Strategic Technology and Enterprise Systems

Strategic Technology and Enterprise Systems

Chapter 10

Strategic Technology and Enterprise Systems

Prepared by Dr. Derek Sedlack, South University

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Enterprise Social Platforms

Enterprise Resource Planning Systems

Supply Chain Management Systems

Customer Relationship Management Systems

Enterprise Systems

Enterprise Systems

Enterprise Systems

A category of cross-functional and inter-organizational systems that support business strategy.

Primary enterprise systems:

Enterprise Resource Planning (ERP)

Supply Chain Management (SCM)

Customer Relationship Management (CRM)

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Enterprise Systems

Core business processes

Include accounting, finance, sales, marketing, human resources, inventory, productions, and manufacturing.

Customer lifetime value

CLV is a formula for estimating the dollar value, or worth, of a long-term relationship with a customer.

Value-added reseller (VAR)

Customizes or adds features to a vendor’s software or equipment and resells the enhanced product.

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Enterprise Systems

Implementation Challenges

Complexity from incorporating different organizational facets.

Time-consuming coordinating an enterprise integration.

Typically requires consulting, vendor, or value-added reseller (VAR) assistance.

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Enterprise Systems

Legacy Challenges

Legacy systems are older information systems maintained over decades because they fulfill critical needs.

They are difficult and expensive to maintain, update, and interface securely with leading-edge business applications

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Enterprise Systems

Legacy Challenges

High maintenance costs

Inflexibility (integration issues)

Integration obstacles (hardwired)

Lack of staff (qualified/trained professionals)

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Enterprise Systems

Benefits

Reduced maintenance through integrated or cloud systems.

Flexible architectures provide scalability.

CRM and web-based applications ease future integration.

Large enterprise systems mean more skilled staff availability.

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Enterprise Systems

Implementation Best Practices

Redesign of business processes through simplification and redesign so that they can be automated, either totally or partially, or removed.

Changes in how people perform their jobs or accommodate the new processes.

Integration of many types of information systems so that data can flow seamlessly among departments and business partners.

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Enterprise Systems

Insights

Provide and support applications that enable workers to access, use, and understand data.

Using data about buying behaviors helps a company identify its loyal customers and which ones are profitable.

Improving communication and integration among firms in a global supply chain justifies billions invested in ERP systems.

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Enterprise Systems

Explain the purpose of an enterprise system.

Describe three types of enterprise systems.

What is customer lifetime value (CLV)?

What is a value added reseller (VAR)?

What are two challenges of legacy systems?

Why do companies migrate to enterprise systems?

Explain the challenges of enterprise system implementation.

Explain the three types of changes needed when an enterprise system is implemented.

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Suggested Answers:

1. Enterprise systems integrate internal core business processes by their connection to central data repositories that enable them to synch and share the latest data and they link the enterprise with suppliers, business partners, and customers.

 

2. Primary enterprise systems are:

ERP: Enterprise Resource Planning

SCM: Supply Chain Management

CRM: Customer Relationship Management

 

3. Customer lifetime value (CLV) is a formula for estimating the dollar value, or worth, of a long-term relationship with a customer.

 

4. A value-added reseller (VAR) is company that customizes or adds features to a vendor’s software or equipment and resells the enhanced product.

 

5. Legacy systems (older business systems that may be still in use) are difficult and expensive to maintain, update, and interface securely with leading-edge business apps.

 

6. Companies tend to migrate to an enterprise solution when they need to consolidate their disparate systems, such as when limitations caused by their existing legacy systems interfere with performance or the ability to compete. Here are major reasons why companies replace parts of their legacy systems or supplement them with enterprise systems. It is important to realize that many companies do not have the resources to replace all their legacy systems.

High maintenance costs. Maintaining and upgrading legacy systems are some of the most difficult challenges facing CIOs (chief information officers) and IT departments.

Business value deterioration. Technological change weakens the business value of legacy systems that have been implemented over many years and at huge cost.

Inflexibility. Legacy architectures were not designed for flexibility. These huge systems cannot be easily redesigned to share data with newer systems, unlike modern architectures.

