Applications of CRM and SCM
Rev: Feb, 2012
Euiho (David) Suh, Ph.D.
POSTECH Strategic Management of Information and Technology Laboratory
(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management Engineering
POSTECH
Contents
※
Discussion Questions
1
CRM in Financial Services
1) Economics of Information
2) ECRM
3) Conclusion
2
The Bullwhip Effect
3
RFID in SCM
4
Case Study
Discussion Questions
■ What do you think makes the traditional economics of information into the new
economics of information?
■ What do you think is the special characteristics of CRM in “financial services”
comparing to other industry field?
■ Why does Manufacturer order take the biggest demand order variability?
■ If you are a CEO, how can you solve the big demand order variabilities?
■ What are the key components of RFID? What role do they?
■ What do you think obstacles to implement RFID in SCM?
3
1. CRM in Financial Services
Economics of Information
1) Economics of Information
■ The traditional economics of information
– Reach
• Access, connection
– Richness
• Depth, detail
■ The new economics of information
– Connectivity
• Relative easy and cheap to connect to global networks, resulting in the PC and mobile phone emerging as
ubiquitous devices
– Convergence
• Digital technology are converging : wireless application protocol
– Interactivity
•
•
•
•
Human and technical communication
Data gathering
Collaborative problem-solving
Negotiation
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1. CRM in Financial Services
ECRM
2) ECRM
■ E-business
– The integration of e-business activities within the framework of all existing and future
commercial activities
■ Channel management
– The channel of greatest impact or economy anytime, anywhere, and anyone
– Integrated and interactive channels of access and distribution
■ Relationships
– Real commercial relationships built on service excellence, value and convenience
■ Management of the total enterprise
– Total back-office/front-office process integration
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1. CRM in Financial Services
E-business
2) ECRM
■ E-business
– Internal
• Use technology to reengineer business processes
– External
• Use technology in how the organization interfaces with business partners whether they are customers
or suppliers
■ New business models – innovative products and services
–
–
–
–
–
Establishing e-banks with no presence in the physical world
E-billing or electronics bill presentation
Banks establishing online purchasing sites
Issuing e-bonds
Virtual wallets
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1. CRM in Financial Services
E-business - Internet banking
2) ECRM
■ Electronic banking – Security First Network bank(1995,10)
■ UK’s Barclays Bank, Germany’s Commerzbank, Bayerische banks, Norway’s Christiana
bank, Credit suisse
■ MeritaNordbanken
Finland’s largest bank
Telephone banking (1982)
PC banking(1984)
Mobile payment service(1992)
E business network(1996)
Internet banking, e-billing, internet TV(1998)
Basic banking, stock trading, investment fund transactions, purchase and sales bonds, account
opening, credit cards ordering…….
– ATM, telephone, GSM mobile, PC, internet TV, WAP
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E-business - The new business Ecosystem
1. CRM in Financial Services
2) ECRM
■ Reduce cost of business
– Transaction cost –In-branch teller(1.20)>ATM(0.40)>telephone(0.20)>PC banking(0.20)>internet
banking (0.01) < source data monitor 1999 >
■ Increase service levels
– Reposition existing products and services, devise new offerings, increasing the quality of
service : PC, mobile phone, pay bills, loan
■ Reduce entry barriers
– ‘pirates’ can infiltrate the value chain of traditional players
■ Extend global reach
– A financial institution with a presence on the internet is a global player
■ Challenge brands
– Strong brands instantly convey solid trust and trust is integral to effective customer
relationships
– Confidentiality and security
■ Bundling and unbundling products and services
– Cross-subsidization of products and services – unbundled, competitive necessity, customer
power
■ Dislocation of location
– The concept of location is irrelevant
■ Returns power and control back to the customer
– Rise in customer power
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Channel Management (1/3)
■ Channel management
– It is a term that refers to the way that a business or supplier of products uses various
marketing techniques and sales strategies to reach the widest possible customer base
– The channels are all of the various outlets by which the product is marketed and sold to
customers
– When done properly, channel management motivates those channels to sell the product and
ultimately develops a better relationship between customer and product
– This is achieved by identifying the goals for each distinctive channel and then implementing
various marketing strategies to make sure that those goals are attained, all while staying
