and Phillips (2008) believe that wireless technology will enable an organisation’s mobile users to access and interact with its ERP system. They also suggest that in the future lines between SCM, CRM, and ERP will continue to blur. ERP software companies have developed modular, Web-enabled software suites (e.g. oracle’s E-business suite) that integrate ERP, CRM, SCM, procurement, decision support, enterprise portals, and other business applications and functions. Although our discussion has predominantly concentrated on manufacturing businesses, ERP in the service industry is growing. The Australian Government has embarked on a ‘whole of government’ approach. Already many organisations and businesses have experienced the reduction in formfilling for many government departments. For example in a ‘one-stop-shop’ portal, an organisation or business can register their business and its trading name for the Australian Securities and Investment Commission (ASIC), apply for an ABN, TFN, FBT and PAYG from the Australian Taxation Office (ATO), download business commencement checklists, as well as update any contact details across the government agencies all through the one portal (http://www.business.gov.au). Another future trend is the web-based On Demand ERP Services (i.e. renting the application usage businesses actually require and consume rather than owning and maintaining an application and its supporting infrastructure). It reflects the shift to web computing as we discussed in Week 5. And the success of Salesforce, WebEX (on-demand meeting applications), Google and other businesses, indicates businesses are willing to use cheaper web-based applications, and focused services may be more likely to succeed than the complicated services such as ERP applications in a hosted network-delivered service model. An example of On Demand ERP Services is SAP Business ByDesign (http://www.sap.com/solutions/sme/businessbydesign/index.epx) Second wave of ERP Graham Shanks of Monash University believes that the first wave of ERP was a more IT view of projects – let’s get the software in and working; second wave implementation will see the process more as a business project where you have the opportunity to realign your business processes, change the way you do things with IT as an enabler (Turner 2004, p. 5). While it is true that most of the Fortune 500 companies have already adopted ERP systems, the next target for growth are the small and medium enterprises (SMEs) and industry-specific solution markets. EPR vendors are working hard to target SMEs to install ERP systems and have released less-expensive, modular and hosted versions of their software. Vendors’ strategy is to make the systems more user-friendly to SMEs so that they can avoid customisation, which can really drive up costs. SAP Business One is an example of ERP Solutions for Small and Midsize Enterprises (http://www.sap.com/smallbusiness/solutions/demos/index.epx). Another cut-down version for small business that can install ERP on their own server is Tiny ERP (http://www.openerp.com). Textbook Turn to your text and read about ERP on pages 320–329. Reading 5.1 Read Reading 5.1 titled ‘Benefit Realization with SAP: A Case Study’ by Blick and Quaddus (2003) for the discussion of a successful ERP implementation in Western Australia Water Corporation. Activity 5.2 Answer the following questions: (a) Describe the primary users and primary business benefits of CRM, SCM, and ERP applications. (b) Compare core enterprise resource planning components and extended enterprise resource planning components. (c) Describe the three primary components found in core enterprise resource planning. (d) Describe the four primary components found in extended enterprise resource planning systems. (e) Explain the goal of ERP and how intranets and EIPs support this goal. Activity 5.3 Turn to text page 321 and read the case titled ‘Kennametal, Haworth, Dana Holding, and Others: ERPs Get a Second Lease on Life’. Answer the questions at the end of the case. Section summary In this section, we reviewed functional information systems and explained the need for crossfunctional information systems, which have become very important to businesses these days. We also discussed different perspectives on ERP systems, including benefits, costs, features, implementation, trend and future directions. In the next section, we will have a close look at two more popular cross-functional information systems: customer relationship management (CRM) systems and supply chain management (SCM) systems. 5.3 Customer relationship management The customer-focused business strategy A customer-focused business strategy is not a matter of choice – rather it is a matter of necessity, and technology makes this possible. No longer can companies expect to rely on traditional methods of buying and selling their products to suppliers, intermediaries or channel members (O’Brien & Marakas 2011, p. 308). Technology, especially Internet technology, is increasingly being used in the marketplace (market space) to reach these consumers. Today’s consumers can quickly change from one company’s product offering to other companies with a click of a mouse. Businesses have come to realise that the relationships that they build with these consumers are their most valuable assets (O’Brien & Marakas 2011, p. 309). The focus of competition has shifted from who sells the most products and services to who owns the customers. Customer-focused business is one of the top business strategies that can be supported by information technology. And companies are implementing customer relationship management (CRM) business initiatives and information systems to enhance their competitiveness (O’Brien & Marakas 2011, p. 309). Customer relationship management Haag, Baltzan and Phillips (2008, p. 127) state that ‘Customer relationship management (CRM) is a business philosophy based on the premise that those organizations that understand the needs of individual customers are best positioned to achieve sustainable competitive advantages in the future’. O’Brien and Marakas (2011, p. 309) suggest that CRM is the business focus and is an enterprise-wide effort to acquire and retain customers. It focuses on building long-term and sustainable customer relationships that add value both for the customer and the firm. Through applying technology that collects and examines customer information from a multifaceted perspective, CRM could provide customer-facing employees with a single, complete view of every customer at every touch point and across all channels while giving the customer a single, complete view of the company (Laudon & Laudon 2005, p. 65). By applying a set of integrated applications and modules, CRM can address all aspects of the customer relationship, including customer services, sales, and marketing, provide consistent and personalised services to individual customers (mass customisation). CRM contributes to building long-term customer relations, and identifying the best and most profitable customers (Laudon & Laudon 2005, p. 65) (see Figure 5.12). Figure 5.12 Customer relationship management. (Source: Laudon & Laudon 2005, p. 65) Laudon and Laudon (2005, p. 65) suggest that through effective customer relationship management, organisations are able to identify answers for such questions on their customers as: What is a value of a particular customer to the firm over his or her lifetime? What