Improving Supply Chains and Strengthening Customer
Relationships Using Enterprise Information Systems
When disruptions in the supply
chain occur because of weather,
labor issues, or natural disasters,
the operations of the business can
be devastated and have ripple
effects throughout the world.
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Learning Objectives
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1. Describe supply chain management systems and how
they help to improve interorganizational business processes.
2. Describe customer relationship management systems
and how they help to improve the activities involved in
promoting and selling products to the customers as well as
providing customer service and nourishing long-term
relationships.
Learning Objectives
8-3
1. Describe supply chain management systems and how
they help to improve interorganizational business processes.
2. Describe customer relationship management systems
and how they help to improve the activities involved in
promoting and selling products to the customers as well as
providing customer service and nourishing long-term
relationships.
What Is a Supply Chain?
• A supply chain is a collection of companies and processes
moving a product:
–
–
–
–
suppliers of raw materials
suppliers of intermediate components
final production
to the customer
• Upstream—flow from sources of raw materials and
components.
• Downstream—flow to customers.
• Suppliers have their own supply chain.
• A better name: supply network.
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Supply Network
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Supply Chain for Apple’s iPhone
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Benefits and Problems with Supply Chains
• Potential benefits
– Process innovations
– Just-In-time Production (JIT)
– Vendor-Managed Inventory (VMI)
• Potential problems
– Distorted information
– Excessive inventories
– Inaccurate capacity plans
– Missed product schedules
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Just-in-Time Production (JIT)
• Keeping inventory is costly (storage, capital, missed
production schedules).
• JIT optimizes ordering quantities.
– Parts and raw materials arrive when needed for production.
– As orders arriver in smaller quantities, but at higher frequency) investment in
storage space and inventory is minimized.
• The approach was pioneered by Toyota.
• It is used extensively by computer manufacturers to avoid
component obsolescence (Moore’s law).
– Example: Dell keeps only two hours of inventory in stock
• JIT requires tight cooperation between all partners in the
supply network.
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Vendor-Managed Inventory (VMI)
• VMI is a business model in which suppliers manage the
manufacturer’s (or retailer’s) inventory levels based on preestablished service levels.
• Supplier monitor’s stock levels and sales data.
• VMI requires manufacturer (retailer) to share real-time data.
• Benefits
–
–
–
–
–
Cost savings
Minimized stock-out situations
Accurate forecasts
Reduced errors
Prioritized goods shipments
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The Bullwhip Effect
• Ripple effects in which forecast errors and safety
stocks multiply when moving up the supply chain
• Happens when businesses include safety buffer
to prevent stock-outs
• Small end-product demand fluctuations cause
large fluctuations further up the supply chain.
• Small forecasting errors at end of supply chain
cause large errors further up the supply chain.
• Integrated business processes help mitigate the
bullwhip effect.
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Functions That Optimize the Supply Network
• Supply Chain Management (SCM) improves the coordination of suppliers,
product or service production, and distribution.
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Integrating SCM with ERP and CRM
• ERP systems are primarily used to optimize
business processes within the organization.
• SCM is used to improve business processes
that span organizational boundaries.
• Tight ERP/CRM/SCM integration reaps great
benefits.
• SCM uses data about customer orders (from
CRM) and payments (from ERP).
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SCM Architecture
• SCM modules support two functions.
– Supply chain planning—development of resource plans to support production.
– Supply chain execution—efficient flow of products, information, and financing.
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Supply Chain Planning (SCP)
•
Four types of plans are developed:
Demand planning and forecasting
o Examination of historic data
2. Distribution planning
o Delivering products to consumers
o Warehousing, delivering, invoicing, and payment collection
3. Production scheduling
o Coordination of activities needed to create the
product/service
o Optimization of the use of materials, equipment, and labor
4. Inventory and safety stock planning
o Development of inventory estimates
1.
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Supply Chain Execution (SCE)
• Management of three key elements
1. Product flow
o Flow of product from supplier to consumer
o Automation of product returns
2. Information flow
o Complete removal of paper documents
o Access to current information at all times
3. Financial flow
o Automatic flow of payments
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Supply Chain Visibility and Analytics
• Supply chain visibility—the ability to track
products as they move through the supply chain
but also to foresee external events.
• Supply chain analytics—the use of key
performance indicators to monitor performance
of the entire supply chain, including sourcing,
planning, production, and distribution.
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Developing an SCM Strategy
• SCM efficiency and effectiveness need to be balanced.
– Efficiency—cost minimization.
– Effectiveness—customer service maximization.
– Tradeoffs—Supply chain strategy should match overall
competitive strategy.
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Emerging SCM Trends
• Key trends
– Supplier portals
– Customer portals
– Business-to-business (B2B) marketplaces
All of these provide an alternative to proprietary supply
linkages
• Enabling technology
– Radio Frequency Identification (RFID)
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Radio Frequency Identification (RFID)
• RFID tags will soon replace standard bar codes.