Integration obstacles. Legacy systems execute business processes that are hardwired by rigid, predefined process flows. Their hardwiring makes integration with other systems such as CRM and Web-based applications difficult and sometimes impossible.

Lack of staff. IT departments find it increasingly difficult to hire staff who are qualified to work on mainframes and applications written in languages no longer used by the latest technologies.

Cloud. The cloud has lowered upfront costs. Cloud-based enterprise systems can be a good fit for companies facing upgrades to their legacy ERP and other enterprise systems.

 

7. Implementing an enterprise system is complex, time-consuming, and typically requires the help of a consulting firm, vendor, or value-added reseller (VAR). Integrating legacy systems with cloud-based applications is complex, as described in Tech Note 10-1. Much of the complexity is due to getting new apps or system modules to interface with existing or legacy systems that are several generations older.

 

Enterprise systems require data transfers—often to mainframes. Designing enterprise-level systems involves a variety of components that had been implemented on mainframes, midrange computers, networks, or cloud environments. In most large enterprises, mainframes are the workhorse systems that run the majority of business transactions. In contrast, customer interfaces through customer service; ERP, CRM, and SCM apps; websites; and B2B interactions are usually on distributed systems or in the cloud. Many times seemingly well-planned projects fail and require extensive reworking because integration issues had not been properly planned.

 

Some enterprises choose to avoid the challenges of integration by creating a new system that replaces the full functionality of the old one. This option is the most costly, difficult, and risky. An advantage is that this option offers a longer-term solution that is agile to respond to changing business needs. Despite that potential payoff, complete replacement requires a large, up-front investment for development, poses difficulties in duplicating behavior of the legacy system, and increases the risk of complete software project failure.

 

8. Best practices for implementing an enterprise system involves changes in the management of processes, people, and existing systems. Three required changes are as follows:

Re-design of business processes. Processes need to be simplified and re-designed so that they can be automated, either totally or partially. Tasks that are no longer necessary are removed from the processes.

Changes in how people perform their jobs. Jobs and how they are performed will change to accommodate the new processes. Enterprise systems require retraining users whose productivity will drop initially as they adjust to a new way of doing their jobs.

Integration of many types of information systems. Integrating information systems is necessary so that data can flow seamlessly among departments and business partners. Automated data flows are essential to productivity improvements.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Enterprise Social Platforms

Enterprise Resource Planning Systems

Supply Chain Management Systems

Customer Relationship Management Systems

Enterprise Systems

Smart companies connect their employees’ desire to contribute and interact with peers, with their own need to get timely feedback from the trenches.

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Enterprise Social Platforms

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Enterprise Social

Refers to private (company owned) social media, software, platforms, or apps specially designed for use by business leaders and employees to fulfill the strategic mission.

Three main reasons for interest:

Knowledge management

Collaboration

Employee pressure

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Enterprise Social Platforms

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Enterprise Social Platforms

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

SharePoint

A collaborative and social platform from Microsoft with Yammer the social collaboration tool of choice over the Microsoft Cloud.

Yammer

A social network geared toward enterprises. Employees collaborate across departments, locations, and business applications.

Office Graph with Oslo

Provides a natural way for users to navigate, discover, and search people, information, and knowledge across the enterprise.

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Enterprise Social Platforms

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SharePoint

Provides tools for setting up employee social network platforms and company wikis.

Shared space to store documents from any desktop or mobile device, so they are not siloed on any one person’s hard drive or device.

Enables coworkers to stay up-to-date and work simultaneously on a single document, save previous versions, and track updates.

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Enterprise Social Platforms

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Yammer

Features similar to Facebook likes, newsfeeds, threaded conversation, and direct messaging.

This private social channel helps employees, partners, and customers communicate; exchange information; and collaborate across departments, locations, and business apps.

Includes Enterprise Graph shows how users are related to one another that solves social network sprawl.

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Enterprise Social Platforms

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Jive

Provides tools for communication, sharing, and content creation to make social media monitoring and engagement easier.

Chatter

Salesforce.com add-on offers companies their own private network while pushing updates and news in real time to user feeds, offering smart search, which places items an employee frequently uses higher in the search list.

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Enterprise Social Platforms

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What are the basic functions of an enterprise social platform?

What are the capabilities of SharePoint?