are our most profitable customers? Who are our most profitable customers? What do these most profitable customers want to buy? What is the past, present and future potential of individual customers? At what price level am I winning and losing business? What quotes did the customer previously accept or reject? Which competitors has the customer used? What is the cost of shipping? O’Brien and Marakas (2011, p. 312) argue that CRM supports activities such as customer contact and account management, marketing and fulfilment, customer services, enhancing and optimising customer retention and loyalty are all very important business strategies and a primary objective of customer relationship management. They support their contention with the following data (O’Brien & Marakas 2011, p. 312): • it costs six times more to sell to a new customer than to sell to an existing one • a typical dissatisfied customer will tell 8 to 10 people about his/her experience • a company can boost its profit 85% by increasing its annual customer retention by only 5% • the odds of selling to a new customer are 15%; an old customer 50% • 70% of complaining customers will do business with the company again if it takes care of a service mishap. Customer relationship management systems O’Brien and Marakas (2011, p. 309) note that customer relationship management systems are cross-functional enterprise systems that integrate and automate many of the customer serving processes in sales, marketing, and customer service. They also point out a CRM system develops an IT framework, which integrates processes of sales, marketing, and customer service with the rest of the company’s business operations, tracks all of the ways in which a company interacts with its customers, and helps analyse these interactions. Major CRM software application vendors include: Siebel, Oracle, PeopleSoft, SAP, IBM, and Nortel/Clarify. Some key capabilities of CRM software include: sales perspectives (e.g. account management, lead management, order management, sales planning, field sales, sales analytics), marketing perspectives (e.g. campaign management, channel promotions, events management, market planning, market operations, marketing analytics), and service perspectives (e.g. service delivery, customer satisfaction management, returns management, service planning, call centre & help desk, service analytics) (Laudon & Laudon 2014, p. 385). Figure 5.13 (Laudon & Laudon 2005, p. 406) depicts a CRM system for a financial services business. The system captures customer information from all customer touch points (method of firm interaction with a customer such as telephone, email, customer service desk, conventional mail, or point-of purchase) as well as other data sources. Then it merges and aggregates the data into a single customer data repository or data warehouse where it can be used to provide better service, as well as to construct customer profiles for marketing purposes. Online analytical processing (OLAP) allows managers to dynamically analyse customer activities to identify trends or problems. Other analytical software programs (e.g. data mining) analyse aggregated customer behavior to identify profitable and unprofitable customers as well as customer activities (e.g. purchasing patterns) (Laudon & Laudon 2005, p. 406). It should be noted that Figure 5.13 does not include the channel and touch points via mobile devices and social networks/media. Figure 5.13 A customer relationship management system. (Source: Laudon & Laudon 2005, p. 406) O’Brien and Maraks (2011, p. 318) present four types or categories of CRM applications that are being implemented by many companies today, namely operational CRM, analytical CRM, collaborative CRM, and port-based CRM. Haag, Baltzan and Phillips (2006, p. 115) focus their discussion on two of them: operational CRM and analytical CRM. We will discuss all four types proposed by O’Brien and Marakas (2011, p. 308) in the following paragraphs to enhance the information provided by our textbook. In a slightly different approach, Turban et al. (2006, p. 554) classify CRM applications into four categories of customer-facing applications, customer-touching applications, customer centric intelligence applications, and online networking and other applications. Their classification is basically in line with O’Brien and Marakas’s but will also be brought in to enrich our discussion. 1. Operational CRM Operational CRM deals with day-to-day operations or systems that directly interact with customers (Haag, Baltzan & Phillips 2008, p. 376). Operational CRM systems can include customer-facing applications (i.e. call centres, telemarketing, telesales, tele-services, auto-responders, sales force automation) and customer-touching applications (i.e. personalised web pages, online marketing, online sales, online services, automated marketing campaigns via email, contact centre, selftracking, self-configuration and customisation, self information search, FAQs (Haag, Baltzan & Phillips 2008, pp. 378–384; Turban et al. 556–561; O’Brien & Marakas 2011 p. 318)). 2. Analytical CRM Through applying analytical marketing tools (i.e. data warehouse and data mining; OLAP) in analysing customer information and extracting vital data about customers, analytical CRM can assist businesses in better understanding information, better targeted marketing, and more personalised services (Haag, Baltzan & Phillips 2008, p. 384; O’Brien & Marakas 2011, p. 318; Turban et al. 2006, pp. 561–562). By pooling together all the data on individual customers, analytical CRM is able to provide a single view of each customer with information including a map of the customer’s relationship with the organisation, product and usage summary, demographic and psychographic data, profitability measures, contact history summarising the customer’s relationship with the business across multiple channels, marketing and sales information received by the customers (Laudon & Laudon 2005, p. 355). Analytical CRM focuses on such activities as: (1) developing customer segmentation strategies (2) developing customer profiles (3) analysing customer profitability (4) analysing product profitability (5) identifying cross-selling and up-selling opportunities (6) selecting the best marketing, service, and sales channels for each customers group (7) identifying trends in sales cycle length, win rate, and average deal size (8) analysing service solution times, service levels based on communication channel, and service activity by product line and account (9) analysing leads generated and conversion rates (10) analysing sales representatives and customer service representative productivity (11) identifying churn problems (i.e. measuring the number of customers who stop using or purchasing products and services from a company), among many others (Laudon & Laudon 2012, p. 380). Analytical CRM often utilises a data warehouse, which provides the input to customer-centric intelligence applications and presents the information in the data warehouse for analysis in various formats and details, e.g. tabular, graphical, drilling up/down, drill across, drill through, etc. (Laudon & Laudon 2012, p. 380) (see Figure 514). Figure 5.14 Analytical CRM data warehouse. (Source: Laudon & Laudon 2012, p. 380) 3. Collaborative CRM CRM systems can be used to involve business partners, suppliers and customers in collaboratively providing better customer services, allowing greater responsiveness to customer needs, and enhancing efficiency and integration of supply chains (O’Brien & Marakas 2011, p. 318). Some examples of such systems include systems for customer self-service and feedback, and partner relationship management (PRM) systems (O’Brien & Marakas 2011, p. 318). 