consistent to the overall brand of the business
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1. CRM in Financial Services
Channel Management (2/3)
2) ECRM
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1. CRM in Financial Services
Channel Management (3/3)
2) ECRM
■ Channels and customer contact points
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1. CRM in Financial Services
Relationship management
2) ECRM
■ High levels of customer satisfaction are associated with increased retention of
customers
■ Relationships builds more easily when there is two-way communication
■ By engaging in an interactive dialogue customer preferences can be determined
■ Retained customers are inevitably more profitable
■ The challenge for an organization in to move to a situation where the customer starts
buying from you rather than being sold to
■ Financial services organizations
– Who best customers are
– How to keep them
– How to increase ‘share of wallet’ by knowing what other service or product they can sell to
them
– Have a customer-centric or one-to-one relationship
– Increase shareholder value
■ Require information that can help make the best decisions to create and manage the
right relationships, risks, costs, markets
■ Redesign core product offerings
■ Devise appropriate channel strategies
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1. CRM in Financial Services
Management of the Total enterprise
2) ECRM
■ Imperative to have total-office/back-office integration
■ Customer-facing functions
–
–
–
–
Sales, marketing, call centers and other on-line support
Become organizationally integrated with back-office processes
Run on separate mainframes and must be accessed through widely varying interfaces
Move from data centric point solutions to customer-centric enterprise solutions
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1. CRM in Financial Services
Conclusion
3) Conclusion
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What is the Bullwhip Effect? (1/2)
2. The Bullwhip Effect
■ Definition
– Phenomenon in which the demand order variabilities in the supply chain are amplified as they
moved up the supply chain from end-consumers through distribution and manufacturing to
raw material suppliers
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What is the Bullwhip Effect? (2/2)
2. The Bullwhip Effect
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Example (1/5)
2. The Bullwhip Effect
■ Procter & Gamble
– Product : Pampers
• Brand of baby products
– Bullwhip Effect in this case
• Smooth consumer demand
• Fluctuating sales at retail stores
• Highly variable demand on distributors
• Wild swings in demand on manufacturing
• Greatest swings in demand on suppliers
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Example (2/5)
2. The Bullwhip Effect
■ Procter & Gamble : Pampers
Consumer Sales at Retailer
Consumer demand
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Retailer's Orders to Distributor
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Example (3/5)
2. The Bullwhip Effect
■ Procter & Gamble : Pampers
Retailer's Orders to Distributor
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Retailer Order
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Distributor Order
Distributor's Orders to P&G
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Example (4/5)
2. The Bullwhip Effect
■ Procter & Gamble : Pampers
Distributor Order
Distributor’s Orders to P&G
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P&G's Orders with 3M
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P&G Order
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Example (5/5)
2. The Bullwhip Effect
■ Procter & Gamble : Pampers
Consumer Sales at Retailer
Consumer demand
1000
900
800
700
600
500
400
300
200
41
39
37
35
33
31
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P&G's Orders with 3M
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Bullwhip Effect
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P&G Order
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Causes of Poor Compensation & Remedies (1/4)
■ Cause 1 : Demand forecast updating
– Every manager will project demand based on what he/she sees.
Managers at different levels project demand differently
– Safety stock complicates matters
■ Remedies for Demand forecast updating
– Making point-of-sale (POS) data available up supply chain
• Point-of-sale data
 Information on retailer order passed upstream (Sharing information)
• Using EDI (Electronic data interchange)
 Structured transmission of data between organizations by electronic means
• Using Internet
– Vendor managed inventory (VMI)
• Business models in which the buyer provides certain information to a supplier
– Shorten lead-times
– Sell directly to consumer
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2. The Bullwhip Effect
Causes of Poor Compensation & Remedies (2/4)
2. The Bullwhip Effect
■ Cause 2 : Order batching
– Periodic ordering (once a month, once a week, etc.)