In what ways can enterprises realize value from Yammer or other enterprise social?

How do Office Graph and Enterprise Graph support collaboration?

How does Chatter enable workers to solve problems?

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Enterprise Social Platforms

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Suggested Answers:

1. The basic functions are to enable employees to connect and collaborate with others, stay informed, build relationships, and share documents and data.

 

2. SharePoint has the following social capabilities:

 

Intranet and Extranet

Intranets are the internal-facing sites everyone in a company logs into to find news, announcements, scheduled tasks, and access to files and data. Dashboards are customized by department and role to control access. SharePoint also provides tools for setting up employee social network platforms and company wikis. SharePoint can be used to set up a secure, access-controlled extranet site to share with external partners in the supply chain, contractors, and so on.

 

Documents

SharePoint provides a shared space to store documents, so they are not siloed on any one person’s hard drive or device. Documents stored on SharePoint can be accessed by anyone in the company—unless the administrator has limited access. SharePoint enables coworkers to work simultaneously on a single document, save previous versions, and track updates.

 

Collaboration and Business Intelligence

The platform makes it easy for users to stay up-to-date and to coordinate their efforts on projects from any desktop or mobile device; and to discover patterns and insights in enterprise data.

 

Yammer

Yammer is “Facebook for business.” Yammer is the social collaboration tool of choice for SharePoint going forward (Ryan, 2014).

 

3. To realize business value from enterprise social:

Make sure management is listening. Leaders and decision makers need to monitor social chatter to keep informed and respond promptly.

Provide visible feedback and rewards. Employee participation is largely driven by the desire to be recognized by peers and managers.

Brand the social network. Employees want to feel the company is behind the initiative. At Red Robin, for example, renaming Yammer to Yummer connected employees to the brand.

Identify and leverage change agents. Start with those employees most eager to participate, especially Millennials who are looking for recognition and purpose.

Introduce competitions and games. Experience shows that people are more likely to engage when they are having fun.

Make the rules of engagement simple. Do not over-engineer or control the social network. Make it easy to enroll and participate.

 

4. Office Graph uses signals from e-mail, social conversations, documents, sites, instant messages, meetings, and more to map the relationships between people and concepts.

Enterprise Graph tries to show how users are related to one another by mapping the relationships between people and information by simply recording likes, posts, replies, shares, and uploads. It enables developers and customers to seamlessly connect people, conversations, and data across all their business services.

5. With Chatter, the problem-solving process becomes a conversation rather than a series of disjointed e-mails. People can interact and spark new ideas. There is no confusion over which is the latest version of a document. Other employees can be brought into the conversation using the @ function. Chatter customer groups let users work with external customers, vendors, and partners, with the option of limiting what they can see and access. Private groups can also be set up when employees need to work on sensitive projects with certain colleagues.

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Learning Objectives

Enterprise Social Platforms

Enterprise Resource Planning Systems

Supply Chain Management Systems

Customer Relationship Management Systems

Enterprise Systems

Enterprise Resource Planning Systems

ERP Past to Present

Integrating accounting, finance, HR, marketing, and other critical business functions.

Originally run on client-server architecture and customer-designed apps.

Now web-based with a focus on social collaboration, deployment flexibility, faster response, and accessibility from mobile devices.

An enterprise application integration (EAI) layer enables the ERP to interface with legacy apps.

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Enterprise Resource Planning Systems

ERP Add-ons

Sales associates to process orders, take payments, and collect signatures with an iPad app.

Field technicians to provide customer service from anywhere.

Marketing to manage every aspect of ongoing customer relationships using a smartphone app.

Production to access to the real-time information needed to reduce stock-outs and excess inventory.

Customers to access, pay, and view invoices online.

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Enterprise Resource Planning Systems

Manufacturing ERP

Success depends on lower costs, shorter cycle times, and maximum production throughput.

Minimizing inventory errors and maintaining the optimal inventory level.

Lean Manufacturing

Optimize inventory to keep production running while minimizing inventory-on-hand to control holding costs.

Help manufacturers avoid material shortages, manage production, and coordinate distribution channels, which improves on-time delivery.

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Enterprise Resource Planning Systems

ERP Selection Factors

Select an ERP solution that targets the company’s requirements.

