Management Information Systems

MANAGING THE DIGITAL FIRM, 12TH EDITION

Chapter 9
ACHIEVING OPERATIONAL
EXCELLENCE AND CUSTOMER
INTIMACY: ENTERPRISE
APPLICATIONS
VIDEO CASES
Case 1: Sinosteel Strengthens Business Management with ERP Applications
Case 2: Ingram Micro and H&R Block Get Close to Their Customers
Instructional Video 1: Zara's" Wearing Today's Fashions With Supply Chain Management
 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Systems

• Enterprise Systems
– Also called “enterprise resource planning (ERP)
systems”
– Suite of integrated software modules and a
common central database
– Collects data from many divisions of firm for use
in nearly all of firm’s internal business activities
– Information entered in one process is
immediately available for other processes

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Systems

• Enterprise Software
– Built around thousands of predefined business processes that
reflect best practices
• Finance/accounting: General ledger, accounts payable, etc.
• Human resources: Personnel administration, payroll, etc.
• Manufacturing/production: Purchasing, shipping, etc.
• Sales/marketing: Order processing, billing, sales planning, etc.
– To implement, firms:
• Select functions of system they wish to use
• Map business processes to software processes
– Use software’s configuration tables for customizing

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Systems

HOW ENTERPRISE
SYSTEMS WORK
Enterprise systems feature a
set of integrated software
modules and a central
database that enables data to
be shared by many different
business processes and
functional areas throughout
the enterprise.

FIGURE 9-1

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Systems

• Business value of enterprise systems

– Increase operational efficiency
– Provide firm wide information to support
decision making
– Enable rapid responses to customer requests for
information or products
– Include analytical tools to evaluate overall
organizational performance

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

• Supply chain:
– Network of organizations and processes for:
• Procuring raw materials
• Transforming them into products
• Distributing the products
• Upstream supply chain:
– Firm’s suppliers, suppliers’ suppliers, processes for
managing relationships with them
• Downstream supply chain:
– Organizations and processes responsible for delivering
products to customers
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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems
NIKE’S SUPPLY CHAIN

FIGURE 9-2 This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and
downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a
simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.
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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

• Information and supply chain management

– Inefficiencies cut into a company’s operating costs
• Can waste up to 25% of operating expenses
– Just-in-time strategy:
• Components arrive as they are needed
• Finished goods shipped after leaving assembly line
– Safety stock
• Buffer for lack of flexibility in supply chain
– Bullwhip effect
• Information about product demand gets distorted as it
passes from one entity to next across supply chain

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems
THE BULLWHIP EFFECT

FIGURE 9-3 Inaccurate information can cause minor fluctuations in demand for a product to be amplified as one moves
further back in the supply chain. Minor fluctuations in retail sales for a product can create excess inventory for
distributors, manufacturers, and suppliers.
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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

• Supply chain management software

– Supply chain planning systems
• Model existing supply chain
• Demand planning
• Optimize sourcing, manufacturing plans
• Establish inventory levels
• Identifying transportation modes
– Supply chain execution systems
• Manage flow of products through distribution centers
and warehouses

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

• Global supply chain issues

– Global supply chains typically span greater
geographic distances and time differences
– More complex pricing issues (local taxes,
transportation, etc.)
– Foreign government regulations
• Internet helps companies manage many aspects of
global supply chains
– Sourcing, transportation, communications,
international finance
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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

• Supply chain management systems

– Push-based model (build-to-stock)
• Schedules based on best guesses of demand
– Pull-based model (demand-driven)
• Customer orders trigger events in supply chain
– Sequential supply chains
• Information and materials flow sequentially from
company to company
– Concurrent supply chains
• Information flows in many directions simultaneously
among members of a supply chain network

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems
THE BULLWHIP EFFECT

FIGURE 9-4 The difference between push- and pull-based models is summarized by the slogan, “Make what we sell, not
sell what we make.”

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

• Business value of SCM systems

– Match supply to demand
– Reduce inventory levels
– Improve delivery service
– Speed product time to market
– Use assets more effectively
– Reduced supply chain costs lead to increased
profitability
– Increased sales

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Supply Chain Management Systems

THE FUTURE
INTERNET-DRIVEN
SUPPLY CHAIN
The future Internet-driven
supply chain operates like a
digital logistics nervous system.
It provides multidirectional
communication among firms,
networks of firms, and e-
marketplaces so that entire
networks of supply chain
partners can immediately
adjust inventories, orders, and
capacities.