– RFID is the use of electromagnetic energy to
transit energy between a reader (transceiver)
and the tag (antenna).
– Line-of-sight reading is not necessary.
– RFID tags can contain more information than bar
codes.
• Tags are programmable, so there is a vast array
of potential uses.
• Scanning can be done from greater distance.
– Passive tags—inexpensive, range of few feet.
– Active tags—more expensive, range of hundreds
of feet.
Source: METRO AG.
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Use of RFID in Supply Chain Management
Pallet of inventory processed through an RFID gate
Source: METRO AG.
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Learning Objectives
8-21
1. Describe supply chain management systems and how
they help to improve interorganizational business processes.
2. Describe customer relationship management systems
and how they help to improve the activities involved in
promoting and selling products to the customers as well as
providing customer service and nourishing long-term
relationships.
Customer Relationship Management (CRM)
• Organizations must
work harder than
ever to attract and
retain customers
where comparison
shopping is the
norm and
competitors are
just a click away.
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Customer Relationship Management(CRM) (cont’d)
• The Web has changed business.
– Customers have the power.
– Economic transformation is taking place; i.e., from transactions to
relationships.
– Keeping customers satisfied is key.
• CRM
– Organization-wide strategy
– Concentrates on the downstream information flow
• Attract potential customers
• Create customer loyalty
• Portray a positive corporate image
– Managers need to be able to monitor and analyze factors driving customer
satisfaction.
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Customer Relationship Management(CRM) (cont’d)
• Companies search for ways to widen,
lengthen, and deepen customer relationships.
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Key Benefits of CRM
1.
2.
3.
4.
5.
6.
7.
8.
Enables 24/7/365 operation
Individualized service
Improved information
Speeds problem identification/resolution
Speeds processes
Improved integration
Improved product development
Improved planning
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Developing a CRM Strategy
• More than just
software purchase
and installation
• Enterprise-wide
changes
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Policy and Business Process Changes
• Policies and
procedures need
to reflect
customer-focused
culture.
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Customer Service Changes
• Key metrics need to
reflect customerfocused measures of
quality.
• Companies that
implement successful
CRM strategy,
experience greater
customer satisfaction.
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Employee Training Changes
• Employees from
all business areas
must value
customer service
and satisfaction.
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Data Collection, Analysis, and Sharing Changes
• All aspects of
customer
experience must
be tracked,
analyzed, and
shared.
• Consider ethical
concerns.
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Architecture of a CRM Environment
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Operational CRM
• Systems for customer
interaction and
service
– Enables direct
interaction with
customers
– Personalized and
efficient customer
service
– Access to complete
information about
customer
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Sales Force Automation
• Component of operational CRM
• Supports day-to-day sales activities:
–
–
–
–
–
–
Order processing and tracking
Account and contact management
Opportunity management
Sales management
Territory management
Customer history preferences, (product and
communication) management
– Sales forecasting and performance analysis
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Examples of Sales Measures Tracked by SFA
•
•
Sales pipeline for each salesperson, including rating and probability
•
•
Margins by product category, customer segment, or customer
•
Number of lost customers per period or cost of customer
acquisition
•
Percentage of goods returned, number of customer complaints, or
number of overdue accounts
Revenue per sales person, per territory, or as a percentage of sales
quota
Number of calls per day, time spent per contract, revenue per call,
cost per call, ratio of orders to calls
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Advantages of Sales Force Management Systems for
Sales Personnel
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Advantages of Sales Force Management Systems for
Sales Managers
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SFA Provides Improved Understanding
of Market Conditions
• Improved understanding of markets, segments, and
•
•
•
•
•
customers
Improved understanding of competitors
Enhanced understanding of organization’s strengths
and weaknesses
Better understanding of economic structure of the
industry
Enhanced product development
Improved strategy development and coordination with
the sales function
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Sales Force Automation
• SFA allows sales managers to track sales
performance.
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Customer Service and Support (CSS)
• Second component of
operational CRM
• Automation of traditional
“help desk” services
• Customer interaction center
(CIC)
– Multiple communication
channels (blogs, Facebook,
phone, face-to-face, e-mail,
and so on)
– Customer service anytime,
anywhere through any
channel
– Low support cost
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Enterprise Marketing Management (EMM)
• Third component of an operational CRM is
Enterprise Marketing Management (EMM)
• Improve management of promotional campaigns
– Make sure right messages are sent to the right people
through the right channels
• Customer lists need to be managed carefully
• Individualized attention to each potential customer
– Extensive analytical capabilities that can help to analyze
effectiveness of campaigns
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Customer Resource Management (CRM)
• CRM systems allow for managing various
types of promotional campaigns.
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Analytical CRM
• Analysis of customer behavior and perceptions
• Customized marketing
– Up-selling, cross-selling
– Retaining customers
• Key technologies used to create predictive models
– Data mining
– Decision support systems
• Continuous data collection and analysis is necessary.
