SCM, CRM, and ERP

1
SCM, CRM, and ERP

• Henry C. Co
• Technology and Operations Management,
• California Polytechnic and State University

2
Outline

• Supply Chain Management
• The Bullwhip Effect
• What Is SCM?
• Why Is SCM Important?
• Customer Relationship Management
• What Is CRM?
• Why Is CRM Important?
• CRM Components and Technologies
• Enterprise Resources Planning
• What Is ERP?
• Why ERP?
• Illustration

3
Supply Chain Management
4
The Bullwhip Effect

• Stakeholders along the supply chain have
  different and frequently conflicting objectives.
• Accordingly, they often operated independently,
  resulting in a phenomenon called the bullwhip
  effect on demand and supply.

5
An Illustration of the Bullwhip Effect
Source Johnson Pike, 1999
6
Mitigating the Bullwhip Effect

• EDI and the Internet
• The information available to supply chain
  partners, and the speed with which it is
  available, has the potential to radically reduce
  inventories and increase customer service.
• Everyday low pricing eliminate forward buying of
  bulk orders
• Changes in pricing and trade promotions and
  channel initiatives, such as VMI, CPFR,
  continuous replenishment can significantly reduce
  demand variance.
• Postponement
• Etc.

7
Vendor Managed Inventory

• Wal-Mart and Procter Gamble, Late 1980s
• Other companies in the United States, including
  Campbell Soup and Johnson Johnson, and by
  European firms like Barilla (the pasta
  manufacturer).
• VMI became one of the key programs in the grocery
  industrys pursuit of efficient consumer
  response and the garment industrys quick
  response.

8
The VMI Partnership

• The supplierusually the manufacturer but
  sometimes a reseller or distributormakes the
  main inventory replenishment decisions for the
  consuming organization.
• The supplier monitors the buyers inventory
  levels (physically or via electronic messaging)
  and makes periodic resupply decisions regarding
  order quantities, shipping, and timing.
• Transactions customarily initiated by the buyer
  (like purchase orders) are initiated by the
  supplier instead.
• The purchase order acknowledgment from the
  supplier may be the first indication that a
  transaction is taking place an advance shipping
  notice informs the buyer of materials in transit.

9
What is the Supply Chain?
10

• Management of flow of materials, information, and
  funds across the entire supply chain.

11
Features

• Includes all activities and processes to supply a
  product or service to a final customer.
• Any number of companies can be linked in the
  supply chain.
• A customer can be a supplier to another customer
  so the total chain can have a number of
  supplier-customer relationships.
• Depending on the products and markets, the
  distribution system can be direct (supplier to
  customer) or indirect (involving distributors,
  warehouses, and retailers).

Supply Chain Management Primer,
www.clarkstongroup.com
12
Material Flow

• Raw materials enter into a manuafacturing
  organization via a supply system and are
  transformed into finished goods.
• Finished goods are then supplied to the consumers
  through a distribution system.
• Several companies linked together in the process,
  each adding value to the product as it moves
  through the supply chain.

Source Johnson Pike, 1999
13
Information Flow
Products or services usually flow from supplier
to to customer. Design and demand information
usually flow from customer to supplier.
14
Why Is SCM Important?
15
Big Dollars

• U.S. inventory investment ? 20 - 25 of GDP
• U.S. grocery pipeline ? 75 - 100 billion
• U.S. transportation warehousing expense ? 10
  of GDP
• U.S. companies 25 of corporate budgets on SCM
• Inventory carrying, transportation, warehousing,
  order management, supply chain financing, related
  IT expenses
• Benchmarking Partners, June 1999

16
High Leverage

• Impact on profit
• increase sales by 12 1 savings in the supply
  chain
• Impact on sales
• trend towards competing on service surrounding
  the product (high quality, low cost assumed)
• High availability
• Delivery speed
• Order status (eg, Internet order tracking)
• Impact on stock price
• profit? assets? ? ROA??

17
Increasing Challenges

• Shrinking product life-cycles
• Increasing product variety
• Food product introductions
• 1980 2,000
• 1991 18,000
• 1997 25,000

18
Opportunities

• Average on-time delivery performance in the
  United States is probably in the 50 to 60 percent
  range, at a time when competition consumer
  pressure are driving requirements up to the 99
  percent range. (Conway, R.W. 1996, Linking MRP
  II and FCS, APICS The Performance Advantage,
  June, 40-44)
• Material idle 80 of factory throughput time
  (Vollmann, Berry, Whybark 1997)

19

• Idle time in supply chain - quick analysis...
• inventory at 25 of GDP, 50 to100 of GDP due to
  product ?
• 3 to 6 month flowtime production/transport at
  1.2 weeks ?
• idle 90 to 95 in supply chain
• Best-in-class (e.g., Dell, Wal-Mart) SCM expense
  about 12 of corporate budget (versus overall
  average of 25) (World Research Advisory Fax
  Newsletter 1/22/99)

20
Opportunities

• Improving supply chains globally judged a major
  trend by 78 of 2,500 CEOs of companies with
  revenues gt 100 million (Business Week, 12/12/98)
• Deloitte Consulting survey - SCM ranked as
  critical to very important to companys success
  by 91 of senior managers at 240 North American
  manufacturers (CIO, 7/1/99)
• Only 2 ranked their supply chain as world-class

21
Customer Relationship Management
22
What Is CRM?

• Is CRM a fad or what firms should
  pursue?Benefits and costs?Implementation issues?

