An Informational view about

1. Raun G
Technology and Operations Management,
California Polytechnic and State University

2. Outline
1. Supply Chain Management
 The Bullwhip Effect
 What Is SCM?
 Why Is SCM Important?
1. Customer Relationship Management
 What Is CRM?
 Why Is CRM Important?
 CRM Components and Technologies
1. Enterprise Resources Planning
 What Is ERP?
 Why ERP?
 Illustration
SCM, CRM, & ERP (Raun G) 2

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.
SCM, CRM, & ERP (Raun G) 4

5. An Illustration of the Bullwhip
Effect
SCM, CRM, & ERP (Raun G) 5
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.
SCM, CRM, & ERP (Raun G) 6

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
industry’s pursuit of “efficient consumer response”
and the garment industry’s “quick response.”
SCM, CRM, & ERP (Raun G) 7

8. The VMI Partnership
The supplier—usually the manufacturer but sometimes
a reseller or distributor—makes the main inventory
replenishment decisions for the consuming
organization.
The supplier monitors the buyer’s 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.
SCM, CRM, & ERP (Raun G) 8

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

11. Features
1. Includes all activities and processes to supply a
product or service to a final customer.
2. Any number of companies can be linked in the supply
chain.
3. A customer can be a supplier to another customer so
the total chain can have a number of supplier-
customer relationships.
4. Depending on the products and markets, the
distribution system can be direct (supplier to
customer) or indirect (involving distributors,
warehouses, and retailers).
SCM, CRM, & ERP (Raun G) 11

12. Material Flow
Raw materials enter into a
manufacturing 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.
SCM, CRM, & ERP (Raun G) 12
Source: Johnson & Pike, 1999

13. SCM, CRM, & ERP (Raun G) 13
Information Flow
Products or services usually flow from
supplier to to customer. Design and
demand information usually flow from
customer to supplier.

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
SCM, CRM, & ERP (Raun G) 15

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↑↑
SCM, CRM, & ERP (Raun G) 16

17. Increasing Challenges
Shrinking product life-cycles
Increasing product variety
Food product introductions:
 1980: 2,000
 1991: 18,000
 1997: 25,000
SCM, CRM, & ERP (Raun G) 17

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)
SCM, CRM, & ERP (Raun G) 18

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)
SCM, CRM, & ERP (Raun G) 19

20. Opportunities
Improving supply chains globally judged a major trend
by 78% of 2,500 CEO’s of companies with revenues >
$100 million (Business Week, 12/12/98)
Deloitte Consulting survey - SCM ranked as “critical to
very important” to company’s success by 91% of senior
managers at 240 North American manufacturers (CIO,
7/1/99)
Only 2% ranked their supply chain as “world-class”
SCM, CRM, & ERP (Raun G) 20

22. 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.
SCM, CRM, & ERP (Raun G) 23

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
SCM, CRM, & ERP (Raun G) 24

25. Lifetime Value of a Customer
= Average transaction value x Purchase frequency x
Customer life expectancy
Customer Profitability
= f(acquisition, enhancement, retention, loyalty)
SCM, CRM, & ERP (Raun G) 25

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
SCM, CRM, & ERP (Raun G) 27

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.
SCM, CRM, & ERP (Raun G) 28

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.
SCM, CRM, & ERP (Raun G) 29

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.
SCM, CRM, & ERP (Raun G) 30

31. A customer who has had a problem resolved by a
company will tell about 5 people about their situation.
SCM, CRM, & ERP (Raun G) 31

33. Acquire
(new customers)
Enhance
(purchase value)
Retain
(existing customers)
Direct Marketing Cross-/Up-Selling Proactive Service
Sales Force Automation Customer Support, Call Center
Telephone, Fax, E-mail, Web, VRU (Voice Response Unit)
Legacy Systems + Computer/Internet Telephony Integration (CTI/ITI) + Data Warehousing +
Decision Support Technology (data model analysis)
Customer
Life Cycle
Core
Process
Enabling
Technology
Differentiation
• Innovation
• Convenience
Bundling
• Reduce cost
• Customer service
• Repeatable process
Adaptability
• Listening
• New product
• Loyalty program
CRM
Key Focus
Integrated CRM ApplicationsIntegrated CRM Applications
Integrated
Solution
(Modified from Kalakota & Robinson 2001)

34. Connectivity Applications Technologies
Web
Application sharing
Interactive TV
Videoconferencing
Interactive chat
Mobile
Smart phones
Wireless modem
Handheld devices
Network Center
Access to legacy data
Wireless IP
Natural language
recognition
Speech recognition
Internet and Web
Content management
Personalization
Management
Operations
Benchmarking
Metrics/TCO
measurement
Customer
Intelligence
Customer satisfaction
survey
Data mining
Enterprise access
Business Intelligence
Advanced BI
development tools
Query, reporting, OLAP
viewers
Future Technology
Intelligent agents
Smart cards
Speech
Middleware
Corba, COM/DCOM, EAI
Application
Development
C++, Visual C++,
HTML, DHTML, XML
Industry Verticals
Banks, retail,
wholesale, private
Software, Telecomm,
Government
(Source: Maoz, Gartner Symposium ITxpo 2000)

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
SCM, CRM, & ERP (Raun G) 36

37. SCM, CRM, & ERP (Raun G) 37
Enterprise Resource Planning Systems
Time
Money Material
Transactions
Planning

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
SCM, CRM, & ERP (Raun G) 38

39. Business Week, 3/12/97

40. 1. 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
retailer’s credit history.
2. Simultaneously, R/3’s 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 ISC’s
factory in Taiwan.
SCM, CRM, & ERP (Raun G) 40

41. 3. R/3’s manufacturing software schedules the
production of the sneakers at the Taiwan factory,
meanwhile alerting ISC’s warehouse manager in Brazil
to ship the 500 purple tennis shoes to the retailer. An
invoice gets printed up—in Portuguese.
4. That’s when R/3’s HR module identifies a shortage of
workers to handle the order & alerts the personnel
manager of the need for temporary workers.
5. R/3’s materials planning module notifies the
purchasing manager that it’s time to reorder purple
dye, rubber, and shoelaces.
SCM, CRM, & ERP (Raun G) 41

42. 6. The customer logs on to ISC’s 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.
7. Based on data from R/3’s 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.
SCM, CRM, & ERP (Raun G) 42