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s ERP systems begin to gain popularity in enterprises and companies embrace the
concept of integrated business processes within the organization and reaping the
benefits of doing so, ERP vendors started adding new features to their solutions; features
that support just about any business processes in any organizations, and features that extend well
beyond companies internal processes.
Suppose the company is the center of the universe, extending backwards refers to implementing
business processes to assist in forging a closer relationship with suppliers and extending forward
refers to implementing the business processes that assist in increasing the companys ability to
meet customers demands.
The learning objectives for this chapter allow us:
To be introduced to the concept of Supply Chain Management.
To describe the various areas covered under the umbrella of Supply Chain Management.
To understand the various modes of purchasing that a company uses.
To describe a typical manufacturing, warehousing and distribution process.
To describe the tasks involved in inventory management and e-fulfillment.
To explain the various technologies used in Supply Chain Management and the vendors
that provide these solutions.
To understand the concept of Customer Relationship Management.
To describe the general expectations of customers.
To list and describe the touch points between a customer and the company and what it
means to have a 360 degree view of the customer.
To describe the customer experience and purchase cycle.
To describe the CRM technologies that companies use to improve the way they interact
with their customers.
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1.
INTRODUCTION
Companies do not function alone; they collaborate with business partners such as their suppliers
and customers. The best run companies are the ones that not only perform their internal business
processes flawlessly, but also collaborate effectively with their suppliers and are sensitive to their
customers needs.
The business processes involved in extending outwards is known as Supply Chain Management
(SCM) and the business processes involved in meeting customers demands is known as
Customer Relationship Management (CRM).
In this chapter we will cover SCM and CRM. We will introduce the concepts of SCM and CRM
and briefly touch on the enterprise systems that support SCM and CRM business processes.
2.
Supply Chain Management (SCM) involves the coordination of physical activities that enables the
delivery of products to the end customers. (Goh P. G., 2005, Page 4) These activities include the
sourcing, procurement and production of materials and goods, the delivery of goods to the end
customer, after sales support and returns.
What are the expectations of a company in terms of SCM? In sourcing, procurement and
production, companies expect raw materials and intermediate products to be purchased at the
lowest price, of highest quality and delivered just before they are to be used in production. For
products that the company manufactures, it expects production to complete just before the
deadline for delivery so that it saves on warehousing cost. Delivery needs to quick, risk free and
economical. This involves managing shipping routes, transportation modes and schedules. After
sales support and the proper management of Return Merchandize/Material Authorization
(RMA) are important to ensure customers continue to patronize the companys services.
Apart from materials and products, SCM also involves the management of information and cash
as they flow between the company and its suppliers. The ability to share timely information about
stock levels, delivery deadlines and manufacturing requirements between the company and its
suppliers is crucial to a successful collaborative relationship. Quick and seamless transfer of cash
between the company and its suppliers prevents delays due to late payments.
A companys 1st tier suppliers are the ones who supply it with the raw materials to produce its
goods. Its 2nd tier suppliers supply to its 1st tier supply. How far back along the supply chain
should a company concern itself with? After all, raw materials of one company are the finished
product of another and it is impossible for a company to manage too far back along its supply
chain. The answer to this lies in the business model of the company.
Raw
material
supplier
Production
facilities
Distribution
centers
Retail
stores
Purchasing
3.
Manufacturing
Warehousing
and
Distribution
Inventory
Management
E-Fulfillment
PURCHASING
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before confirming the item to order. Once ordered, the staff responsible needs to monitor the
process as goods are delivered from the supplier to the company. Monitoring of supplier
compliance and quality control are important to ensure that goods arrive on time and in the
condition agreed upon.
To reduce the cost of raw materials, companies are adopting global sourcing as an alternative to
finding a local supplier close to its production facilities. In global sourcing, the company is
provided with the option of looking for a larger pool of suppliers around the globe. One
advantage of global sourcing is the huge variety of items that suppliers all over the world might
offer but at a risk of lower (or unknown) quality and higher shipping cost.
Another method to reduce to the cost of raw materials is to perform demand consolidation, a
strategy where material requirements across the companys subsidiaries and departments are
consolidated to be order from the same supplier at once. The rationale behind this strategy is that
higher volume leads to greater bargaining power. Resultantly, the price that the supplier offers
reduces.
Instead of sourcing through a single supplier, a company might decide to select a handful of two
to three vendors for each of the raw materials it needs so that it does not become too dependent
on a single supplier. This practice is known as supplier base consolidation.
The advancement in information systems and the Internet has also led to the popularity of eprocurement, where procurement portals are used to allow the company to interact with its
suppliers online. This may also include the integration of the companys and its suppliers
procurement system to allow collaborative planning, forecasting and replenishing (CPFR) of raw
materials.