Evaluate potential ERP vendors’ strengths and weaknesses.

Meet with each vendor and get a hands-on demo of its ERP solutions.

Calculate the ERP’s total cost of ownership (TCO).

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Enterprise Resource Planning Systems

ERP Success Factors

Focus on business processes and requirements.

Focus on achieving a measurable ROI.

Use a strong project management approach and secure commitment of resources.

Obtain strong and continuing commitment from senior executives.

Take sufficient time to plan and prepare up-front.

Provide thorough training and change management.

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Enterprise Resource Planning Systems

ERP Failure Factors

Cost misrepresentation.

Unrealistic implementation timeframes.

Software-license issues.

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Enterprise Resource Planning Systems

What are three ways ERP can be deployed?

Briefly describe the latest ERP features and add-ons.

Describe ERP from a technology perspective.

Explain manufacturing ERP systems and lean principles.

5List and briefly describe three ERP implementation success factors.

Describe causes or factors that contribute to ERP failure.

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Suggested Answers:

1. Enterprise Resource Planning (ERP) is the software infrastructure that integrates an enterprise’s internal applications, supports its external business processes, and links to its external business partners. ERP systems are commercial software packages that integrate business processes, including supply chains, manufacturing, financial, human resources, budgeting, sales, and customer service. ERPs have migrated from early client-server architectures to a Web-based architecture.

 

ERPs were devised to help managers run a business, whether a manufacturing, distribution, retail, or service organization. Ideally, each business function would access a centralized database instead of data silos. Departments stay informed about what is ongoing in other departments that impact its operations or performance.

 

2. Legacy systems (older business systems that may be still in use) are difficult and expensive to maintain, update, and interface securely with leading-edge business apps.

 

3. Answers may vary.

Legacy architectures were not designed for flexibility. Integrating information systems is necessary so that data can flow seamlessly among departments and business partners. ERP solutions can have enough flexibility and versatility to manage different lines of business as well as changing business requirements. A full ERP offers a longer-term solution that is agile to respond to changing business needs.

 

4. Manufacturers know that their success depends on lower costs, shorter cycle times, and maximum production throughput. A key factor in lowering costs is inventory management—such as minimizing inventory errors and maintaining the optimal inventory level. An optimal level has enough inventory to keep production running while minimizing inventory-on-hand to control holding costs. ERP demand forecasting modules help manufacturers avoid material shortages, manage production, and coordinate distribution channels, which improves on-time delivery. Engineers, production floor workers, and those in the purchasing, finance, and delivery departments can access and share plans, production status, quality control, inventory, and other data in real time.

5. Answers may vary.

The text shows the results of a survey to identify what ERP experts had found to be most important to successful ERP projects. These ERP experts were given the following six options and asked to select only one of them as “most important”:

Strong program management: 6 percent

Executive support and buy-in: 19 percent

Organizational change management and training: 13 percent

Realistic expectations: 8 percent

Focus on business processes: 5 percent

Interaction of all five factors: 49 percent

Nearly half of the experts indicated that the failure of any one of the five factors significantly increases the risk of ERP failure.

 

The text also lists the following recommendations to explain why ERP success depends on several key factors being met:

 

Focus on business processes and requirements. Too often, companies get caught up in technical capabilities or platforms on which the ERP runs. But compared to business processes, none of this really matters. What matters is how managers want business operations to run and what the key business requirements are. Once management and IT have defined them, they can intelligently choose the software, modules, and vendor that fits their unique business needs.

Focus on achieving a measurable ROI. Developing a business case to get approval from upper management or the board of directors is essential, but not sufficient. Establish key performance measures, set baselines and targets for those measures, and then track performance after going live. The performance results are proof of how well the ERP meets the expectations that had been listed in the business case.

Use a strong project management approach and secure commitment of resources. An ERP project depends on how it is managed. Responsibility for the management of the ERP implementation project cannot be transferred to vendors or consulting fi rms. Because of the business disruption and cost involved, ERP projects require the full-time attention and support of high-profile champions on the key functions for a long period of time, from 6 to 12 months on average. It is also known that ERP projects cannot be managed by people who can be spared. They must be managed by people who are indispensable personnel. Without powerful champions and an adequate budget, expect the ERP to fail.