23
Some Definitions

• A way to identify, acquire, and retain
  customers.
• A way of automating the front office functions
  of sales, marketing, and customer service.
• A technology-enabled business strategy whereby
  companies leverage increased customer knowledge
  to build profitable relationships, based on
  optimizing value delivered to and realized from
  their customers.
• For some vendors, whatever their current product
  may be, that is CRM.

24
CRM

• An integrated marketing, sales, and service
  strategy of attracting and retaining customers,
  using integrated information and consistent
  channel processes
• Require coordinated enterprise-wide actions for
  managing relationships
• Combine business process and technology
• Focus on customer lifetime value creation and
  optimization

25

• Lifetime Value of a Customer
• Average transaction value x Purchase frequency
  x Customer life expectancy
• Customer Profitability
• f(acquisition, enhancement, retention, loyalty)

26
Why is CRM important?
27

• Globalization and the Internet
• Competition can now come as easily from around
  the world as from around the corner.
• Commoditization of products and services
• Power and choice are moving to the customer as
  never before.
• A world of undifferentiated industies

28

• In a world of undifferentiated industies, you
  must choose whether to compete
• on the basis of price in a cutthroat commodity
  market, or
• on the basis of customer relationships created
  through a superior value proposition.

29

• It costs six times more to sell to a new customer
  than to an existing one
• The odds of selling to a new (existing) customer
  are 15 (50).
• The average business only hears from 4 of their
  customers who are dissatisfied with their
  products or services.
• Of the 96 who do not bother to complain, 25 of
  them have serious problems.

30

• The 4 complainers are more likely to stay with
  the supplier than are the 96 non-complainers.
• A typical dissatisfied customer tells 8-10
  (10-20) people about the experience, mostly
  related to poor customer service.
• About 60 of the complainers would stay as
  customers if their problems was resolved and
  70-95 would stay if the problem was resolved
  quickly.

31

• A customer who has had a problem resolved by a
  company will tell about 5 people about their
  situation.

32
CRM Components and Technologies
33
CRM Architecture
(Modified from Kalakota Robinson 2001)
34
(Source Maoz, Gartner Symposium ITxpo 2000)
35
Enterprise Resources Planning
36
Essence of ERP

• Record day-to-day transactions of running a
  business and provide near real-time access to
  information in a consistent manner throughout the
  organization

37
Big picture
Enterprise Resource Planning Systems
38
Why ERP?

• Supply chain cost reduction
• Purchasing leverage
• Inventory reduction
• Operating cost reduction
• Competition is doing it
• Catalyst for reengineering

• Increased performance
• Service levels
• Responsiveness
• Data updated in real time single set of numbers
• Y2k problem

39
Illustration

• Business Week, 3/12/97

40

• Sales rep from Intl Sneaker takes an order for
  1000 shoes from a Brazilian retailer.
• From her portable PC, she taps into the R/3 sales
  module back at headquarters, which checks the
  price, including any discounts the retailer is
  eligible for, and looks up the retailers credit
  history.
• Simultaneously, R/3s inventory software checks
  the stock situation notifies the sales rep that
  half the order can be filled immediately from a
  Brazilian warehouse.
• The other sneakers will delivered in 5 days
  direct from ISCs factory in Taiwan.

41

• R/3s manufacturing software schedules the
  production of the sneakers at the Taiwan factory,
  meanwhile alerting ISCs warehouse manager in
  Brazil to ship the 500 purple tennis shoes to the
  retailer. An invoice gets printed upin
  Portuguese.
• Thats when R/3s HR module identifies a shortage
  of workers to handle the order alerts the
  personnel manager of the need for temporary
  workers.
• R/3s materials planning module notifies the
  purchasing manager that its time to reorder
  purple dye, rubber, and shoelaces.

42

• The customer logs on to ISCs R/3 system through
  the internet sees that 250 of the 500 shoes
  coming from Taiwan have been made dyed. He
  also sees there are 500 orange tennis shoes in
  stock places a follow-up order on the net.
• Based on data from R/3s forecasting financial
  modules, the CEO sees that colored sneakers are
  not only in hot demand but are also highly
  profitable. She decides to add a line of
  fluorescent footwear.