FIGURE 9-5

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

• Knowing the customer

– In large businesses, too many customers and too
many ways customers interact with firm
• Customer relationship management (CRM) systems
– Capture and integrate customer data from all over
the organization
– Consolidate and analyze customer data
– Distribute customer information to various systems
and customer touch points across enterprise
– Provide single enterprise view of customers
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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

CUSTOMER
RELATIONSHIP
MANAGEMENT (CRM)
CRM systems examine
customers from a multifaceted
perspective. These systems use
a set of integrated applications
to address all aspects of the
customer relationship,
including customer service,
sales, and marketing.

FIGURE 9-6

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

• CRM software
– CRM packages range from niche tools to large-scale
enterprise applications
– More comprehensive have modules for:
• Partner relationship management (PRM)
– Integrating lead generation, pricing, promotions, order
configurations, and availability
– Tools to assess partners’ performances
• Employee relationship management (ERM)
– E.g. Setting objectives, employee performance management,
performance-based compensation, employee training

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

• CRM packages typically include tools for:

– Sales force automation (SFA)
• E.g. sales prospect and contact information, and sales
quote generation capabilities
– Customer service
• E.g. assigning and managing customer service requests;
Web-based self-service capabilities
– Marketing
• E.g. capturing prospect and customer data, scheduling
and tracking direct-marketing mailings or e-mail

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

HOW CRM
SYSTEMS SUPPORT
MARKETING
Customer relationship
management software
provides a single point for
users to manage and evaluate
marketing campaigns across
multiple channels, including
e-mail, direct mail, telephone,
the Web, and wireless
messages.

FIGURE 9-7

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

CRM SOFTWARE
CAPABILITIES
The major CRM software
products support business
processes in sales, service, and
marketing, integrating customer
information from many different
sources. Included are support for
both the operational and
analytical aspects of CRM.

FIGURE 9-8

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems
CUSTOMER LOYALTY MANAGEMENT PROCESS MAP

FIGURE 9-9 This process map shows how a best practice for promoting customer loyalty through customer service
would be modeled by customer relationship management software. The CRM software helps firms identify
high-value customers for preferential treatment.

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

• Operational CRM:
– Customer-facing applications
• E.g. sales force automation, call center and customer
service support, and marketing automation
• Analytical CRM:
– Analyze customer data output from operational CRM
applications
– Based on data warehouses populated by operational
CRM systems and customer touch points
• Customer lifetime value (CLTV)

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems
ANALYTICAL CRM DATA WAREHOUSE

FIGURE 9-10 Analytical CRM uses a customer data warehouse and tools to analyze customer data collected from the
firm’s customer touch points and from other sources.

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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Customer Relationship Management Systems

• Business value of CRM

– Increased customer satisfaction
– Reduced direct-marketing costs
– More effective marketing
– Lower costs for customer acquisition/retention
– Increased sales revenue
– Reduce churn rate
• Number of customers who stop using or purchasing
products or services from a company.
• Indicator of growth or decline of firm’s customer base
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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Applications: New Opportunities and Challenges

• Highly expensive to purchase and implement

– $3.5 million to over $12 million
• Technological changes
• Business process changes
• Organizational changes
• Switching costs, dependence on software vendors
• Data standardization, management, cleansing

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Applications: New Opportunities and Challenges

• Next-generation enterprise applications

– Move is to make applications more flexible, Web-
enabled, integrated with other systems
– Enterprise suites
• Software to enable CRM, SCM, and enterprise systems
work together and with suppliers and client systems
• Utilize Web services, SOA
– Open source & on-demand solutions
– Mobile compatible; Web 2.0 capabilities
– Complementary analytics products

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CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Applications: New Opportunities and Challenges

• Service platform:
– Integrates multiple applications to deliver
a seamless experience for all parties
• E.g. Order-to-cash process
– Portal software
• Used to integrate information from
enterprise applications and legacy
systems and present it as if coming from
a single source
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 Management Information Systems
CHAPTER 9: ACHIEVING OPERATIONAL EXCELLENCE AND
CUSTOMER INTIMACY: ENTERPRISE APPLICATIONS
Enterprise Applications: New Opportunities and Challenges

ORDER-TO-CASH
SERVICE
Order-to-cash is a composite
process that integrates data
from individual enterprise
systems and legacy financial
applications. The process must
be modeled and translated into
a software system using
application integration tools.

FIGURE 9-11

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