Obtain strong and continuing commitment from senior executives. Any project without support from top management will fail. No matter how well run a project is, there will be problems such as conflicting business needs or business disruptions that can only be resolved by someone with the power and authority to cut through the politics and personal agendas.

Take sufficient time to plan and prepare up-front. An ERP vendor’s motive is to close the deal as fast as possible. The company needs to make sure it correctly defines its needs and what it can afford to achieve in order to intelligently evaluate and select the best vendor. Do not be rushed into a decision. Too often, companies jump right into a project without validating the vendor’s understanding of business requirements or their project plan. The principle of “measure twice, cut once” applies to vendor selection. The more time the company spends ensuring these things are done right at the start, the lower the risk of failure and the less time spent fixing problems later. Filing a lawsuit against a vendor (see Table 10.4) is not a fi x. Lawsuits are both expensive and risky, and contribute nothing to the company’s performance.

Provide thorough training and change management. Another key principle to understand is that when you design an ERP, you redesign the organization. ERP systems involve dramatic change for workers. ERPs lose value if people do not understand how to use them effectively. Investing in training, change management, and job design are crucial to the outcome of any large-scale IT project.

 

6. Answers may vary.

Students may give the inverse of success factors; i.e., failure to have strong program management, executive support, and buy-in, sufficient change management and training, realistic expectations, focus on business processes.

 

The success of an ERP depends on organizational and technological factors that occur prior to, during, and after its implementation. Knowing what to do and what not to do are important.

 

ERP implementations are complex—and risky. Planning, deploying, or fine-tuning these complex business software systems for your company is such a large undertaking that such projects fail more than 50 to 70 percent of the time. You need to conduct your own research rather than depend upon vendor data for the full story of enterprise system implementations.

 

Many times seemingly well-planned projects fail and require extensive reworking because integration issues had not been properly planned.

 

ERPs are expensive and such an investment needs to be justified. This includes the total cost of ownership, not simply the cost of the ERP or monthly SaaS fee.

Processes need to be redesigned so that they can be automated, either totally or partially. Tasks that are no longer necessary are removed from the processes. Jobs and how they are performed will change to accommodate the new processes. Enterprise systems require retraining users whose productivity will drop initially as they adjust to a new way of doing their jobs.

 

Applications must be tightly aligned with well-defined and well-designed business processes – a standard which few enterprises are able to achieve.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Enterprise Social Platforms

Enterprise Resource Planning Systems

Supply Chain Management Systems

Customer Relationship Management Systems

Enterprise Systems

Supply Chain Management Systems

Supply Chain

Starts with the acquisition of raw materials or the procurement (purchase) of products and proceeds through manufacture, transport, and delivery—and the disposal or recycling of products.

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Figure 10.10 Model of the supply chain.

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Supply Chain Management Systems

Supply Chain Functions

Starts with the acquisition of raw materials or the procurement (purchase) of products and proceeds through manufacture, transport, and delivery—and the disposal or recycling of products.

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Supply Chain Management Systems

Supply Chain Flows

Material or product flow: the movement of materials and goods from a supplier to its consumer.

Information flow: the movement of detailed data among members of the supply chain, for example, order information, customer information, order fulfillment, delivery status, and proof-of-delivery confirmation.

Financial flow: the transfer of payments and financial arrangements.

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Supply Chain Management Systems

Supply Chain Management (SCM)

The efficient management of the flows of material, data, and payments along the companies in the supply chain, from suppliers to consumers.

SCM systems are configured to achieve the following business goals:

To reduce uncertainty and variability in order to improve the accuracy of forecasting.

To increase control over processes in order to achieve optimal inventory levels, cycle time, and customer service.

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Supply Chain Management Systems

Order Fulfillment

Part of back-office operations, such as accounting, inventory management, and shipping; and closely related to front-office operations or customer-facing activities with the key aspect as delivery of materials or products at the right time, to the right place, and at the right cost. Part of logistics.

Logistics

Logistics entails all the processes and information needed to move products from origin to destination efficiently.

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Supply Chain Management Systems

Order Fulfillment Steps

Step 1: Make sure the customer will pay.