4.
MANUFACTURING
Manufacturing involves the production of the companys goods for its end users. A typical
manufacturing planning process is illustrated in the diagram as follow:
Sales and
Marketing
Planning
Aggregate
Production
Planning
Master
Production
Schedule
Materials
Requirements
Planning
Requirements for
Raw Materials
Job Floor
Schedule
Description
Forecasted demand of the companys
products based on the amount the company
predict that it might sell.
Planning of production at a higher, group
level across a longer time horizon.
5.
Raw materials, intermediate products and finished products are stored in warehouses before they
are used in manufacturing or shipped out. The process of deciding where to place inventory, how
to track their whereabouts and the strategies used to maximize space in the warehouse is known
as Warehouse Management. Companies, especially large conglomerates have multiple
warehouses located across the globe.
Distribution involves maintaining the network where goods are shipped to the customer. The
staff-in-charge will need to decide the method of transportation to use to deliver the products to
its destination on time, economically and in acceptable condition. Various methods of
distribution exist. In the direct shipment method, the company chooses to deliver goods directly
to its customers. The Hub & Spoke method involves the consolidation of goods in a centralized
facility such as a distribution center or a warehouse and redistributing them to customers when
the need arises. Companies may practice both methods of distribution depending on factors such
as the amount of goods to ship or whether goods are shipped to a single customer or a group of
customers in the same location.
Companies do not have the resources to physically transport its own goods if it involves sending
them over long distance. These tasks are outsourced to freight forwarders. Freight forwarders are
middlemen whose jobs involve the consolidation of many companies shipping requirements and
then negotiating with shipping/transportation companies to provide a more competitive rate. A
value-added service the freight forwarders often provide on behalf of the company is helping to
handle trade documents, executing custom clearing procedures, inspection of goods, quality
assurance and handling insurance matters. (Goh P. G., 2005 Page 53)
When a company ships its goods to the customer, who pays the shipping cost? Who pays the
insurance and whose risk is it if the goods are hijacked by pirates in the middle of the ocean? The
terms and conditions that govern these factors are known as incoterms. Examples include:
Free on Board (FOB) Buyer bears all risk and cost of transportation once goods are on
board the ship.
CIF (Cost, Insurance and Freight) Risk passed to buyer on board the ship. But seller pays
for transportation and insurance cost right till destination port.
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6.
Ex-Works (EXW) - Buyer bears all risk and cost of transportation right from the seller
door.
INVENTORY MANAGEMENT
Apart from stock keeping and regular stock checks, modern inventory management involves the
analysis and planning of materials used in production to reduce the amount of dead stock.
Effective inventory management also prevents inventory from running low by taking into
account suppliers lead time as well as customer demand. The prediction of expected demand
over a specific time frame is known as demand planning and forecasting.
Companies today practice an inventory management strategy known as Vendor Managed
Inventory (VMI). In VMI, suppliers place their goods at the customers location on consignment.
Suppliers are in charge of replenishing these goods when necessary and customer do not own
the goods in their warehouse until they consumes them.
Another ingenious method for reducing shipping cost is the strategy of consolidating goods of
several suppliers to be shipped in a customer. This is known as a Supplier Hub.
7.
E-FULFILLMENT
E-fulfillment involves the fulfillment of orders electronically. This includes the capturing of
customers orders via an online shopping cart system or the integration between the shopping
cart system and the companys ERP system to check stock levels. Once orders are confirmed, Efulfillment allows the customer to log in to track their orders. Bills are presented in electronic
format with payments done via credit cards or telegraphic transfers (TT).
8.
SCM TECHNOLOGIES
Manufacturing
Execution/Materials
Requirement
Planning/Manufacturing
Resource Planning
Warehouse Management
Transportation
Management
9.
Supply Chain Planning (SCP) solutions are software that help companies model and design their
supply chains and distribution networks. This includes making suggestions for location of
distribution centers and the forecasting of raw material requirements and the time to replenish
them. Examples of software in this category are:
10.
Warehouse Management System (WMS) are software that helps store, track, move goods and
manages the storage locations in a warehouse. WMS typically integrates with systems such as
barcodes, Radio Frequency Identification (RFID) and mechanical crane systems that help in the
physical movement of goods between locations. Examples of software in this category are:
11.
SAP
ERP)
Manufacturing Execution Systems (MES) performs the actual steps in manufacturing a product
as it moves from one station to the next within the factorys shop floor. As the product is
manufactured, the manufacturing execution system is updated. Resources such as manpower,
tools and machinery are managed within the MES.