4. Portal-based CRM Internet, intranet, and extranet Web-based CRM portals can act as a common gateway for various levels of access to all customer information and operational, analytical, and collaborative CRM tools for customers, employees, and business partners (O’Brien & Marakas 2011, p. 318). Furthermore online networking applications, such as online forums, chat rooms, usenet groups, email newsletters, and online discussion lists, can help organisations better understand and serve customers (Turban et al. 2006, pp. 554–555). O’Brien and Marakas (2011, p. 315) propose another way to to understand CRM, they view CRM as an integrated system of Web-enabled software tools and databases accomplishing a variety of customer-focused business processes that support the three phases of the relationship between a business and its customers (see Figure 5.15): 1. Acquire new customers through CRM software tools and databases, which help in the areas of contract management, sales prospecting, selling, direct marketing, and fulfilment. 2. Enhance relationship with customers and provide better services through Web-enabled CRM account management and customer service and support tools, which help keep customers happy by supporting superior service from a responsive networked team of sales and service specialists and business partners. 3. Retain customers through CRM analytical software and databases, which help a company proactively identify and reward its most loyal and profitable customers to retain and expand their business via targeted marketing and relationship marketing programs. Figure 5.15 Three phases of CRM. (Source: O’Brien & Marakas 2011, p. 315) Challenges and issues of customer relationship management While CRM can bring organisations benefits such as those stated in Haag, Baltzan and Phillips (2006, p. 114), the failure rate of CRM implementation can be as high as 55 to 75% (Laudon & Laudon 2005, p. 357). Many companies have found CRM systems difficult to properly implement. Major reasons for the failure of CRM systems are the lack of understanding and preparation. Some other reasons identified by O’Brien and Marakas (2011, p. 316), Laudon and Laudon (2005, pp. 357–358), and Zikmund et al. (2003, p. 163) include: • to see a ‘total picture’ of a customer is difficult, especially managing global customers with different languages, time zones, currencies, regulations, etc. • poor user acceptance, e.g. asking sales people to share their customer information could be hard since their income is largely based on commission. Other concerns include fears about job security and management control • change from a product-centric view to customer-centric view is not an easy process • many failures happen when firms try to create a cross-functional enterprise system that will integrate data from a wide array of departments into one system. Firms have to make changes in their culture and business processes to facilitate such cross-functional integration • failure to provide proper project focus and the lack of adequate project management skills. Failures in providing consistent services to customers from various touch points could be another reason. As per a survey conducted by Royal Bank of Canada, the largest bank in Canada, when convenience is very important to customers (i.e. convenience of online banking), what customers wanted was a bank which cares for its customers, values their businesses, and recognised them as the same individuals no matter what parts or/and which touch points of the bank they did business with (Gulati & Oldroy 2005). Organisations have to understand that CRM is not just technology, but a strategy, process, and business goal that an organisation must embrace on an enterprise-wide level. If an organisation does not embrace CRM on an enterprise-wide level it will have a difficult time gaining a complete view of its customers. Technology is not able to manage customer relationships unless associated managerial and organisational issues have been properly dealt with (Laudon & Laudon 2005, p. 357). But how to ensure a successful CRM implementation? Some suggestions provided by Haag, Baltzan and Phillips (2008, p. 131) are: • clearly communicate the CRM strategy • define information needs and flows • build an integrated view of the customer • implement in iterations • scalability for organisational growth. Gulati and Oldroy (2005), Zikmind et al. (2003, p. 163), and Laudon and Laudon (2005, pp. 357– 358) also suggest some strategies for avoiding CRM implementation failures. They are: • conduct a survey to determine how the organisation responds to customers • carefully consider the components of CRM, e.g. sales, marketing. You may only choose what you need with greater precision and target critical gaps in the operations • concentrate on how CRM software can help but not too much on what it can do – place business before technology • decide a strategy: refining existing processes or re-engineering • evaluate all levels in organisations but give more attention to the front line • prioritise the CRM requirements: must, desired or not so important, so companies can launch highly disciplined strategies that will have a greater impact with lower investment and less risk • select appropriate CRM software from various vendors: Best-of-breed approach or a single package? • clear performance measures (e.g. market share, customer acquisition, customer satisfaction, customer profitability, number or percentage of problems/complaints, lead generation rate, lead conversion rate, sales closing rate, cost per lead) • adopt staged system development and phased implementation • top management’s support and commitment • sufficient financial commitments: TCO can be very high (i.e. a few million dollars), i.e. cost of data conversion from day/month/year format to m/d/y format in different systems • make required changes in organisational culture, structure, and business processes. Sometimes organisations have to make a decision on whether to reorganise the whole company by customer segments that cut across product, technology and geographic boundaries or add a new unit to coordinate between the centralised IT and analytics experts and the front line (i.e. creating a core marketing leadership team and an analytics group and have a divisional structure, organised geographically and reporting back to a core marketing leadership team to address the differences among many locations the business is operating in) • promoting early success, carefully design the tasks involved and set up the links between units so as to minimise conflict. Future trends of customer relationship management There is no doubt that in the future CRM will continue to be a major strategic focus for companies. CRM applications will change from employee-only tools to tools used by suppliers, partners, and even customers. CRM applications will continue to adapt wireless capabilities and incorporate PRM and SRM modules when supporting mobile sales and mobile customers (Haag, Baltzan & Phillips 2008, p. 387). On-demand and cloud-based CRM services are emerging. The arguments for such a need