Step 2: Check in-stock availability and reorder as necessary.

Step 3: Arrange shipments.

Step 4: Insurance.

Step 5: Replenishment.

Step 6: In-house production.

Step 7: Use suppliers.

Step 8: Contacts with customers.

Step 9: Returns.

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Supply Chain Management Systems

Order Fulfillment

Part of back-office operations, such as accounting, inventory management, and shipping; and closely related to front-office operations or customer-facing activities with the key aspect as delivery of materials or products at the right time, to the right place, and at the right cost.

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Supply Chain Management Systems

Supply Chain Research

The top two strategic priorities of executives are supply chain analytics and multichannel fulfillment.

The two major barriers preventing innovation in the supply chain are a talent shortage and a continuing focus on cost reduction reducing sustainability.

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Supply Chain Management Systems

Supply Chain Analytics

Algorithms and SCM models based on past demand, supply, and business cycles are inadequate to effectively manage the supply chain used to help predict the future.

Multichannel Fulfillment

Efficient handling of back-end order fulfillment processes.

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Supply Chain Management Systems

Supply Chain Technology

Mobility and mobile-to-mobile (M2M) technologies improving responsiveness and customer service.

3D printing could have far-reaching implications, but immediate potential remains unrealized.

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Supply Chain Management Systems

What is a supply chain?

List four functions carried out by companies in a supply chain.

List and describe the three main flows being managed in a supply chain.

Describe SCM.

What are steps in the order fulfillment?

Explain logistics.

What are the top two strategic priorities of SCM executives?

What are the two major barriers preventing innovation in the supply chain?

What are the top innovative digital technologies impacting SCM?

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Suggested Answers:

1. Supply chains involve the flow of materials, data, and money. The journey that a product travels, starting with raw material suppliers, to manufacturers or assemblers, then distributors and retail sales shelves, and ultimately to customers is its supply chain. Supply chain starts with the acquisition of raw materials or the procurement (purchase) of products and proceeds through manufacture, transport, and delivery—and the disposal or recycling of products.

 

2. The supply chain is like a pipeline composed of multiple suppliers, distributors, manufacturers, retailers, and logistics providers that:

purchase (procurement) raw materials or products

transform materials (i.e., manufacture, service) into intermediate or finished products

transport and deliver finished products to retailers or customers, and

dispose or recycle product

 

3. Supply chains involve the flow of materials, data, and money. Descriptions of these three main flows are:

Material or product flow: This is the movement of materials and goods from a supplier to its consumer. For example, Ford supplies dealerships that, in turn, sell to end-users. Products that are returned make up what is called the reverse supply chain because goods are moving in the reverse direction.

Information flow: This is the movement of detailed data among members of the supply chain, for example, order information, customer information, order fulfillment, delivery status, and proof-of-delivery confirmation. Most information flows are done electronically, although paper invoices or receipts are still common for non-commercial customers.

Financial flow: This is the transfer of payments and financial arrangements, for example, billing payment schedules, credit terms, and payment via electronic funds transfer (EFT). EFT provides for electronic payments and collections. It is safe, secure, efficient, and less expensive than paper check payments and collections.

 

4. Supply chain management (SCM) is the efficient management of the flows of material, data, and payments along the companies in the supply chain, from suppliers to consumers. SCM systems are configured to achieve the following business goals:

To reduce uncertainty and variability in order to improve the accuracy of forecasting

To increase control over the processes in order to achieve optimal inventory levels, cycle time, and customer service.

 

5. Step 1: Make sure the customer will pay. Depending on the payment method and prior arrangements with the customer, verify that the customer can and will pay, and agrees to the payment terms. This activity is done by the finance department for B2B sales or an external company, such as PayPal or a credit card issuer such as Visa for B2C sales. Any holdup in payment may cause a shipment to be delayed, resulting in a loss of goodwill or a customer. In B2C, the customers usually pay by credit card, but with major credit card data theft at Target and other retailers, the buyer may be using a stolen card.

Step 2: Check in-stock availability and reorder as necessary. As soon as an order is received, the stock is checked to determine the availability of the product or materials. If there is not enough stock, the ordering system places an order, typically automatically using EDI (electronic data interchange). To perform these operations, the ordering system needs to interface with the inventory system.