• Cannot handle frequent order processing
• Transportation costs – full-truckload cheaper than less-than-truckload rates
– Push ordering
– Periodic execution of MRP(Material Requirements Planning) or DRP(Distribution Resource Planning)
•
Sometimes order cycles overlap
■ Remedies for Order Batching
– Reduce ordering cost
• EDI (Electronic data interchange)
• Making ‘blanket orders’ → Using ‘Pull ordering’
• VMI (vendor-managed inventory)
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Causes of Poor Compensation & Remedies (3/4)
2. The Bullwhip Effect
■ Cause 3 : Price fluctuation
– Forward buying (from Special promotions, discounts)
• Consumers buy in larger quantities and don’t buy again until their stocks are depleted
– Surges in shipments causes premium shipping costs
– Larger inventories to handle surges result in damage, deterioration, obsolescence
■ Remedies for Price Fluctuation
– Stabilize prices
• Reduce wholesale price discounting
• Uniform pricing policies
– Activity-Based Costing
• Conventional accounting practices may not show hidden costs of inventory, storage, special handling,
premium transportation, etc.
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Causes of Poor Compensation & Remedies (4/4)
2. The Bullwhip Effect
■ Cause 4 : Rationing and shortage gaming
– When demand exceeds supply, manufacturers ration products on the basis of amounts ordered
– Customers exaggerate needs to get more
– When demand cools, customers cancel orders, manufacturers stuck with excess
■ Remedies for Rationing and Shortage Gaming
– Allocate in proportion to past sales records
– Plan ahead, share information
– Penalize returns
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Results and Solutions
2. The Bullwhip Effect
■ Results of the bullwhip effect
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Excess inventories
Problems with quality
Increased raw material costs
Overtime expenses
Increased shipping costs
Lost customer service
Lengthened lead time
Lost sales
Unnecessary adjusted capacity
■ Solutions to the bullwhip effect
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Improved information flow between firms along the supply chain
Stable pricing
Small order increments
Focused demand on EDI or POS systems and removal of sales incentives
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Bullwhip Example : Beer Distribution Game’s Supply Chain
2. The Bullwhip Effect
Upstream-Order
Information
1 day
1 day
2 days
Manufacture
2 days
Distributor
2 days
2 days
Wholesaler
2 days
DownstreamShipment
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Retailer
2 days
RFID(Radio Frequency Identification)
3. RFID in SCM
■ Definition
– Radio Frequency IDentification(RFID) is a means of identifying a person or object using a radio
frequency transmission
■ Key components of RFID
– RFID Transponder(RFID tag)
• Is the chip that transmit information about the specific unit
– RFID reader
• handles the communication between the Information System and RFID tag
– RFID antenna
Tag
• activates the RFID tag and transfers data by emitting wireless pulses.
Antenna
RF
Module
Reader
Host
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A simple RFID system
RFID(Radio Frequency Identification)
3. RFID in SCM
■ RFID Tag Types and frequency
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RFID(Radio Frequency Identification)
3. RFID in SCM
■ State of RFID technology deployment
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Advantages Using RFID
3. RFID in SCM
■ Some benefits by embracing RFID
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enhanced visibility along the supply chain
accurate and timely asset tracking
smart product recycling
streamlined or better managed business processes within the company
improved productivity by generating the fastest and lowest cost method of acquiring the data
Criteria
Row-title
Before RFID
With RFID
16% out of stocks in stores
10-20% increase revenue by 1-3%
(at least $400m, 2003)
Supply chain cost is 10% of all
costs
Saving of 6-7%($14bn, 2003)
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Concerns Surrounding RFID
3. RFID in SCM
■ Fundamental
–
–
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Not arrived at business benefits (ROI)
Limited applications
Uncertainty around standards
High capital costs
■ Technical
– Imperfect reader rates, unproven systems and conflicting problems with assembling low-cost
tags
– Huge volumes of data that are difficult to manage
■ Organizational
– An evolutionary change incorporating legacy systems
•
how to integrate RFID with existing SCM, CRM and ERP
32
Case Study
■ Domestic Case
 Click Here
33
Reference
■ O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”,
McGraw – Hill, Chapter 7, pp. 265~271
■ Euiho Suh, “Customer Relationship Management (CRM) in Financial Services”, POSMIT
Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
■ Hau L Lee, V Padmanabhan, and Seungjin Whang, “bullwhip Effect (PPT Slide)”,
POSMIT Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
■ Jae Sang Moon, “Gaining Competitive Advantages Using RFID in Supply Chain
Management (PPT Slide)”, POSMIT Lab.
(POSTECH Strategic Management of Information and Technology Laboratory)
34