include: (1) good standard CRM Process embedded in CRM services and the reality of little or no internal IT Support in many organisations; (2) integration, customisation, upgrade issues involved in the approach of hosting own CRM applications within organisations. However the counter argument is how about sensitive customer data, such as those in financial services and health care? Textbook Turn to your textbook and read about CRM on pages 308–319. Reading 5.2 Read Reading 7.2 titled ‘The Case of Implementing a CRM System at Indigo’ for a case study of CRM implementation in a global corporation. Activity 5.4 Answer the following questions: (a) List and describe several benefits an organisation can receive from CRM. (b) Compare operational CRM and analytical CRM. (c) Define the relationship between decision making and analytical CRM. (d) Describe three CRM technologies used by marketing departments. (e) Describe three CRM technologies used by sales departments. (f) Describe three CRM technologies used by customer service departments. (g) Compare customer relationship management, supplier relationship management, partner relationship management, and employee relationship management. Activity 5.5 Turn to your text on page 310 and read the case titled ‘Dow Corning and Direct TV: CRM Goes Mobile’. Answer the questions in the end of the case. 5.4 Supply chain management – extending the organisation Supply chains Turban et al. (2006, p. 279) define supply chain as ‘the flow of materials, information, money, and services from raw material suppliers through factories and warehouses to the end customers’ (see Figure 5.16). Supply chains have existed for thousands years. The silk road from China to other parts of the world is a good example of a very old supply chain. Figure 5.16 The process view of CRM. (Source: Kalakota & Robinson, 1999, p. 198) Laudon and Laudon (2012, p. 374) suggest that supply chains can be viewed from a push-based or pull-based perspective. The push-based model is basically the traditional build-to-stock approach while pull-based model is the strategy of build-to-order – ‘make what we sell not sell what we make’ (e.g. Dell computer’s model) (see Figure 5.17). Figure 5.17 Pull versus push supply chain models. (Source: Laudon & Laudon 2012, p. 374) A complete supply chain consists of three parts (Turban et al. 2006, p. 280, Haag, Baltzan & Phillips 2008, p. 118): • Upstream supply chain: activities of a manufacturing company with its suppliers. The major activity is procurement. • Internal supply chain: in-house processes for transforming the inputs from the suppliers into the outputs. Main concerns are production management, manufacturing, and inventory control. • Downstream supply chain: delivering the products to the final customers. And the attention is on distribution, warehousing, transportation and after-sale services. The components of a typical supply chain include: supplier’s supplier, supplier, manufacturer, distributor, retailer, customer, and customer’s customer (Haag, Baltzan & Phillips 2008, p. 118). Turban et al. (2006, p. 283) point out that some typical problems along the supply chain include: • slow and prone to errors because of the length of the chain involving many internal and external partners • large inventories without the ability to meet demand • insufficient logistics infrastructure • quality problems or difficulties in controlling quality. Lacking an effective information sharing mechanism is a major cause of failures of supply chains. Inaccurate information can cause a minor fluctuation in demand to be amplified as it moves further back in supply chain – called the bullwhip effect. For example, minor fluctuations in retail sales for a product can create excessive inventory for distributors, manufacturers and supplies (Laudon & Laudon 2005, p. 340) (see Figure 5.18). For those students who are interested in pursuing a greater understanding of the bullwhip effect, the Beer Game provides a good demonstration of this effect (http://beergame.mit.edu). Figure 5.18 The bullwhip effect. (Source: Laudon & Laudon 2012, p. 369) Supply chain management Supply chain management (SCM) is a cross-functional inter-enterprise effort that uses IT to help support and manage the links between some of a company’s key business processes and those of its suppliers, customers and business partners. Some basic elements of supply chain management include: plan, source, make, deliver, and return (Haag, Baltzan & Phillips 2008, p. 119). Through using a fast, efficient, and low-cost supply chain, organisations can enhance their agility and responsiveness in meeting the demands of their customers and needs of their suppliers (O’Brien & Marakas 2011, p. 330). Some SCM benefits reported in Haag, Baltzan and Phillips (2008, p. 118) include: cost/control savings, productivity improvement, reductions in inventory levels, enhanced visibility of demand and supply, improved quality, maintaining/gaining competitive advantages. O’Brien and Marakas (2011, p. 330) and Laudon and Laudon (2005, p. 348) add some other benefits not mentioned by Haag et al. such as faster, more accurate order processing, faster time to market, lower costs, and better relationships with suppliers, better cash flow arising from supply chain efficiency, etc. O’Brien and Marakas (2011, p. 336) suggest that SCM can also play different roles at different levels in business with the help of information systems (Figure 5.19). Figure 5.19 The role of SCM in business. (Source: O’Brien & Marakas 2011, p. 336) More and more companies are embarking on SCM. What is driving the explosive growth of SCM? Haag, Baltzan and Phillips (2008, p. 124) believe factors such as advances in IT, improved visibility of supply chain, more demanding customers, increased competition, and faster speed required to respond to the changes in the marketplace are behind this growth. Haag, Baltzan and Phillips (2008, p. 360) propose that organisations can design supply chain strategies by looking at efficiency and effectiveness of supply chains. Supply chain management strategies focusing on efficiency are most concerned with using the supply chain to drive down costs. For example, an efficient SCM will use a centralised warehouse, inexpensive transportation methods, and freely share lots of information in a push strategy with its supply chain partners. Supply chain management strategies focusing on effectiveness are most concerned with using the supply chain to increase customer satisfaction. In contrast to the efficiency model above, an effective SCM model will have many decentralised warehouses close to its customers, excess capacity at its facilities to meet wide swings in demand, use fast and expensive shipping methods, and selectively share information using a pull strategy with its supply chain partners (Haag, Baltzan & Phillips 2008, pp. 360–365). In order to make a decision on whether a effectiveness-focused strategy or a efficiency-focused strategy is to be adopted, organisations can examine four areas of facilities, inventory, transportation and information (Haag, Baltzan & Phillips 2008, p. 361). Traditional SCM thinking involved ‘I buy from my suppliers, I sell to my customers’. Today, organisations are quickly realising the tremendous value they can gain from having visibility throughout their supply chain. Knowing immediately what is transacting at the customer end of the supply chain, instead