MANAGEMENT INFORMATION SYSTEM

CHAPTER 9

ENTERPRISE MANAGEMENT SYSTEM

Learning Objectives
After going through this unit, you should be able to :
Explain the concept of ERP, i.e. enterprise resource planning.
Enlist the need of ERP.
Review the evolution of ERP.
Describe the implementation of ERP
Explain the architecture and life cycle of ERP.
Describe the concept of Customer Relationship Management with
its goals.
Define Supply Chain Management and explain how it is used to
resolve activities at different levels
Explain the role of ERP in Supply Chain Management.

Structure
9.1 Enterprise Resource Planning
9.2 Customer Relationship Management
9.3 Supply Chain Management
9.4 Summary
9.5 Keywords

9.1 Enterprise Resource Planning

ERP (Enterprise resource planning) can be defined as a "software solution that

addresses the enterprise needs taking the process view of the organization, to
meet the organizational goals tightly integrating all functions of an enterprise".
It is an industry term for the broad set of activities supported by multi-module
application software that help a manufacturer or other business manage the all
the parts of its business. ERP facilitates integration of company-wide
information systems with the potential to go across companies.

An ERP system spans multiple departments in a corporation and in some

cases an ERP will also transcend the corporate boundary to incorporate
systems of partners and suppliers as well, to bring in additional functions like
supply chain management. Because it is so vast and all encompassing, the
ERP system goes far beyond being just a simple piece of software. Each
implementation is unique and is designed to correspond to the implementer's
various business processes. An ERP implementation can cost millions of
Rupees to create and may take several years to complete.

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Fig. 9.1
An ERP system likely represents a company's largest IT investment, so some
companies prefer to implement ERP in a more incremental fashion rather than
all at once. Some ERP vendors provide modular software units together with a
unified interface to allow for this gradual approach. Regardless of how a
company approaches it, ERP is sure to bring significant changes to how a
company does business. It tinkers with the workflows and alters long-standing
processes. Companies often meet with resistance on the part of employees
who are reluctant to let go of their proven methods. Employees may also fear
for their jobs; since ERP makes such radical changes to business processes,
it's not unusual for job descriptions to change or be eliminated altogether.

Once implemented however, the ERP system brings tremendous advantages.

Because all systems are joined together, all departments can more easily
share information. The workflow that takes place between departments can
become much more automated and ultimately, customers are better served
because the individual using the customer-facing applications will have
access to every bit of information regarding each relevant process. For
example, someone in sales would easily be able to log into a single system to
determine the status of a customer order that is still in manufacturing. All this
comes at a cost though; training costs are high because employees must not
only learn how to use new software, they must also learn new processes.

There are many reasons a company undertakes an ERP implementation. The

ERP system integrates information, such as order information and financial
data. It can speed up the manufacturing process by automating processes and
workflow and as a result, it also reduces the need to carry large inventories.
Although the up-front costs may be enough to give the CFO nightmares, in the
end, if implemented correctly, the rewards will give the company implementing
the system a major competitive edge.

Why ERP
1. Helps in reduction of organization's operating costs can be reduced.
2. Integrates all parts of an organization.
3. Increases the efficiency of operations as a result of this integration.
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4. Integration of information systems which enables seamless flow of

information across the organization.
5. Enables consolidation of different software in the organization.
6. Helps in better customer service.

Evolution of ERP

In the 1960's, inventory control assumed prime importance and most of the
software at that time were designed to help in inventory management.
Typically, these were handled by tools called BOM processors (Bill of
materials). The focus shifted in the 1970's to Material Requirement planning
(MRP) as the complexity of manufacturing operations increased. The tools to
support these continued to evolve by adding further functionalities to meet the
increased requirements. Then in the 1980's the concept of Manufacturing
Resources planning (MRP-II), which was nothing but extension of MRP to
shop floor and Distribution management activities, grew in importance.

However, in the early 1990's, increased complexity of businesses and the

need to integrate all the functions within an enterprise to sustain in the dynamic
environment lead to development of ERP (Enterprise Resource planning) tool.
ERP was extension of MRP II to cover the range of activities within any
enterprise. (Figure 1) Additionally it addressed technology aspects like
client/server-distributed architecture, RDBMS, object oriented programming.

Fig 9.2
The ERP system deals with the planning and use of resources used in the
business. The resources are finance, materials, manufacturing capacity and
human resources. It provides methodology of accessing the resource needs
for a given business plan to achieve certain business objectives. It also helps
to execute the strategies, plans, decisions and actions in a time bound manner.
The ERP provides a support system in the transaction processing, updation
and reporting across the functions

The ERP is a package encompassing all major functions of the business. The
system design for ERP is integrated with the features and functions providing
an enterprise wide solution to handle all the process functionalities. .
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The ERP packages build information base and provide knowledge base for
planning and control of the business through the business function
management. The ERP is the main system interfaced or assisted by the other
systems in the organization. The systems may be stand alone or form a part of
the manufacturing or commercial processing systems.

The ERP is a package encompassing all major functions of the business. The
system design for ERP is integrated with the features and functions providing
an enterprise wide solution to handle all the process functionalities.

The ERP packages build information base and provide knowledge base for
planning and control of the business through the business function
management. The ERP is the main system interfaced or assisted by the other
systems in the organization. The systems may be stand alone or form a part of
the manufacturing or commercial processing systems.

The architecture for ERP is client/server and uses object oriented technology
for design and development of the system. These packages are RDBMS
based with the front end tools.

The key benefit of the ERP is that it provides an integrated solution for all the
requirements of the business. It addresses the issue of data integrity,
information transparency, seamless integration and information
communication.

Implementation of ERP: The implementation of most of the ERP packages

begin with the enterprise modeling which defines the enterprise structure, the
authority functions, the process and the business rules. The enterprise
modeling is the platform for the ERP system implementation.