Materials Requirement Planning (MRP) systems help the company keep the lowest level of
inventory possible while still having them available at the right time. Manufacturing Resource
Planning (MRP II) systems are an expansion of MRP to include aspects of operational planning
such as finance, manpower and cost.
MES, MRP and MRP II hardly exist as individual systems today anymore as they have already
been incorporated as modules within ERP systems. Examples of software in this category are:
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12.
Used typically by companies who need to manage delivery routes and maintain its fleet of
delivery transportations such as trucks and ships, Transportation Management Systems (TMS)
help the company manage the processes related to transporting goods from point to point. It
provides the mean to measure transportation routes and helps to decide on the most effective
mode of transportation for delivery. TMS also monitor fleets, cost of delivery and controls
delivery cost and service quality. Examples of software in this category are:
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Management
System
Price
Time
period of time. Products developed quickly might sacrifice on quality and cheap products tend
to save on raw materials and are thus lower in quality.
Still, companies strive to fulfill all 3 criteria for their customers and compete fiercely in doing so.
The various ways that companies compete against one another include offering a higher quality
of service, anticipating customers demands and moving fast enough to close the deal before
competitors appear. To do this effectively requires good CRM.
From a corporate perspective, a company should do what matters the most. This involves
reducing the amount of unprofitable activities instead of attempting to provide all 3 criteria to
every one of its customers all the time. The 80/20 rule tells us that 80% of the companys profits
are derived from the top 20% of its customers. As resources are scarce, it will be a drain of the
companys resource to increase the value of customers who will never become profitable.
Therefore it is important that the company possess the means to track customers profitability. To
do so requires CRM too.
Again, vendors will want you to believe that CRM is a technological product they offer. This is
untrue. Complex CRM processes are best implemented with computers and information systems
but there is nothing to stop a company from managing CRM processes with a white board or a
set of spreadsheets.
14.
TOUCH POINTS
Touch points are points of contacts between a customer and the company. For example, a bank
will allow you to interact with the services that it provides via the Internet, branches and the
phone. Common touch point includes:
Fax
Media
Personal
Contact
Retail
Outlet
Telephone
Web &
Wireless
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that a 360 degree view of the customer can only be implemented if the systems used by the
company to store customers contacts are integrated.
Retail
Outlet
Telephone
Fax
Personal
Contact
A centralized
customer
database
Telephone
Web &
Wireless
15.
CUSTOMER LOYALTY
One of the objectives of CRM is to increase customer loyalty. While loyalty is difficult to quantify,
a company may measure it based on its observations about customers behavior. One
contribution to positive customer behavior is the perception that the companys offerings are of
high value. A customer locked-in to the companys offerings due to the amount of time, money
and efforts he already invested, a lack of alternatives and an emotional bond with an individual
sales representative all add up to a positive contribution to the customers behavior that will help
increase loyalty.
Being able to offer products and services that are of high value to customers come from a
companys ability to accurately predict what its customers needs are and to effectively fulfill
them when the time comes. This ability again contributes to customer loyalty.
16.
The Customer Purchase Cycle begins with a prospective customer becoming aware of its
products and ends when he consumes and finally disposes the product. The diagram below
illustrates the purchase cycle:
Product
Awareness
Information
Gathering
Decision
Making
Purchasing
Process
Consumption
Disposal
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Purchasing Process The prospective decides to buy the companys products and goes
through the procurement process including sending a purchase order, getting invoiced
and paying for the product.
Consumption The customer uses the product.
Disposal The product is eventually disposed.
It is important that a company understand the nature of its Customer Purchase Cycle. Questions
that a company needs to answer include the following:
17.
How long did each stage take? A long purchase cycle might cause customers to walk away
from the deal.
How complex is each stage? A simple purchase cycle makes it more conducive for
customers to buy.
When has the customer reached a particular stage? The company needs to know this so
that it executes the correct strategy to move the customer from one stage to the next.
How often does the customer repeat a particular stage? It might be possible to automate
a repetitive process especially when the customer is a returning one.
The amount of resources that the company directed to a particular stage? Resources might
be better deployed to more value-adding activities.
The Customer Experience Cycle is an extension of the Customer Purchasing Cycle and provides
us with the framework and method to better control, measure and improves a prospective and
existing customers experience.
Step 1: Customer Understanding
Understanding the companys market segment and the characteristics of a typical customer is an
essential step as it eventually determines how the product will be designed, marketed and sold.
This can be done via Customer Profiling, Segmentation and Segment Analysis.