of waiting days or weeks for this information to flow upstream, allows the organisation to react immediately (Laudon & Laudon 2005, p. 340). The role of SCM is evolving and it is not uncommon for suppliers to be involved in collaborative activities, i.e. in product development and for distributors to act as consultants in brand marketing. Supply chain management systems Supply chain management (SCM) systems, including supply chain planning systems and supply chain execution systems, automate the flow of information between members of a supply chain so that they can use it to make better decisions about when and how much to purchase, produce or ship (Laudon & Laudon 2005, p. 341). Supply chain planning (SCP) software can improve the flow and efficiency of the supply chain while reducing inventory by applying advanced mathematical applications. Supply chain execution (SCE) software is able to automate the different steps and stages of the supply chain (Haag, Baltzan & Phillips 2008, p. 121). Apart from the abovementioned supply chain planning systems and supply chain execution systems, some other technologies that can be used for managing supply chains include: Extranets, Intranets, Corporate portals, Workflow systems and tools, Groupware & other collaborative tools, EDI and EDI/Internet, RFID tags, Matrix codes (or two-dimensional bar code, such QR Code, Shotcode, Sema Code, Color Code), Electronic markets, Exchanges, Online Catalogues, Trading portals, Online auctions, Electronic commerce sites (B2B and B2C), automated warehousing systems, POS systems, Mobile devices & systems, among many others. Challenges and issues of supply chain management Laudon and Laudon (2005, p. 349), O’Brien and Marakas (2011, p. 338), and Cohen (2005) identify the following challenges and issues of SCM: 1. Lack of proper demand planning knowledge, tools, and guidelines is a major source of SCM failure. 2. Inaccurate or overoptimistic demand forecasts will cause major production, inventory, and other business problems, no matter how efficient the rest of the supply chain management process. 3. Inaccurate production, inventory, and other business data provided by a company’s other information systems are frequent causes of SCM problems. 4. Lack of adequate collaboration among marketing, production, and inventory management departments within a company, and with suppliers, distributors, and other parties involved in the supply chain. 5. SCM software tools are considered to be immature, incomplete, and hard to implement by many companies who are installing SCM systems. 6. Required changes in business processes: implementation of SCM must be accompanied by improvements in the supply chain processes. 7. Firms’ reluctance to share information and business processes to create a system that best services the supply chain as a whole. 8. Underestimate the amount of training: users must have in-depth knowledge of how the system works so they can properly interpret its results when they make the decisions. 9. Global supply chain issues, i.e. geographic distances and time differences, additional costs for transportation, inventory, and local taxes or fees on top of the lower goods prices, foreign government regulations, cultural differences, varied performance standards, issues of cost, proximity, flexibility, market size, quality control, intellectual property, workforce, e.g. manufacturing in China to enjoy lower labour cost, proximity to supply chain (finding various suppliers in the same city or neighbouring areas in China) and a large market (to sell the product into the China market) and other challenges. So what are some solutions to various supply chain management challenges and problems? Haag, Baltzan and Phillips (2008, p. 123) present seven principles of supply chain management and some industry best practices that can be very helpful to companies who are embarking on SCM. Paulonis and Norton (2008), Cohen (2005), Lee (2004); Sheffi (2005), and Turban et al. (2006, pp. 284–285) also provide some good suggestions. They include: 1. sharing information along the supply chain 2. developing the trust among partners though it is not easy to achieve 3. building relationships with your partners (especially long-term and important partners). Faceto-face communication is very important 4. building an adaptable supply chain with the ability to spot trends and the capability to change supply chain (adaptability) 5. monitoring economies all over the world to spot new supply bases and markets 6. using intermediaries, who normally have access to a network of suppliers and customers, to develop new partners to complement existing ones 7. evaluating needs of ultimate consumers not just immediate customers to avoid being a victim of the ‘bullwhip effect’ 8. creating flexible customer design for possible quick adaptation 9. determining where your products stand in terms of technology cycles and product life cycles to decide approximate markets and supply chains for every product and service, i.e. PC, VCD, for different markets 10. taking care to align the interests of all the firms in the supply chain with your own to create incentives for better performance and develop trust (alignment) 11. clearly specifying the roles, tasks, and responsibilities of all parties 12. sharing risks, costs and rewards, i.e. compensate for the loss to retailers as a result of new product development, buy back of excess books by publishers, etc. 13. creating supply chains that respond to sudden and unexpected changes in markets 14. changing linear supply to hub structure (agility) 15. establishing supply chain collaboration: e.g. Collaborative Planning, Forecasting and Replenishment (CPFR) program; integrated product-development systems. 16. using inventories to solve problem: optimise and control inventories, i.e. only maintaining a stockpile of inexpensive but key components 17. drawing up contingency plans and developing crisis management teams 18. using Internet facilities for sourcing, transportation, communications, and international finance for global SCM 19. total resources required to accommodate supply chain 20. management (both recruitment and retention) of required sufficient local talent 21. integration of IS/IT systems between suppliers and business partners 22. degree of centralisation (central management) and decentralisation (local management) 23. risk management issues 24. realisation of net benefits and competitive advantages arising from operating in low-cost markets 25. support to local staff. Laudon and Laudon (2005, p. 343) and Haag, Baltzan and Phillips (2008, p. 123) also stress the importance of the need to measure the performance of the supply chain. The measurement can be done by examining factors of fill rate (ability to fill the orders by due day), on-time deliveries, average time from order to delivery, total supply chain costs, number of delays of supply in inventory, supply chain response time, forecast accuracy and source/make cycle time, cash-tocycle time, among many others (Laudon & Laudon 2005, p. 343). Furthermore, Chopra and Meindi (2004, pp. 524–525) point out when organisations are making decisions on SCM systems, they should only select IT systems that address a firm’s key success factors, i.e. inventory in PC business (demand is unstable and short product life cycle) versus inventory in oil company (demand is fairly stable and long product life cycle), take