The ERP solution is structured in the modular fashion to cover the entire
business operation.

A typical ERP package solution has the following modules:

1. Sales, Marketing, Distribution
2. Manufacturing
3. Stores Management
4. Finance
5. Personnel
6. Maintenance
7. Purchase Inventory
8. Planning and Control

The modules are designed for data capture, data transaction validation, its
analysis, accounting updation and reporting.

ERP Features:
1. Security Authorization
2. Referencing Responsibility
3. Implementation of business rules

These features are provided to safeguard the business of the organization

from illegal practice and also to protect the valuable information from misuse.

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Authorization is a feature provided for ensuring that the transaction is

completed with regards to the business rules set by the management.
Referencing is a feature for tracking the chain of events for monitoring,
progress checking and control.

The business organization runs through the rules and responsibility allocation.
A strict adherence to them is essential for creation of controlled environment.
The ERP satisfies this need of the business.

ERP Architecture Any information system has three basic components:

1. Data Management
2. Application Logic
3. Presentation

The architecture of ERP can be a two tier or three tier:

Two-Tier Architecture

Ÿ Client: Implement the user interface.

Ÿ Contains application logic.
Ÿ Server: Stores Data.
Ÿ Contains business logic.

Fig 9.3
The benefits of the two-tier model:
Ÿ Data sharing: The data is separated from the client side and is stored in a
central place to which all the users have access. As the data is stored at one
central location, it reduces data redundancy and provides consistent data
to all the users accessing the system.
Ÿ Reduced duplication and maintenance: Since data is stored centrally, data
maintenance is easy. There is no duplication of data and hence, no
inconsistency in the data stored.

Disadvantages of two-tier architecture:

Ÿ Excessive load on the server.
Ÿ High network traffic.
Ÿ Difficulty in implementing incremental improvements.
Ÿ Applications are being bound to the data stored.
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Three-Tier Architecture
Ÿ User Services—Provide services such as the user interface.
Ÿ Business Services—Implement business rules.
Ÿ Data services—Provide handling and validation of data.

Fig 9.4
Benefits of ERP:
1. Better Management of resources reducing the cost of operations.

2. Planning at function and process level. Simultaneous increase in the

productivity of the business is possible.

3. Customer satisfaction increases due to shorter delivery cycle. There is

closer contact with the customer.

4. Simultaneous activisation of the decision centers because of instant

inducement through triggers and updates.

5. Business operations transparency occurs between business partners,

cutting down the execution time of critical business operations.

6. Intelligent ERP download the decision-making at lower level, releasing the

burden on the middle management.

7. Due to faster processing technology and SQL, management can see the
information in their perspective and take different view of business.

8. Due to strong interface capabilities, the HR can be utilized better due to

access to information across the databases distributed over the organization.

9. Since ERP design is proactive, it makes the management alert at number of

points demanding decisions and actions.

10. The process becomes faster due to work group technology and application
of workflow.

11. Due to support technologies like EDI, E-mail, office automation, paperless
office is a newer possibility as communication is faster and systems get
connected directly.

12. As ERP is scalable architecture, it remains valid solution with expansion of

business.

13. Due to client / server architecture and use of the front-end tools, the
process changes can be easily carried out in a short duration.

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14. ERP implementation leads to the usage of the best business

procedures bringing consistency of operation.

15. The quality of decision-making improves as the user decision maker is

made alert and he is made knowledgeable and better informed dynamically.

What is customization in ERP?

Customization is the job of fitting the ERP software to meet the demands of a
particular organization. This would mean the mapping of the organizational
structures, processes & environment of the organization into the
corresponding model of the organization that is embedded in the ERP
software. In other words, it is a mapping of the real world into the model world of
the particular ERP software. The structure and processes represent one part
of customization; the creation of master data, input-output forms, validations,
reports, queries, formats, authorization, backup / restore procedures, data
administration procedures, disaster recovery processes etc. represent the full
gamut of customization.

What is the ERP life cycle?

The set of activities through which ERP is implemented in an organization
constitutes the ERP life cycle. This can be compared to the well developed
System Development Life Cycle (SDLC) in the traditional Structured System
Analysis and Design (SSAD). Typical ERP project consists of the following
steps:

Step 1: ERP readiness assessment Step

2: Preparing the organization for ERP Step
3: ERP Feasibility Study Step
4: Process modeling and documenting the "AS IS" processes & "TO BE"
processes (along with BPR) Step
5: Detailed plan for ERP implementation (includes ERP software selection,
selection of implementation partners, implementation methodology - "Big
Bang" or Modular Implementation - and the final and precise extent of
implementation) Step
6: Detailed implementation including development, quality assurance and
production system Step
7: Preparing to "go live" including data migration Step
8: Going live
Step 9: Performance assessment, documentation, training (continues in early
stages also) and future plans.

Is there a good time to "go live"?

Most implementations of ERP include financial module. Every organization
has a financial (fiscal) year both for internal use as well as far legal /
governmental consolidation. Since the account books must be closed and
financial reports prepared (including the balance sheet and the profit and loss
statement) for the financial year, most ERP implementations try to synchronize
their "go live" date with that of the financial year. (April 1st in India). If for some
reason it cannot be on (April 1), many organizations "go live" on October 1 at
the end of the half-year. Technically ERP software does not impose any
restrictions. Any day is good enough to "go live".

What is the role of implementation partner?

Implementation partners generally come from specialized ERP consulting
houses that are generally outside the organization. Being experts in a
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particular area (materials, production, finance or distribution), these experts

from outside, not only bring software expertise with respect to particular ERP
software, but also bring the extra benefit from their vast prior experiences in
other firms where they would have implemented that particular ERP. Over the
years, the implementation partners have developed enough know-how in the
form of templates for implementation. These templates significantly reduce the
cost and time of implementation and errors of implementation. Though
implementation consultants charge a high fee, they bring significant amount of
value, thanks to their prior experiences.