Step 3: Arrange shipments. When the product is available, shipment to the customer is arranged (otherwise, go to Step 5). Products can be digital or physical. If the item is physical and available, packaging and shipment arrangements are made. Both the packaging/shipping department and internal shippers or outside transporters may be involved. Digital items are usually available because their “inventory” is not depleted. However, a digital product, such as software, may be under revision, and thus unavailable for delivery at certain times. In either case, information needs to flow among several partners.

Step 4: Insurance. The contents of a shipment may need to be insured. Both the finance department and an insurance company could be involved, and again, information needs to be exchanged with the customer and insurance agent.

Step 5: Replenishment. Customized orders will always trigger a need for some manufacturing or assembly operation. Similarly, if standard items are out of stock, they need to be produced or procured. Production is done in-house or outsourced.

Step 6: In-house production. In-house production needs to be planned and actual production needs to be scheduled. Production planning involves people, materials, components, machines, financial resources, and possibly suppliers and subcontractors. In the case of assembly and/or manufacturing, several plant services may be needed, including collaboration with business partners. Production facilities may be located in a different country than the company’s headquarters or retailers. This may further complicate the flow of information.

Step 7: Use suppliers. A manufacturer may opt to buy products or subassemblies from suppliers. Similarly, if the seller is a retailer, such as in the case of Amazon. com or Walmart.com, the retailer must purchase products from its manufacturers. In this case, appropriate receiving and quality assurance of incoming materials and products must take place.

Once production (Step 6) or purchasing from suppliers (Step 7) is completed, shipments to the customers (Step 3) are arranged.

Step 8: Contacts with customers. Sales representatives keep in contact with customers, especially in B2B, starting with the notification of orders received and ending with notification of a shipment or change in delivery date. These contacts are frequently generated automatically.

Step 9: Returns. In some cases, customers want to exchange or return items. The movement of returns from customers back to vendors is reverse logistics. Such returns can be a major problem, especially when they occur in large volumes.

 

6. Logistics entails all the processes and information needed to move products from origin to destination efficiently. The order fulfillment process is part of logistics.

7. The top two strategic priorities of executives are supply chain analytics and multichannel fulfillment.

 

8. The two major barriers preventing innovation in the supply chain are a talent shortage and a continuing focus on cost reduction.

 

9. Mobility and M2M technologies can improve responsiveness and customer service by providing supply chain workers with the information they need—whenever and wherever they need it.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Enterprise Social Platforms

Enterprise Resource Planning Systems

Supply Chain Management Systems

Customer Relationship Management Systems

Enterprise Systems

Customer Relationship Management Systems

Chapter 10

Figure 10.12 Four CRM critical success factors and their importance.

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Customer Relationship Management Systems

Making CRM Matter

Data analytics, sophisticated predictive analytics, and BI are needed to determine customer lifetime value (CLV); then business rules need to specify how to treat or manage customers based on their value score.

Intelligently managing relationships with customers can increase revenues and net profits significantly.

Chapter 10

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Customer Relationship Management Systems

CRM and Customer Acquisition/Retention

CRM technologies help marketing managers run effective campaigns, promotions, commercials, and advertisements to attract new customers, or to increase sales to existing customers, or to do both.

Newly acquired customers are unprofitable until they have purchased enough products or services to exceed the cost to acquire and service them.

Retaining customers that generate revenues in excess of the costs is critical.

Chapter 10

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Customer Relationship Management Systems

Drucker on Marketing Effectiveness

Know your customers

Understand customer needs

Communicate intelligently with customers

Loyalty Effect

Chapter 10

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Customer Relationship Management Systems

CRM Failures

IT department in charge instead of business users.

Incorrect CRM requirements by not involving key business stakeholders from the outset.

Mobility CRM strategy is an afterthought.

Taking the wrong approach to CRM training.

Underestimating users’ resistance to change.

Chapter 10

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Customer Relationship Management Systems

Measuring CRM Success

Tangible net benefits, intangible benefits, risk assessments lead to:

Increased staff productivity (more closed deals)

Cost avoidance

Revenues

Margin increases

Inventory cost reductions

Increased customer satisfaction, loyalty, and retention

Chapter 10

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Customer Relationship Management Systems

Explain the four critical success factors for CRM.