incremental steps (e.g. demand planning functions then supply planning applications instead of installing a complete SCM system), align the level of sophistication with the need for sophistication (trade off between ease of implementation and the system’s complexity), use IT systems to support decision making, not to make decisions, and have IT systems for both current needs and future needs. Future trends of supply chain management What are some future trends of supply chain management? Haag, Baltzan and Phillips (2008, p. 367) suggests some fast growing SCM components, which could have the greatest impact on an organisation, include: supply chain event management, selling chain management – applies technology to the activities in the order life cycle from inquiry to sale, collaborative engineering, and collaborative demand planning. And they also believe that RFID is also going to change the future of supply chains. O’Brien and Marakas (2011, p. 341) believe that the trends in the use of supply chain management today are the adoption of three possible stages in a company’s implementation of SCM systems (see Figure 5.20). They are: • first stage – improving internal supply chain processes and external processes and relationships with suppliers and customers • second stage – working on links among suppliers, distributors, customers, and other trading partners • third stage – developing and implementing collaborative supply chain management applications. Figure 5.20 Stages in the use of SCM. (Source: O’Brien & Marakas 2011, p. 341) Figure 5.21 presents a view of a future supply chain, which is more Internet-driven and includes multidirectional communications (Laudon & Laudon 2014, p. 380). On a related note, private industrial networks are typically a large firm using an extranet to link to its suppliers and other key business partners while net marketplaces are digital marketplaces based on Internet technology for many different buyers and sellers. Logistics exchanges are the electronic marketplaces where logistics demand and supply could match each other. Figure 5.21 The Emerging Internet-Driven Supply Chain. (Source: Laudon & Laudon 2014, p. 380) Textbook Turn to your text and read about SCM on pages 330–342. Reading 5.3 Read Reading 7.3 titled ‘The Triple-A Supply Chain’ by Lee (2004) for a discussion of building agility, adaptability, and alignment into a supply chain. The author of this paper, Hua Lee, is a well known researcher in the area of supply chain management. He is a professor at Graduate School of Business, Stanford University. Activity 5.6 Answer the following questions: (a) List and describe the components of a typical supply chain. (b) Define the relationship between supply chain management and decision making. (c) Identify the five factors driving the explosive growth of SCM. (d) In terms of Porter’s Five Forces Model, explain the benefits an organisation can receive from implementing an efficient and effective SCM system. (e) Describe Wal-Mart’s supply chain management strategy in terms of its four drivers. (f) Explain the differences and similarities between SCM, CRM, and ERP. Activity 5.7 Turn to your text on page 331 and read the case titled ‘Cisco Systems, Black & Decker and O’Reilly Auto Parts: Adapting Supply Chains to Tough Times’. Answer the questions in the end of the case. Section summary In this section we took a closer look at two other major cross-functional information systems: CRM systems and SCM systems. We discussed their benefits, roles, challenges, and future trends. In the next week we will discuss information systems for decision making. Feedback to activities Activity 5.1 (a) 1. Data Entry The input activity in TPS involves a data entry process. In this process, data is captured or collected by recording, coding, and editing activities. Examples of devices used in data automation include: – point-of-sale (POS) transaction terminals – ATM (Automated Teller Machine) terminals – optical character recognition (OCR) scanners and wands – PCs and network computers with cash drawers as intelligent POS terminals – portable digital radio terminals and pen-based tablet PCs for remote date entry – PCs equipped with touch screens and voice recognition systems for data entry – bar coded tags – magnetic stripe cards – electronic website on the Internet. The trend is to move from traditional (manual) data entry systems toward source data automation (automated systems). The reason for this trend is that direct methods are more efficient and reliable than manual systems. 2. Transaction Processing Transaction processing systems process data in two basic ways: – Batch Processing – transaction data are accumulated over a period of time and processed periodically. – Real-time Processing – (also called online processing), where data are processed immediately after a transaction occurs. All online transaction processing systems incorporate real-time processing capabilities. Many online systems also depend on the capabilities of fault tolerant systems that can continue to operate even if parts of the system fail. 3. Database Maintenance An organisation’s data must be maintained by its transaction processing systems so that they are always correct and up-to-date. Therefore, transaction processing systems update the corporate database of any organisation to reflect changes resulting from day-to-day business transactions. 4. Document and Report Generation Transaction processing systems produce a variety of documents and reports. Examples of transaction documents include: – purchase orders – paychecks – sales receipts – invoices – customer statements. Transaction reports might take the form of a transaction listing such as a payroll register, or edit reports that describe errors detected during processing. 5. Enquiry Processing Many transaction processing systems allow you to use the Internet, intranets, extranets, and Web browsers or database management query languages to make inquiries and receive responses concerning the results of transaction processing activity. Typically, responses are displayed in a variety of prespecified formats or screens. Examples of queries include: ■ checking on the status of a sales order ■ checking on the balance in an account ■ checking on the amount of stock in inventory. (b) Some benefits are: ■ firm structure and organisation perspective: One organisation ■ management perspective: firm-wide knowledge-based management processes ■ technology perspective: unified platform ■ business perspective: more efficient operations and customer-driven business processes. Also many times, enterprise applications reflect industry best practices. Activity 5.2 Answer the following questions: (a) CRM applications’ primary users are sales, marketing, and customer service and its primary business benefits are sales forecasts, sales strategies, and marketing campaigns. SCM applications’ primary users are customers, resellers, partners, suppliers, and distributors and its primary business benefits are market demand, resource and capacity constraints, and real-time scheduling. ERP applications’ primary users are accounting, finance, logistics, and production and its primary business benefits are forecasting, planning, purchasing, material management, warehousing, inventory, and distribution. (b) Core ERP components – traditional components included in most ERP systems and they primarily focus on internal operations. Extended