Why do ERP consultants charge a high fee?

ERP consultants operate in the "high risk high reward" area. Contemporary
ERP software are complex pieces which need years to master. ERP
consultants invest significant amount of time and effort, which need to be
rewarded. ERP Consultancy is also given to the highest levels of management
often at the level of CEO. CEO level consulting cannot come cheap. A well-
implemented ERP can translate to crores of rupees of saving for an
organization justifying once again the high cost of ERP consultants. ERP
consultants also combine a rare combination of communication skill, domain
knowledge and software expertise, once again justifying the high cost. Last,
but not the least, ERP sales are growing fast and the demand for ERP
consultants is all time high. The gap in supply-demand also explains the
unusually high cost of ERP consultants.

What is the role of process-modeling tools ERP implementation?

Process Modelling provides a means to map the organization processes and
visualize it in a graphical manner. This helps in communication, clarification
and documentation of the "AS IS" and "TO BE" processes. Process modelling
can be used to reinforce the central theme of ERP, namely, a shift from function
orientation to process orientation.

What is the drawback of over customization? Customization is the process

of fitting the chosen ERP software to the needs of a specific organization.
Whenever the processes represented in the ERP software differ significantly
from the processes used by the firm one has two options. First is to build the
organizational process into the ERP software through customization. The
second one is to change the practice followed by the firm to suit the process
native to the ERP software. Traditional common sense would force people to
customize the software to suit the individual demands of the organization. This
leads to two problems. The first one arises out of the fact that any
customization done locally is outside the core ERP software. Accordingly, the
next release of the ERP software would not support local customization. They
have to be re-done by the end user for the new release. Second the very
purpose of ERP is to take advantage of the best practices in industry that come
embedded with the ERP software. By over customizing the implementers
would deprive the benefit of world - class practice to the organization that is
implementing ERP.

What are the three dominant approaches to ERP implementation?

The three dominant approaches to ERP implementation are "big bang",
location-wise and module-wise implementation. In the big bang approach the
organization decides to implement all relevant modules, for example -
Financials, Logistics & HR- all at the same time. This has the advantage of
getting the full benefit of the integrated software across all functions of the
organization. However there is a risk of the implementation getting out of
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control. In "Location-wise" implementation, the organization chooses a

specific location, say, the head office, one of the new plants etc. The choice
could be based on better infrastructure, better IT culture, more co-operative
set of users, higher level of automation etc. In "module-wise" implementation
individual modules are taken up for implementation in a phased manner
depending on the criticality of applications. Once again a module taken up for
implementation can be implemented across all locations or just one location.
Later they can be rolled out to other locations.

ERP being integrated software does one benefit by implementing only

specific modules?
The full benefit of ERP would accrue if all the ERP modules are implemented.
However many organizations implement ERP only in those functions, which
are, considered to be of strategic importance. Some of the modules, though
they appear to be limited to specific functions, in fact integrate with many other
functions indirectly. For example finance module primarily targets the
accounting and finance functions. However, the accounts payable module
addresses all the material purchases and in turn impacts the entire materials
management functions. Many more examples can be quoted to reinforce our
viewpoint. The process orientation of ERP software definitely contributes to a
better management of the organization. Even partial implementation of the
ERP therefore leads to significant benefits.

Why are "financials" the first module implemented in many Indian ERP
implementations?
Financial modules provide the basic pulse of an organization. It also impacts
all other modules. Successful implementations of financials show up
immediately reinforcing the faith of an organization in ERP. Other modules
cannot be implemented without the financial module in place. All these factors
explain the fact that financial modules are taken up first.

Why do consultants recommend changing business practice to suit the

ERP software rather than customizing the software to every user needs?
A key contribution of ERP software is the bundled business process
knowledge that come along with ERP software. These processes have
evolved over the past two decades of ERP implementation in some of the most
well managed corporations around the world. By adapting to those processes
that have proved successful in some of the finest corporations around the
world, an organization implementing ERP would get the advantage of these
"best of the breed" practices. That is the reason behind the consultant
recommendations.

How does one prepare an organization for ERP implementation? T

here is no easy magic by which one can prepare an organization for ERP
implementation. Exposing the top management to the benefits of ERP through
the real world case studies, sharing of experience by other corporations that
have successfully implemented ERP and creation of awareness is the first
step. Convincing the top management to use a high risk, high reward scheme
such as ERP is a major challenge. Almost all the members of the organization
should get the excitement about ERP project implementation. Communicating
and sharing of the ERP vision is the most important organizational preparation
for a successful ERP implementation.

What does "going live" mean?

After many months of implementation plan every organization would decide a
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particular date when they would shift from their legacy system to the ERP
system. Up to that time the ERP software would be under development
followed by testing and quality assurance. Once by ERP implementation team
feels convinced that the development is complete and testing is satisfactory,
they would decide to "go live". In a sense "go live" date marks the end of ERP
project completion. Generally most ERP project "go live" on the starting of the
fiscal/ financial year, namely April 1 in India.

For ERP implementation across multiple locations does one need dedicated
Communication channels like leased lines/ V SAT terminals?

Many ERP implementation sites that are geographically distributed need

reliable communication links for on-line transaction processing. In the absence
of public data network in India, most organizations are forced to go for VSAT
networks and leased line circuits in India.

Activity 1 –
Fill in with appropriate blanks
1) An ERP system spans _________ departments in a corporation.
2) The ERP system deals with the planning and use of _________ used in
the business.
3) The ERP packages build ___________ and provide knowledge base for
planning and control of the business through the business function
management.
4) __________ is a feature provided for ensuring that the transaction is
completed with regards to the business rules set by the management.
5) _______ modelling can be used to reinforce the central theme of ERP

9.2 Customer Relationship Management

CRM stands for Customer Relationship Management. It is a strategy used to

learn more about customers' needs and behaviors in order to develop stronger
relationships with them. After all, good customer relationships are at the heart
of business success. There are many technological components to CRM, but
thinking about CRM in primarily technological terms is a mistake. The more
useful way to think about CRM is as a process that will help bring together lots
of pieces of information about customers, sales, marketing effectiveness,
responsiveness and market trends.