Step 2: Customer Purchasing Cycle
As described in the previous section, this step by step process is what the customer will go
through in purchasing the companys offerings
Step 3: Customer Needs
Customers purchase the companys products in order to fulfill their needs. This step involves
understanding the needs of prospective and existing customers at each stage of the Purchasing
Cycle
Step 4: Customer Interaction Opportunities
Customers continue to interact with the company through its various touch points. This creates
opportunities to cross and up sell its products. The company should exploit these opportunities.
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18.
CRM TECHNOLOGIES
Like SCM, The concepts of CRM as discussed in the previous sections are now supported by a
full range of enterprise systems sold by some of the largest software vendors including SAP,
Oracle, Salesforce.com and Microsoft. These systems range from best-of-breed solution may exist
as a module within a full suite of solution such as SAP CRM.
For ease of discussion, we will break down the various categories of CRM solution as follows:
Sales Force
Automation
Customer
Service &
Support
Marketing
Automation
Analytics
19.
Sales Force Automation (SFA) solutions are software that facilitates sales representatives through
the stages of the sales process, typically referred to as the sale cycle (or the customer purchasing
cycle as described earlier). SFA solutions assist the sales representative in tracking leads and
following through opportunities. Examples of software in this category are:
SugarCRM (http://www.sugarcrm.com)
Salesforce.com (http://www.salesforce.com)
Oracle Siebel CRM on Demand (http://www.oracle.com)
20.
MARKETING AUTOMATION
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Generation tools may also help the company evaluate the quality of its leads. Marketing
departments may also use workflow automation tools to assist them in internal marketing
workflows such as budgeting and the generation of email campaigns. Examples of software in
this category are:
SAS Marketing Automation (http://www.sas.com)
Eloqua Campaign Management (http://www.eloqua.com)
Netsuite CRM+ (http://www.netsuite.com)
21.
Software under the category of customer service & support include call center management
software that helps phone customer service officers and telemarketers interact with customer on
the phone. It also include web self-service software such as those that allows customers to log in
to on an Internet Service Providers website to check the number of hours of online usage they
have accumulated and online knowledge bases for customers to find answers to frequently asked
questions. Examples of software in this category are:
Oracle Siebel Contact Center (http://www.oracle.com)
Aspect Contact Center Software (http://www.aspect.com)
22.
ANALYTICS
Software under the category of analytics includes those used in data warehousing, data mining
and business intelligence. Analytics solutions are not used purely in CRM but have been widely
deployed in areas of sales and marketing especially in the areas of predictive analytics used in
customer profiling, segment analysis and sales forecasting. Features of analytics solutions have
also been built into categories of CRM systems such as Sales Force Automation (SFA). Examples
of software in this category are:
23.
CONCLUSION
In this chapter, we touched briefly on the concepts of SCM and CRM and described the
technologies used in implementing them. We described the areas covered under the umbrella of
SCM and CRM and explained the challenges that companies encounter in these areas and how
SCM and CRM sought to manage them. SCM and CRM systems are a natural extension to an ERP
system and are increasingly being implemented across companies large and small.
Although this group of enterprise solutions cover a different aspect of the companys business
process, it remains important for them to integrate into the company existing ERP system. This is
so that the system does not turn into a silo that is unable to receive and send, or worst, receives
and sends the wrong information from the ERP system.
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TUTORIAL QUESTIONS
1. Refer to CRM_CaseStudy.pdf on Olive. According to Johnson (Page 35): With all the
merger-and-acquisition activity in the CRM industry, one of her biggest concerns was that
while this would work now, the vendor would eventually fizzle out and there would be no
support, no new updates, nothing. We would be up the river without a paddle.
a.
b.
What initially appears to be the problem? What really is the problem(s) in this case?
Based on the case study, many problems happened at the suppliers side. List and
discuss these problems.
Discuss all the functions/features in Supply Chain Management.
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REFERENCES
Bryan B. (2002). Essentials of CRM. A Guide to Customer Relationship Management. New York:
Wiley.
P. G. Goh (2005). Supply Chain Management. A Concise Guide. Singapore: Prentice Hall.
J. T. Dickersbach (2004). Supply Chain Management with APO. Berlin: Springer.
S. Katta (2008). Discover SAP CRM. Boston: Galileo Press.
M. Nykamp, C. McEachern
(2000). Understanding the Customer Experience Cycle.
http://www.information-management.com/issues/20000601/2296-1.html (Retrieved 2nd Jan
2010).
B. Trebilcock, (2009). Categories of SCM solutions adapted from 2009: Top 20 supply chain
management
software
suppliers
http://www.mmh.com/article/3562212009_Top_20_supply_chain_management_software_suppliers.php (Retrieved 5th Jan 2010)
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