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Customer Focused Business Processes Addressed by
Analytical CRM
1.
2.
3.
4.
5.
Marketing campaign management and analysis
Customer campaign customization
Customer communication optimization
Customer segmentation and sales coverage
optimization
Pricing optimization and risk assessment and
management
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Customer Focused Business Processes Addressed by
Analytical CRM (cont’d)
6.
7.
8.
9.
Price, quality, and satisfaction analysis of competitors
Customer acquisition and retention analysis
Customer satisfaction and complaint management
Product usage, life-cycle analysis, and product
development
10. Product and service quality tracking and management
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Digital Dashboards for CRM
• Digital
dashboards
help to
visualize key
CRM
performance
metrics.
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Dealing with Multiple Identities
• Many people have various
different online identities
– Different social
networks
– Multiple e-mail
addresses
• Analytical CRM helps
merge different identities
for the same person
– Uses fuzzy logicbased algorithms
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Collaborative CRM
• CRM refers to systems providing effective and
efficient communication with the customer from
the entire organization.
– CIC is the key.
• Collaborative CRM enhances communication.
– Greater customer focus
• Understanding of historical and current needs
– Lower communication barriers
• Communication preferences of the customer considered
– Increased information integration
• Customer information shared across the organization
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Ethical Concerns with CRM
• Can personalization get too personal?
• When customers feel that the system knows
too much about them, personalization could
backfire on a company.
• Nevertheless, as competition continues to
increase in the digital world, CRM will be a key
technology for attracting and retaining
customers.
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Extra Content
END OF CHAPTER CONTENT
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Managing in the Digital World:
Supply Chain Havoc
 The eruption of the Eyjafjallajokull volcano in Iceland forced
the shut down of flights in northern Europe for days.
 Supply chains in numerous companies were disrupted.
 Examples:
 Kenya: flowers and
vegetables
 Netherlands: tulips and
peonies
 Italy: cheeses
 These contingencies require
fine-tuned supply chains.
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POWERFUL PARTNERSHIPS
Flickr’s Caterina Fake and Stewart Butterfield
• Flickr’s Caterina Fake and Stewart Butterfield
– Caterina was a marketing expert and art director;
Stewart was a Web designer
– They were first business partners, and then got married.
– They started with gaming; then moved onto photograph
distribution.
– Web-based businesses are inexpensive.
– Fake and Butterfield started with no venture capital.
– Yahoo! bought the business for $30 million in 2005.
– Now Fake and Butterfield are split up, pursuing their
own ventures.
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Outsourcing Your McDonald’s Order
• McDonald’s—One of America’s success stories
– Founded in 1948 in San Bernardino, California
– Multi-billion business
– Strives for uniformity in thousands of locations
globally
• Outsourcing the drive-through
– All stores already had an Internet connection
– Orders processed overseas
– Entered into the queuing system
– Food quality remains the same
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COMING ATTRACTIONS
Simplifying the Recharging of Gadgets
• Simplifying the Recharging of Gadgets
– Battery chargers are needed for each different type of device (cell phone,
MP3, player, digital camera, laptop).
– Starting from 2011, cell phones sold in the European Union come with a
standardized charging port.
– Qualcomm’s eZone wireless charting technology has two parts:
• charging pad that houses the main transmitting power technology, and
• tiny receiver coil fitted inside portable gadgets.
– Toshiba’s direct-methanol fuel cell charger has potential to charge
gadgets without electrical outlet.
– Nokia’s bicycle charger kit charges cell phones through cycling.
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NET STATS
RFID on the Rise
• RFID on the Rise
– Expected growth of 28 percent between 2010 and 2013
($11 billion revenue)
– Software and services play an increasingly larger role to
help companies utilize RFID-generated data.
– Adoption in health care, retail, automotive, packaged
goods, government, transportation
– Requires large start-up investment, but provides strong
long-term ROI
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WHEN THINGS GO WRONG
Apple’s “Antenna Gate” — Mismanaging Customer Relationships
• Apple’s “Antenna Gate” —Mismanaging Customer
Relationships
– Release of the iPhone 4 in mid-2010 had much fanfare.
– Soon customers started complaining of dropped calls.
– This was caused by the way customers held the phone
(“death grip”).
– Apple issued a statement to stop holding the phone in
lower left corner.
– Class action lawsuits ensued.
– Consumer Reports recommended against the phone.
– Steve Jobs admitted the problem.
– Poor customer relations management
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ETHICAL DILEMMA
CRM: TARGETING OR DISCRIMINATING
• CRM: Targeting or Discriminating
– Advantage: customers receive only ads of interest.
– But what if a company uses its CRM software in a more
discriminating way?
– Example: banks may target customers with low credit ratings
– “Octopus Card”: Hong Kong RFID-based card
• Offers a reward program where users have to provide various
personal details
• In 2010, it was revealed that data was sold to CIGNA (global
health service company – health insurance etc.)
• Legal…but is it ethical?
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