CRM is a comprehensive approach, which provides seamless integration of

every area of business that touches the customer, namely marketing, sales,
customer service and field support-through the integration of people, process
and technology, taking advantage of the revolutionary impact of the Internet.

Customer relationship management (CRM) is a business strategy that aims to

understand, anticipate and manage the needs of an organization's current and
potential customers. It is a journey of strategic, process, organizational and
technical change whereby a company seeks to better manage its own
enterprise around customer behaviors. It entails acquiring and deploying
knowledge about one's customers and using this information across the
various touch points to balance revenue and profits with maximum customer
satisfaction.

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CRM's Evolution CRM has evolved since its earliest incarnation, originally
driven by an inside-out focus, through three phases of evolution: technology,
integration and process. Recently have we seen a major leap forward to a
fourth phase: customer-driven CRM — an outside-in approach that has
intriguing financial promise.

1. Technology: In its earliest incarnation, CRM meant applying automation to

existing sales, marketing, support and channel processes as organizations
attempted to improve communications, planning,
opportunity and campaign management, forecasting, problem solving and to
share best practices. To some degree, it worked. However, automating poorly
performing activities or processes rarely improves the quality of the outcome.
So, for the most part, the quality of the return on investment (ROI) was meager
— if measurable at all. The promise of the technology was there, but few
organizations were realizing the pinnacle of performance. The metric of
success was increased efficiency in sales, marketing, support and channel
processes.
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2. Integration: By developing cross-functional integration, supported by data

warehousing and shared roles and responsibilities, organizations began to
create a customized view of the customer. Support issues, Web hits, sales
calls and marketing inquiries started building a deeper understanding of each
customer and allowed aggressive organizations to adapt their tactics to fit
individual needs. Integration focused around two primary components:

Ÿ Make it easier to do business with the seller: Instead of operational silos that
inhibited superior customer relationships, the organization as a whole took
ownership and responsibility for customer satisfaction. With a single view of
the customer, it was much easier for anyone to respond to sales
opportunities or impending support issues and take appropriate steps.
Expected benefits are to improve retention and lower support costs.
Ÿ Predictive modeling: Data mining of an aggregate of corporate knowledge
and the customer contact experience was used to improve operational and
sales performance. By applying complex algorithms to a history of
purchasing or inquiry characteristics, it became practical to predict the
demands of individual customers. Up-selling, cross-selling, even the ability
to preempt potential problems, was now possible for all customer-facing
representatives. Expected benefits are to have better cross-selling/up-
selling and improved product offerings or delivery.

3. Process: By rethinking the quality and effectiveness of customer-related

processes, many organizations began to eliminate unnecessary activities,
improve outdated processes and redesign activities that had failed to deliver
the desired outcomes. Then, by re-creating the process through an
understanding of the capabilities of the technology, the outcomes were more
predictable and the promises for a meaningful ROI more substantial and
realistic. The metrics for success became the improved effectiveness in
serving the customer.

Thus far, almost everything about CRM has focused on improving the
effectiveness and efficiency of the seller's organization. Organizations have
evolved from sales representatives working from paper notebooks or a card
system, to a tightly integrated network that sees movement in sales activity,
predicts product demand on manufacturing and manages the logistics of
complex teams to serve the buyer and seller. Marketing, support services,
channel management, revenue management, resource
allocation/management, forecasting, manufacturing, logistics and even
research and development − all have seen the benefits of a well-designed
CRM strategy.

However, the past decade of CRM and its associated improvements have
been based on three assumptions:

1. The past would be a logical foundation to predict future customer needs and
profitability.
2. Demand for traditional value propositions would remain constant.
3. Better customer relationships would deter attrition.

All three of these assumptions have failed — or at least become unstable — in

a post-September 11 environment. Historical purchases or inquiries are not a

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clear indication of future needs as buyers are rapidly redefining requirements

to satisfy their current business, market or shareholder demands. Value
propositions are changing in highly competitive markets as sellers are working
aggressively to reestablish structural bonds. And, driven by sensitive financial
markets, buyers move to whichever supplier can provide the best aligned,
most cost effective solution that promises to stabilize or improve, their
business performance. These factors are driving CRM into a fourth phase.

Customer-Driven CRM — The Fourth Phase Today, revenue performance has

become the central theme for CRM as organizations seek to achieve and
maintain expected financial results. Leading executives are asking:

Ÿ Which of my customers have the potential for a high-profit, sustainable

relationship?
Ÿ What defines profitable and unprofitable customer segments?
Ÿ What must change to realize that optimal potential?
Ÿ Where's my opportunity for growth?
Ÿ Where's my risk for loss?
Ÿ Am I making the right decisions related to balancing acquisition, cross-
selling and upselling — and for the right customer groups?

The epiphany is not in the questions themselves, but in the fact that we are
asking them after a decade of CRM investments — investments intended to
provide just those very answers.

It is important to understand that a disruptive change has occurred causing

large segments of customer organizations to reassess many of their basic
needs, values and assumptions. Research indicates that this event was
triggered by the uncertain complexities of the post-September 11th world.
Organizations are now challenging everything from how they create value, to
how they serve their markets, to how they meet shareholder expectations. It is
the answers to these questions that create the framework for phase four CRM.

Without a deep understanding of what is going on in the customer's head —

specifically what will influence buying behavior — it is difficult to establish
customer strategies that mutually serve the needs and expectations of the
buyer and seller communities.