ERP components – extra components that meet the organisational needs not covered by the core components and primarily focus on external operations. (c) Accounting and finance components – manage accounting data and financial processes within the enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting, and asset management. Production and materials management components – handle the various aspects of production planning and execution such as demand forecasting, production scheduling, job cost accounting, and quality control. Human resource components – track employee information including payroll, benefits, compensation, performance assessment, and assume compliance with the legal requirements of multiple jurisdictions and tax authorities. (d) Business intelligence – describe information that people use to support their decision-making efforts. Customer relationship management – involves managing all aspects of a customer’s relationships with an organisation to increase customer loyalty and retention and an organisation’s profitability. Supply chain management – involves the management of information flows between and among stages in a supply chain to maximise total supply chain effectiveness and profitability. Ebusiness – means conducting business on the Internet, not only buying and selling, but also serving customers and collaborating with business partners. (e) ERP’s goal is for every department or functional area to work together sharing common information and not be a ‘silo’. Organisations use many integration tools to integrate IT infrastructures including Intranets which are an internalised portion of the Internet, protected from outside access, that allows an organisation to provide access to information and application software to only its employees. Enterprise information portals (EIPs) or Internet sites owned and operated by an organisation to support its operations. Intranets and EIPs help consolidate the ERP information. Activity 5.3 Q1: Upgrades may conflict with customization. Organizations then face the choice of ditching their customized software, forgoing the upgrade, or paying to reaccommodate the customization to the upgrade. Q2: Old ERP systems lacked flexibility, and managers believed it simpler to customize software than modify business practices. Q3: Yes. Some alternatives include: ■ Replace the ERP system ■ Acquire expertise in-house ■ Continue paying consultants for support (if not upgrades) ■ Accept the stagnation of a mature, stable system. Q4: Kennametal: The calculus isn’t complicated, and either Kennametal’s project manager failed to anticipate or communicate customization costs to its leadership, or leadership ignored the advice. Vendor: The vendors probably underplayed the impact of customization in favor of meeting sales objectives. In the corporate world, short-term sales quotas frequently trump long-term relationships even though this doesn’t serve the vendor’s shareholder’s best interests. Real World Activities Q1: A search on “what’s new in ERP” (including quotes) will turn up useful information. Ten year summary ■ More vendors ■ Greater web integration ■ Greater flexibility ■ Cloud computing ■ Industry-specific systems ■ Open source systems are now available ■ Hardware independent (though hardware dependence was more of an early 90’s problem.) ■ Broader scope, more features ■ Increased connectivity with customers/vendors Q2: Keep – advantages: (1) Stable, mature system: no business disruption; (2) No massive capital investments Keep – disadvantages: (1) Doesn’t provide leading edge services; (2)Expensive to upgrade; (3) Expensive to maintain; (4)Not very flexible Scrap – advantages: (1) Flexible; (2) Leading edge; (3) Lower maintenance costs Scrap – disadvantages: (1) Expensive; (2) Disruptive; (3) Admitting defeat. Activity 5.4 (a) Provide better customer service. (2) Make call centres more efficient. (3) Cross sell products more effectively. (4) Help sales staff close deals faster. (5) Simplify marketing and sales processes. (6) Discover new customers. (7) Increase customer revenues. (b) Operational CRM supports traditional transactional processing for day-to-day front-office operations or systems that deal directly with the customers. Analytical CRM supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers. The primary difference between operational CRM and analytical CRM is the direct interaction between the organisation and its customers. (c) Analytical CRM solutions are designed to dig deep into a company’s historical customer information and expose patterns of behaviour on which a company can capitalise. Analytical CRM is primarily used to enhance and support decision making and works by identifying patterns in customer information collected form the various operational CRM systems. (d) Three marketing operational CRM technologies: List generators – compile customer information from a variety of sources and segment the information for different marketing campaigns. Campaign management systems – guide users through marketing campaigns. Cross-selling and up-selling. Cross-selling – selling additional products or services. Up-selling – increasing the value of the sale. (e) Three sales operational CRM technologies: Sales management systems – automate each phase of the sales process, helping individual sales representatives coordinate and organise all of their accounts. Contact management systems – maintain customer contact information and identify prospective customers for future sales. Opportunity management systems – target sales opportunities by finding new customers or companies for future sales. (f) Three customer service operational CRM technologies: Contact centre (call centre) – where CSRs answer customer inquiries and respond to problems through different touchpoints. Web-based self-service – allow customers to use the Web to find answers to their questions or solutions to their problems. Call scripting – access organisational databases that track similar issues or questions and automatically generate the details to the CSR who can then relay them to the customer. (g) Supplier relationship management (SRM) – focuses on keeping suppliers satisfied by evaluating and categorising suppliers for different projects, which optimises supplier selection. Partner relationship management (PRM) – focuses on keeping vendors satisfied by managing the alliance partner and reseller relationship that provide customers with the optimal sales channel. Employee relationship management (ERM) – provides employees with a subset of CRM applications available through a Web browse. Activity 5.5 Q1: CRM Benefits: Work effectively, Increase productivity, Competitive advantage Effects on productivity: Better/faster customer service, Change from 3–4 to 10–12 customers per day visited. Q2: Examples ■ Quick links to customer data including sales by customer, open order status, and customer complaints ■ View critical lead information ■ Antenna Software helps link mobile devices to CRM ■ More leads getting to the sales force ■ Better quotes to customers Q3: Technical challenges: Accommodating very small screen sizes, Linking the new applications to the main application (middleware) Personnel challenges: Providing value to the mobile user, Training a disparate workforce, Supporting a disparate workforce Approach: Changing the software orientation from application-centric to taskcentric (scenario-based), Not forcing “overhead” administrative tasks on the mobile user, Demonstrating how the system directly benefits the end user, Focusing on key data instead of adding too many “nice to have” fields. Q4: Motivational approaches: Providing value to the end user, Communicate (ride along) with sales team members throughout the development process, Training (demonstrating value to the end user) Alternative approaches: (1) Carrot; (2) Stick Neither approach is particularly effective. If a new system increases productivity, then the sales people will use it to increase their sales commissions. If a new system doesn’t increase productivity then sticks essentially lower the salesperson’s income, and carrots lower corporate profits, and neither of these are satisfactory. Real World Activities Q1: Search: Searching for “360-degree view of the customer” (in quotes) provides numerous useful results. Summary: 360-degree view implies full circle from start to finish. In the case of a customer, it means tracking them from target market demographics all they way through to product or service support and recycling (when appropriate). This type of view touches on systems: marketing, sales, human resources, manufacturing, credit, finance, customer support, and product design. Q2: Competitive advantage: These systems provide a competitive advantage only so long as they enable capabilities not currently fielded by competitors. In short, there are no “lasting competitive advantages” (even patents expire). At present, these systems provide Dow’s customers with: Better service, Faster response to queries, Better information. Activity 5.6 (a) The components of a typical supply chain include suppliers, suppliers’ supplier, manufacturer, distributor, retailer, customer, and customer’s customer. (b) SCM enhances decision making. Collecting, analysing, and distributing transactional information to all relevant parties, SCM systems help all the different entities in the supply chain work together more effectively. SCM systems provide dynamic holistic views of organisations. Users can ‘drill down’ into detailed analyses of supply chain activities in a process analogous to DSS. Without SCM systems, an organisation would be unable to make accurate and timely decisions regarding its supply chain. (c) (1) Information technology – only recently have advances in IT made it possible to bring the idea of a truly integrated supply chain to life. (2) Visibility – More visible models of different ways to do things in the supply chain have emerged. High visibility in the supply chain is changing industries, as Wal-Mart demonstrated. (3) Consumer behaviour – Companies must respond to demanding customers through supply chain enhancements. (4) Competition – Increased competition makes any organisation that is ignoring its supply chain at risk of being obsolete. (5) Speed – As the pace of business increases through electronic media, an organisation’s supply chain must respond efficiently, accurately, and quickly. (d) Decrease the power of its buyers, increase its own supplier power, increase switching costs to reduce the threat of substitute products or services, create entry barriers thereby reducing the threat of new entrants, increase efficiencies while seeking a competitive advantage through cost leadership. (e) Wal-Mart’s supply chain management strategy emphasises efficiency, but also maintains adequate levels of effectiveness. Facilities focus – Efficiency, Maintains few warehouses. Inventory focus – Efficiency, Ships directly to its stores from the manufacturer. Transportation focus – Effectiveness, Maintains its own fleet of trucks. Information focus – Efficiency, Invests heavily in technology and the flow of information through its entire supply chain. Although Wal-Mart has spent a lot of money on its supply chain and uses a push information sharing strategy – its overall information focus is on using information to enable the company to maintain small amounts of inventory (efficiency). Wal-Mart uses its supply chain to operate its business in a just-in-time fashion. (f) SCM’s primary users are customers, resellers, partners, suppliers, distributors, and manufactures. SCM helps make the process of gathering materials and transforming them into finished-products more efficient and effective. CRM’s primary users are sales, marketing, and customer service. CRM helps build strong relationships between an organisation and its customers. ERP’s users are primarily internal, including accounting, finance, logistics, and production. ERPs usually focus on improving internal processes and operations. An ERP can include SCM and CRM components; however, these components are typically not as advanced and offer less functionality than vendors who specialise in SCM or CRM. Activity 5.7 Q1: Push: The push system relies on demand forecasting to determine production schedules. Forecast models depend on economic data, past sales, seasonal, and other environmental indicators to make its predictions. Pull: Pull systems primarily rely on inventory level thresholds to determine reorder points and quantities. For example, if a manufacturer requires six weeks to fulfill an order, a warehouse might order more inventory when they have an eight week supply remaining. Threshold levels, however need not be static numbers but may incorporate elements of forecasting, too. State of the economy: At its simplest level, a pull system will be more sensitive to economic changes that fall outside a push system’s ability to forecast. For example, economic “bubbles” are essentially irrational and can “burst” at any time. As a result, in times of economic uncertainty, a pull system will prove more responsive to change than a push system. Q2: Required elements: Marketing, Finance, Sales, Supply chain, Vendors, Customers IT’s role: IT plays a strategic role supporting supply chain integration in a timely, nimble, and intelligent manner. Q3: O’Reilly’s approach: The car parts industry is counter-cyclical. This means that when the economy takes a prolonged downturn, O’Reilly’s business increases. As a result, when other industries find they would benefit must from a pull system or face excessive inventory, O’Reilly does not. O’Reilly appears more concerned with lost sales due to inventory outages. Cisco, Black & Decker: Cisco used a push system until the dot-com bust when they absorbed a $2 billion inventory loss. This experience pushed Cisco into adopting a pull system in order to maintain lower inventory levels. Cisco appears more concerned about high inventory carrying costs and possible write-downs. Real World Activities Q1: Search terms: supply chain forecasting software Technologies: Databases, Modeling software, Statistical/Analytical tools, Barcodes/Scanners, RFID/Sensors Q2: Two approaches: Many business leaders are persuaded “by the numbers. These people will be most influenced by a carefully prepared report detailing the economic case for supply chain investment. The report should include projected costs, savings, payback period, an return on investment as well as a detailed rationale for each assumption. Other business leaders are persuaded by logic. These people will be most influenced by the overall economics of the situation, rough estimates, and a logical rationale. In all likelihood, effective communicators will require both approaches to successfully navigate the chain of command. 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