Why does CRM matter?

Discuss how CRM impacts customer acquisition and retention.

According to Peter Drucker, what does marketing effectiveness depend on?

Give three reasons why CRM fails.

How can CRM be justified?

Chapter 10

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Suggested Answers:

1. The four critical success factors and their relative importance for CRM are:

Data (15%)

CRM technology (20%)

People (40%)

Process change (25%)

 

2. CRM systems play the major role in customer experience (CX), and good CX helps to retain customers. However, not all customers are worth retaining. Customers can be unprofitable. Intelligently managing relationships with customers can increase revenues and net profits significantly. Similar to managing inventory and supplier relationships, effective CRM is data-driven, complex, and continuously changing. The growth of mobile sales channels and social networking makes recognizing customers across multiple touchpoints complex. In addition, many companies have customer data in multiple, disparate systems that are not integrated—until they implement CRM systems.

 

3. CRM technologies help marketing managers run effective campaigns, promotions, commercials, and advertisements to attract new customers, or to increase sales to existing customers, or to do both. Attracting and acquiring new customers are expensive activities, for example, it costs banks roughly $100 to acquire a new customer. Newly acquired customers are unprofitable until they have purchased enough products or services to exceed the cost to acquire and service them. Therefore, retaining customers that generate revenues in excess of the costs (e.g., customer service, returns, promotional items, and the like) is critical. The purpose of loyalty or frequent purchase programs offered by online retailers, coffee shops, airlines, supermarkets, credit card issuers, casinos, and other companies is to track customers for CRM purposes and build customer loyalty to improve financial performance. Loyalty programs rely on data warehouses and data analytics to recognize and reward customers who repeatedly use services or products.

4. According to management guru Peter Drucker, “Those companies who know their customers, understand their needs, and communicate intelligently with them will always have a competitive advantage over those that don’t” (Drucker, 1969). For most types of companies, marketing effectiveness depends on how well they know their customers; specifically, knowing what their customers want, how best to contact them, and what types of offers they are likely to respond to positively. According to the loyalty effect, a five percent reduction in customer attrition can improve profits by as much as 20 percent. Customer-centric business strategies strive to provide products and services that customers want to buy.

 

5. Answers may vary.

Putting IT department in charge of the CRM project instead of the business users. The hands-on business users need to champion and lead the project initiative, with IT playing a supporting role.

Not getting the CRM requirements right by not involving key business stakeholders from the outset. CRM implementations need buy-in from the users and other business stakeholders, who can spread enthusiasm. Frequent communication about the project is important to engaging them in a meaningful way.

Making mobile CRM strategy an afterthought. Consider mobility a priority in the CRM project from the outset. Putting an existing CRM on mobile devices is a bad plan.

Taking wrong approach to CRM training. Make sure the interface is intuitive enough that most users will not need hands-on training. When people sit in a classroom for an hour, they will only retain 5 minutes of what they hear. A learning program during lunch that focuses on one or two lessons is a much more effective adoption strategy.

Underestimating users’ resistance to change. Users will not tolerate poorly designed systems. Frustrating users is a fast track to failure, or at a minimum, suboptimal results.

 

6. A formal business plan must be in place before the CRM project begins—one that quantifies the expected costs, tangible financial benefits, and intangible strategic benefits, as well as the risks. The plan should include an assessment of the following:

Tangible net benefits. The plan must include a clear and precise cost-benefit analysis that lists all of the planned project costs and tangible benefits. This portion of the plan also should contain a strategy for assessing key financial metrics, such as ROI, net present value (NPV), or other justification methods.

Intangible benefits. The plan should detail the expected intangible benefits, and it should list the measured successes and shortfalls. Often, an improvement in customer satisfaction is the primary goal of the CRM solution, but in many cases this key value is not measured.

Risk assessment. The risk assessment is a list of all of the potential pitfalls related to the people, processes, and technology that are involved in the CRM project. Having such a list helps to lessen the probability that problems will occur. And, if they do happen, a company may find that, by having listed and considered the problems in advance, the problems are more manageable than they would have been otherwise.

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