What is the goal of CRM? The idea of CRM is that it helps businesses use
technology and human resources to gain insight into the behavior of
customers and the value of those customers. If it works as hoped, a business
can:

Ÿ Provide better customer service

Ÿ Make call centers more efficient
Ÿ Cross sell products more effectively
Ÿ Help sales staff close deals faster
Ÿ Simplify marketing and sales processes
Ÿ Discover new customers
Ÿ Increase customer revenues
That sounds rosy. How does it happen?
It does not happen by simply buying software and installing it. For CRM to be
truly effective, an organization must first decide what kind of customer
information it is looking for and it must
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decide what it intends to do with that information. For example, many financial
institutions keep track of customers' life stages in order to market appropriate
banking products like mortgages or IRAs to them at the right time to fit their
needs.

Next, the organization must look into all of the different ways information about
customers comes into a business, where and how this data is stored and how it
is currently used. One company, for instance, may interact with customers in a
myriad of different ways including mail campaigns, Web sites, brick-and-
mortar stores, call centers, mobile sales force staff and marketing and
advertising efforts. Solid CRM systems link up each of these points. This
collected data flows between operational systems (like sales and inventory
systems) and analytical systems that can help sort through these records for
patterns. Company analysts can then comb through the data to obtain a
holistic view of each customer and pinpoint areas where better services are
needed. For example, if someone has a mortgage, a business loan, an IRA
and a large commercial checking account with one bank, it behooves the bank
to treat this person well each time it has any contact with him or her.

Are there any indications of the need for a CRM project? Not really. But
one way to assess the need for a CRM project is to count the channels a
customer can use to access the company. The more channels you have, the
greater need there is for the type of single centralized customer view a CRM
system can provide.

How long will it take to get CRM in place? A bit longer than many software
salespeople will lead you to think. Some vendors even claim their CRM
"solutions" can be installed and working in less than a week. Packages like
those are not very helpful in the long run because they don't provide the cross-
divisional and holistic customer view needed. The time it takes to put together
a well-conceived CRM project depends on the complexity of the project and its
components.

How much does CRM cost? A recent (2001) survey of more than 1,600
business and IT professionals, conducted by The Data Warehousing Institute
found that close to 50% had CRM project budgets of less than $500,000. That
would appear to indicate that CRM doesn't have to be a budget-buster.
However, the same survey showed a handful of respondents with CRM project
budgets of over $10 million.

What are some examples of the types of data CRM projects should be
collecting?
Ÿ Responses to campaigns
Ÿ Shipping and fulfillment dates
Ÿ Sales and purchase data
Ÿ Account information
Ÿ Web registration data
Ÿ Service and support records
Ÿ Demographic data
Ÿ Web sales data

What are the keys to successful CRM implantation?

Ÿ Break your CRM project down into manageable pieces by setting up pilot
programs and short-term milestones. Starting with a pilot project that
incorporates all the necessary departments and groups that gets projects
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Ÿ rolling quickly but is small enough and flexible enough to allow tinkering
along the way.
Ÿ Make sure your CRM plans include a scalable architecture framework.
Ÿ Don't underestimate how much data you might collect (there will be LOTS)
and make sure that if you need to expand systems you'll be able to.
Ÿ Be thoughtful about what data is collected and stored. The impulse will be to
grab and then store EVERY piece of data you can, but there is often no
reason to store data. Storing useless data wastes time and money.
Ÿ Recognize the individuality of customers and respond appropriately. A CRM
system should, for example, have built-in pricing flexibility.

Which division should run the CRM project? The biggest returns come
from aligning business, CRM and IT strategies across all departments and not
just leaving it for one group to run.

What causes CRM projects to fail? There are many things. From the
beginning, lack of a communication between everyone in the customer
relationship chain can lead to an incomplete picture of the customer. Poor
communication can lead to technology being implemented without proper
support or buy-in from users. For example, if the sales force isn't completely
sold on the system's benefits, they may not input the kind of demographic data
that is essential to the program's success. One Fortune 500 company is on its
fourth try at a CRM implementation, primarily because its sale force resisted all
the previous efforts to share customer data.

Case Study

As the largest health insurance provider in New York, Empire manages more
than 29,000 corporate employer accounts, of which about 26,700 are small to
midsize companies employing 50 people or fewer. Empire services these
"community rated" employers via some 1,800 registered independent sales
brokers. Because each customer's needs are different, brokers must produce
customized coverage estimates for each one. For example, some companies
want preferred provider plans and some want health maintenance plans. Each
plan has different "riders," or options, attached, such as vision care or
prescription coverage.

In the past, a broker would call Empire's broker relations department, pass
along the customer's specs and then wait for Empire to calculate a price quote.
The broker then relayed the quote back to the customer, who would either
accept it or ask for modifications—in which case the broker had to contact
Empire again and request a revised quote. When a quote was finally accepted,
the broker filled out and filed one set of paperwork while the customer filled out
a group application and sent it directly to Empire. Whenever Empire revised its
plan structure, brokers found themselves with outdated enrollment forms.

The company then made 60 copies of the enrollment paperwork, filing it within
11 departments at Empire. Even then, fully 67 percent of the forms had to be
returned or double-checked by phone with the brokers because of errors or
omissions.

Since they could not generate quotes themselves or process the paperwork,
the brokers were completely dependent on Empire's broker relations staff, who
were around only during normal business hours. As a result, it took about 27
days to shepherd a new customer through the sales and enrollment process.
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Then employees had to wait another week to 10 days to get their ID cards.

10 Tips for implementing customer self-service :

Ÿ Learn everything about your customers.
Ÿ Conduct focus groups to ensure that they want self-service.
Ÿ Define clear business goals.
Ÿ Evaluate the technology for its technical and financial merits.
Ÿ Does it match your customer base? Will it boost profitability?
Ÿ Work as a team. Have customer support, IT and other departments
involved every step of the way.
Ÿ Offer training to employees.
Ÿ Expect this to be an iterative process that requires making changes as you
learn more about your customers.
Ÿ Develop an effective way to measure results.
Ÿ Underpromise and overdeliver.

