Sunday, April 1, 2012

Chapter 9 - Achieving Operational Excellence and Customer Intimacy: Enterprise Applications

Enterprise systems are based on a suite of integrated software modules and a common central database that collects data from many different divisions and departments in a firm, making it available for applications that support nearly all of an organization’s internal business activities.  Enterprise software is a set of integrated modules for applications that allow data to be used by multiple functions and business processes.  Enterprise systems provide value in several ways to a firm.  It increases operational efficiency and it provides firm-wide information to help managers make better decisions.  It also helps firms respond rapidly to customer requests for information or products.  In addition, it provides much valuable information for improving management decision-making.

Supply chain management systems automate the flow of information between a firm and its suppliers in order to optimize the planning, sourcing, manufacturing, and delivery of products and services.  A firm’s supply chain links suppliers, manufacturing plants, distribution centers, retail outlets, and customers to supply goods and services from source through consumption.  Materials, information, and payments flow through the supply chain in both directions. 

Inefficiencies in the supply chain are caused by inaccurate or untimely information.  Uncertainties arise because many events cannot be foreseen.  One recurring problem in supply chain management is the bullwhip effect.  This is where information about the demand for a product goes distorted as it passes from one entity to the next across the supply chain.  The bullwhip effect is controlled by reducing uncertainties about demand and supply when all members of the supply chain have accurate and up-to-date information.  Supply chain management systems provide the kind of information that helps members of the supply chain make better purchasing and scheduling decisions.

Supply chain management software includes software to help businesses plan their supply chains (supply chain planning) or software to help them execute the supply chain steps (supply chain execution).  Supply chain planning systems allows firms to model their existing supply chain, generate demand forecasts for products, and develop optimal sourcing and manufacturing plans.  Demand planning is one of the most important and complex supply chain planning functions.  It determines how much product a business needs to make to satisfy all of its customers’ demands.  Supply chain execution systems manage the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner. 

Supply chains now can extend across multiple countries and regions.  In doing so, there are complexities and challenges to managing a global supply chain.  For example, there may be additional costs for transportation, inventory, and local taxes are fees.  Supply chain managements will need to reflect foreign government regulations and cultural differences.  The Internet will enable companies to manage many aspects of their global supply chains.  Globalization has also encouraged outsourcing warehouse management, transportation management, and related operations to third-party logistics providers. 

Supply chain management systems facilitate efficient customer response, enabling the workings of the business to be driven more by customer demand.  It follows a pull-based model where actual customer orders or purchases trigger events in the supply chain.  This is also known as a demand-driven model or build-to-order because transactions to produce and deliver only what customers have ordered move up the supply chain from retailers to distributors to manufacturers, and eventually to suppliers.

Supply chain management systems help in reducing costs and increasing sales.  By implementing a networked and integrated supply chain management system, companies match supply to demand, reduce inventory levels, improve delivery service, speed product time to market, and use assets more effectively. 

Customer relationship management (CRM) systems capture and integrate customer data from all over the organization, consolidate the data, analyze the data, and then distribute the results to various systems and customer touch points across the enterprise.  A touch point is a method of interaction with the customer, such as telephone, email, Website, or retail store.  A well-designed CRM system provides a single enterprise view of customers that is useful for improving both sales and customer service.  It also provides data and analytical tools for answering questions that allow firms to use the answers to acquire new customers, provide better service and support to existing customers, customize their offerings more precisely to customer preferences, and provide ongoing value to retain profitable customers.

CRM software packages range from niche tools that perform limited functions to large-scale enterprise applications.  The core comprehensive packages contain modules for partner relationship management (PRM) and employee relationship management (ERM).  PRM is the automation of the firm’s relationships with its selling partners using customer data and analytical tools to improve coordination and customer sales.  ERM is software that deals with employee issues that are closely related to CRM, such as setting objectives, employee performance management, performance-based compensation, and employee training.  CRM systems typically provide software and online tools for sales, customer service, and marketing.  Sales force automation modules help sales staff increase their productivity by focusing sales efforts on the most profitable customers.  Customer service modules provide information and tools to increase the efficiency of call centers, help desks, and customer support staff.  Marketing modules provide capabilities for capturing prospect and customer data, for providing product and service information, for qualifying leads for targeted marketing, and for scheduling and tracking direct-marketing mailings or email.  It also identifies opportunities for cross-selling which is the marketing of complementary products to customers.

The CRM software packages provide capabilities for both operational CRM and analytical CRM.  Operational CRM are the customer-facing applications, such as tools for sales force automation, call center and customer service support, and marketing automation.  Analytical CRM are the applications that analyze customer data generated by operational CRM applications to provide information for improving business performance.  Customer lifetime value (CLTV) is another important output of analytical CRM which is based on the relationship between the revenue produced by a specific customer, the expenses incurred in acquiring and servicing that customer, and the expected life of the relationship between the customer and the company.

Customer relationship management provides many benefits, including increased customer satisfaction, reduced direct-marketing costs, more effective marketing, and lower costs for customer acquisition and retention.  Information from CRM systems increases sales revenue by identifying the most profitable customers and segments for focused marketing and cross-selling.  The churn rate is an important indicator of the growth or decline of a firm’s customer base.  It measures the number of customers who stop using or purchasing products or services from a company.

Firms are implementing enterprise systems, SCM systems, and CRM systems in order to achieve operational excellence and enhancing decision-making.  However, they are challenging to implement because they are so powerful in changing the way the organization works.  These applications are very expensive to purchase and implement.  They also require fundamental changes in the way the business operates and new organizational learning.  Once an enterprise application is adopted from a vendor, it is very costly to switch.  “Switching costs” are introduced because the firm becomes dependent on that vendor to upgrade its product and maintain its installation.  The way the data is organized in these systems needs to be understood because the applications are based on organization-wide definitions of data.  This typically requires some data cleansing work.

Enterprise software vendors are addressing these challenges by offering paired-down versions of their software and “fast-start” programs for small and medium-sized businesses and best-practice guidelines for larger firms.  Companies adopting these applications can also save time and money by keeping customizations to a minimum. 

Enterprise systems, CRM systems, and SCM systems are fazing out because enterprise application vendors are delivering more value by becoming more flexible, Web-enabled, and capable of integration with other systems.  Next generation enterprise software vendors have now created enterprise solutions, enterprise suites, or e-business suites to make their CRM, SCM, and enterprise systems work closely with each other, and link to systems of customers and suppliers.  These applications also include open source and on-demand solutions.  In addition the vendors also offer portions of their products that work on mobile handhelds and complementary analytics products.  Service platforms are created to integrate information from multiple functional areas.  They provide a greater degree of cross-functional integration than the traditional enterprise applications. 


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  2. Thank you for sharing. Operational excellence defines how production and maintenance are performed, drives change and improvement, and directs how goals for processes are set, deployed, and managed day-to-day.