If a company is just starting with a CRM project, what should they do? If you are
just starting out, you want to build you're requirements first. Define the
problem, understand what's going to solve that problem and understand the
functionality of that solution. In other words, in order to increase your number of
marketing campaigns this year, you are going to need individual customer
profiles. That's just one example, but once you understand that it's a
requirement, you can find the technologies that support that particular
functionality. That is the right way to do it: the requirement, the functionality and
then the tool.

Activity 2 –
Fill in with appropriate blanks
1) CRM is a strategy used to learn more about customers' ________ and
behaviors.
2) CRM means applying _________ to existing sales, marketing, support and
channel processes.
3) _________ has become the central theme for CRM as organizations seek to
achieve and maintain expected financial results.
4) The time it takes to put together a well-conceived CRM project depends on
the ________ of the project.
5) For customer self-service, evaluate the technology for its technical and
________ merits.

9.3 Supply Chain Management

Supply chain management (SCM) is the process of planning, implementing

and controlling the operations of the Supply Chain with the purpose to satisfy
customer requirements as efficiently as possible. Supply chain management
spans all movement and storage of raw materials, work-in-process inventory
and finished goods from point-of-origin to point-of-consumption. Some experts
distinguish supply chain management and Logistics Management, while
others consider the terms to be interchangeable.
Supply chain management - delivering the right product to the right place, at
the right time and at the right price - is one of the most powerful engines of
business transformation. It is one of the leading cost saving and revenue
enhancement strategies in use today.

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Fig 9.5

The supply chain of a manufacturing enterprise is a worldwide network of

suppliers, factories, warehouses, distribution centers and retailers through
which raw materials are acquired, transformed and delivered to customers. In
order to optimize performance, supply chain functions must operate in a
coordinated manner. But the dynamics of the enterprise and the market make
this difficult: bank rates change overnight, political situations change,
materials do not arrive on time, production facilities fail, workers are ill,
customers change or cancel orders etc. causing deviations from plan. In some
cases, these events may be dealt with locally, i.e. they lie within the scope of a
supply chain function. In other cases, the problem cannot be "locally
contained" and modifications across many functions are required.

Consequently, the supply chain management system must coordinate the

revision of plans/schedules across supply chain functions. The agility with
which the supply chain is managed at the tactical and operational levels in
order to enable timely dissemination of information, accurate coordination of
decisions and management of actions among people and systems, is what will
ultimately determine the efficient, coordinated achievement of enterprise
goals.

Supply chain management must address the following problems:

Ÿ Distribution Network Configuration: number and location of suppliers,
production facilities, distribution centers, warehouses and customers
Ÿ Distribution Strategy: centralized versus decentralized, direct shipment,
cross docking, pull or push strategies, third party logistics
Ÿ Information: integrate systems and processes through the supply chain to
share valuable information, including demand signals, forecasts, inventory
and transportation
Ÿ Inventory Management: quantity and location of inventory including raw
materials, work-in-process and finished goods
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Resolution to supply chain problems spans Strategic, Tactical and

Operational levels of activities.
Strategic
Ÿ Strategic network optimization, including the number, location and size of
warehouses, distribution centers and facilities.
Ÿ Strategic partnership with suppliers, distributors and customers, creating
communication channels for critical information and operational
improvements such as cross docking, direct shipping and third-party
logistics
Ÿ Product design coordination, so that new and existing products can be
optimally integrated into the supply chain
Ÿ Information Technology infrastructure, to support supply chain operations

Tactical
Ÿ Sourcing contracts and other purchasing decisions
Ÿ Production decisions, including contracting, locations, scheduling and
planning process definition
Ÿ Inventory decisions, including quantity, location and quality of inventory
Ÿ Transportation strategy, including frequency, routes and contracting
Ÿ Benchmarking of all operations against competitors and implementation of
best practices throughout the enterprise

Operational
Ÿ Daily production and distribution planning, including all nodes in the supply
chain
Ÿ Production scheduling for each manufacturing facility in the supply chain
(minute by minute)
Ÿ Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers
Ÿ Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers
Ÿ Inbound operations, including transportation from suppliers and receiving
inventory
Ÿ Production operations, including the consumption of materials and flow of
finished goods
Ÿ Outbound operations, including all fulfillment activities and transportation to
customers
Ÿ Order promising, accounting for all constraints in the supply chain,
including all suppliers, manufacturing facilities, distribution centers and
other customers

Performance tracking of all activities

The just in time inventory strategy is an example of a strategy that addresses
this problem of supply chain management, but it is, of course, not applicable at
all levels of demand.
A supply chain, logistics network or supply network is a coordinated system of
entities, activities, information and resources involved in moving a product or
service from supplier to customer. The entities of a supply chain typically
consist of manufacturers, service providers, distributors and retail outlets.
Supply chain activities transform raw materials and components into a finished
product.
The primary objective of supply chain management is to fulfill customer
demands through the most efficient use of resources.

Traditionally, the phrase Supply Chain Management meant assembly lines,

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warehouses, truckers and time sheets. Earlier, manufacturers had the luxury
of taking years to develop, market and sell their products. Back then, there
were few variations in packaging and in the products themselves.

In only a few years, the very fundamentals of manufacturing in virtually every

industry have changed. Changes have taken place in the relationships
between producers of primary products, manufacturers and retailers.
Companies are looking at how to provide greater flexibility in moving parts
globally. In a quest for greater efficiency and lower costs, there's been growing
importance given to managing the supply chain effectively for the benefit of all
parties.

The traditional vision of Supply Chain management (SCM) represents only

one dimension of a business environment that is growing increasingly
multidimensional. Modern day Supply Chain Management is the e-Commerce
Manufacturing.

It's the "Customer" decade

With the emergence of the Internet, customers seek out specific products they
want at the prices they're willing to pay. Modern supply chains focus on the
customer. Manufacturers need to precisely gauge what a customer might
want, how to package it and where to ship it. There is no such thing as "one size
fits all". When the customer wants a change, they need to be prepared to shift
directions quickly. As a result, business and manufacturing processes need to
be just as agile and scalable. Manufacturers who do not adopt proven methods
to succeed today may be out of business tomorrow.

The Internet supply chain will be a means of communicating and doing

business with suppliers and customers. Fractured, unpredictable supply
chains have become less and less tolerable primarily because customers will
not absorb the associated costs and long lead times. Its important to bear in
mind that the customer is just a mouse click away from your competitors.

Enabled supply chains assist companies to optimize business processes both

within and outside the four walls of the enterprise and to more efficiently deliver
the new products customers want, when they want them and where they want
them.

Why e- SCM? Supply chain has been viewed as an inflexible series of events
that somehow managed to get products out the door. It often involved
questionable inventory forecasts, rigid manufacturing plans and hypothetical
shipping schedules.

The Internet has changed all that. It has transformed this old-fashioned
process into something closer to an exact science. An Internet-enabled supply
chain helps companies
• Avoid costly disasters
• Reduce administrative overhead
• Reduce unnecessary inventory (thereby increasing working capital)
• Decrease the number of hands that touch goods on their way to the end
customer
• Eliminate obsolete business processes
• Reap cost-cutting and revenue-producing benefits
• Speed up production and responsiveness to consumers
• Garner higher profit margins on finished goods (garner – collect,store)
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Effective integration of an Organizations supply chain can save millions,

improve customer service and reduce inventories.
The key to getting optimum value out of automating your supply chain is to
make sure you have your internal systems working well before you start
extending them out over the Internet.
After introduction of the concept of ERP, the next information technology
initiative to be introduced was Supply Chain Management (SCM).

When the customer buys a finished product from the company, the retailer
sells it to the customer. Retailer in turn gets the product from a wholesaler or a
distributor who in turn gets it from the manufacturer.
The manufacturer, in order to produce the product requires the raw materials
that are supplied by a vendor who in turn procures it from another vendor or a
manufacturer. Many business entities are involved in this chain.

Supply Chain

Fig 9.6
In a typical supply chain, there is a constant flow of three distinct elements
between different business entities. These three flows are of material, money
and information. These three flows are constantly occurring and are vital
ingredients of the supply chain. An ideal supply chain solution has to address
the issues pertaining to the management of these three flows effectively
and efficiently. Information about “WHAT” is required “WHERE” and at
“WHICH” point in time is very important to ensure that the required materials
are manufactured and transported at the time and place when they are
required. In order to ensure that the required materials are available at the right
place at the right time, money has to flow from one business entity to the
other as per agreed terms.

Activities of Supply Chain Management:

1. Planning
2. Buying
3. Make (Manufacturing)
4. Store
5. Move
6. Sell

1. Planning: The focus of supply chain management solution is on being

proactive than being reactive to a given situation. In order to be proactive, it is
necessary to predict and plan actions. Demand management, manufacturing
planning and planning related to transportation and logistics are an integral
part of planning activities of Supply Chain management.

2. Buying: In order to make goods available, business entity in Supply Chain

needs to buy materials from another business entity. "What " is to be
purchased, "how" much to purchase, from "whom" to purchase and at "what
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price" are some of the important considerations. The lead times, transportation
tomes, cost of material and landed cost are to be considered in activities
related to buying.

3. Make: These activities transform raw materials into finished materials.

These activities relate to manufacturing of goods that will be sold the supply
chain."What" is to be produced, "how much" quantity is to be produced, "when"
to produce, in "what pack sizes" to pack are some of the important
considerations. Economics of manufacturing, cycle time, shift over costs and
manufacturing capacity constraints are some of the important factors that
need to be addressed.

4. Store: These are activities relating to physical storage of materials.The term

material is used to include raw materials, semi finished materials as well as
finished materials. Materials need to be stored properly. Expected arrivals and
outbound shipments have to be coordinated to ensure that available storage
space is optimally utilized and handling costs are minimum.

5. Move: These are the activities relating to transportation of materials (Raw

materials, Finished products). Movement of materials involves cost and time.
Both are of importance as the objective is to transport the materials from
original to destination at the lowest cost and in shortest possible time. There
are certain constraints that need to be addressed at the time of making
decisions relating to "movement" of goods in a supply chain.SCM has to
address the issues of economic order quantity.

6. Sell: These are the activities relating to the sale of goods from one business
entity to the other. These activities also include sale of goods to the end
customer. The sales activities are to be monitored against the forecast to
watch for unusual demand and to ensure that there is no loss of business due
to non-availability of materials.

In order to ensure that all these activities of supply chain management are
synchronized across different business entities involved in supply chain, a
strong collaboration between different business entities is essential. This
collaboration is enabled by use of information technology allowing free flow of
information across the supply chain. The information flow across the supply
chain helps ensuring that all activities that are planned are carefully monitored
and corrective actions are initiated without time lag.

With the advent of internet and the concepts such as wide area networks
(WAN) and virtual private networks (VPN), it is possible to provide seamless
connectivity between business partners in supply chain even when the
business partners are situated at distant geographical locations. There are
enterprises who have created their own wide area networks to connect
different locations through leased lines as well as Very Small Aperture
Terminals (VSAT).
There are enterprises that have created virtual private networks using internet.
Through this information systems network, the channel partners are in a
position to view the stocks available across the multiple stocking locations,
place orders electronically and track the execution of their orders. The vendors
are in a position to view the stocks of materials, need to replenish and get
purchase orders and shipping instructions electronically. Periodic view of the
supply chain activities allows the business entities to identify areas of
improvement and initiate steps for refinement in the supply chain.
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In order to make supply chain management efficient and effective the activities
relating to Forecasting, Demand planning, Master production scheduling and
Procurement must be synchronized properly.

The supply chain components and the composition of the supply chain differ
widely depending on the product or service that is being offered. The supply
chain management solution for an automobile manufacturer would be entirely
different as compared to FMCG manufacturing organization. The information
system based solution needs to be configured to suit the industry specific
requirements.

How ERP became important for SCM?

Traditionally ERP tools were not considered for SCM and resultantly, the
information flow between various members of the supply chain was slow. This
was because until the late 1990's the concentration of organizations was on
improving the internal efficiency alone. Therefore, ERP systems also
supported only such functionalities and the systems across the supply chain
were disparate (essentially different/not comparable).

Fig 9.7 Traditional ERP/legacy systems linkage across the supply chain

The organizations however, soon realized that although internal efficiency is

important, its benefit would be limited unless complemented by increased
efficiency across the supply chain. They also realized that, seamless flow of
real-time information across the supply chain, was key to success in the
emerging market scenario which was characterized by galloping
advancements of technology, shorter Product life cycle's etc. Therefore,
organizations started integrating ERP applications with SCM software. This
ensures that the efficiency was achieved across the supply chain and there is a
seamless flow of information. ERP is such scenario, becomes a vital link in the
integrated supply chain as it serves as the integrated planning and control
system.
In summary, ERP applications help in effective SCM in the following ways

1. Share data: They can create opportunities to share data across supply chain
members, which can help managers in making better decisions. They also
provide wider scope to mangers of supply chain by making available much
broader information.

2. Real-time information: ERP systems can provide real-time information,

which can be great help in supply chain decisions. For example, ordering raw
materials can be based on the inventory details provided by the ERP systems.

Web-enabled ERP and its impact on SCM

The web-based technologies have revolutionized the way business is carried
on and supply chain management and ERP are no exceptions. In order to
leverage the benefits offered by this new technology enabler, ERP systems
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are being "web-enabled.'' Internet allows linking of the websites to back-end

systems like ERP and providing connections to host of external parties. The
benefits of such a system are that customers have direct access to the
supplier's ERP system and the vendors in turn can provide real-time
information about inventory, pricing, order and shipping status. Internet thus
provides an interface between ERP system and the supply chain members
allowing real-time flow of reliable and consistent information.

To illustrate a benefit of web-enabling ERP, such a facility allows customers to

go on-line and configure their own products and get price information and
immediately gets to know whether the configured product is in stock or not.
This is made possible, as the customer's request is directly accesses the ERP
system of the supplier.

Fig 9.8
ERP vs. SCM
The differences between ERP systems (e.g. SAP, Baan, People soft) and SCM
systems (e.g Manugistics) have been subject to intense debate. One of
reasons for the same is that the ERP vendors are adding more SCM
functionality to their products while SCM vendors are also expanding their
functionality, encroaching on the area handled by the ERP vendors. With the
vendors of ERP systems and SCM systems adding more and more
functionality, the differences between the same have been blurring. For
example, major ERP vendors are introducing advanced planning and
optimization as an integrated component (also a component in SCM) of their
system. In the following table, let us try to understand the key differences
between ERP and SCM systems presently available.

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Table 9.1

ERP-SCM system linkage:

As per this approach, the integration of supply chain is through the linking of
ERP and SCM systems. This may be resorted so as to capitalize on the
strengths of the two systems (ERP and SCM). For this purpose, sophisticated
middleware interface software, which enable sharing of data and processes
are used. These software help in linking the ERP and SCM systems at the
points where they have overlapping features. For example, I2 technologies
uses SAP's ALE (Application Link Enabling) to exchange data between SAP
R/3 and its SCM product 'Rhythm.' There are also some specialized software
called Specialized Integration Software, which allow ERP and other systems
to share processes and data. This software allows integration by simply
choosing the sending application (e.g. SAP, Baan) and a receiving application
(Like Rhythm, Manugistics) and the process to be linked.

Activity 3 –
Fill in with appropriate blanks
1) Supply chain management spans all ________ and storage of raw
materials, work-in-process inventory and finished goods from point-of-origin to
point-of-consumption.
2) In order to _______ performance, supply chain functions must operate in a
coordinated manner.
3) _________ activities transform raw materials and components into a
finished product.
4) The __________ across the supply chain helps ensuring that all activities
that are planned are carefully monitored and corrective actions are initiated
without time lag.
5) The _______ technologies have revolutionized the way business is carried
on.

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9.4 Summary

In this unit, the concept of ERP, i.e. enterprise resource planning has been
discussed in detail. The evolution, need, implementation and the life cycle
of ERP has been explained in detail. We have also seen the concept of
Customer Relationship Management with its goals and also Supply Chain
Management and how it is used to resolve activities at different levels like
strategic, operational and tactical. The role of ERP in Supply Chain
Management has been explained.

9.5 Key Words

Ÿ ERP – Enterprise Resource Planning facilitates integration of company-

wide information systems with the potential to go across companies.

Ÿ Referencing Responsibility – Referencing is a feature for tracking the chain

of events for monitoring, progress checking and control.

Ÿ Implementation of business rules – A strict adherence to rules and

responsibility is essential for creation of controlled environment. The ERP
satisfies this need of the business.

Ÿ Customization – Customization is the job of fitting the ERP software to meet

the demands of a particular organization.

Ÿ Life-cycle – The set of activities through which ERP is implemented in an

organization

Ÿ Process Modelling – provides a means to map the organization processes

and visualize it in a graphical manner.

Ÿ CRM – Customer Relationship Management is a strategy used to learn

more about customers' needs and behaviors in order to develop stronger
relationships with them.

Ÿ SCM – Supply chain management is the process of planning, implementing

and controlling the operations of the Supply Chain with the purpose to
satisfy customer requirements as efficiently as possible.

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