Chapter 9

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Achieving Operational Excellence and
Customer Intimacy: Enterprise
Applications

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Learning Objectives

• How do enterprise systems help businesses achieve operational

excellence?

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• How do supply chain management systems coordinate planning,
production, and logistics with suppliers?
• How do customer relationship management systems help firms
achieve customer intimacy?
• What are the challenges posed by enterprise applications?
• How are enterprise applications used in platforms for new cross-
functional services?

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Cannondale Learns to Manage a Global
Supply Chain

• Problem – Managing parts in a constantly changing product line

with suppliers in many countries

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• Solution – Replace legacy MRPS with Kinaxis on-demand Rapid
Response software service
Allows both Cannondale and suppliers to see up-to-date
information; faster customer response; reduced inventory;
reduced cycle and lead times
• Illustrates: Need for enterprise-wide system for coordinating
supply chain
• Demonstrates: Use of cloud services as solution for implementing
enterprise applications

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Systems

• Enterprise Systems

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Systems

• Enterprise Software

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Systems

HOW
ENTERPRISE

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Systems

• Business value of enterprise systems

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems

• Supply chain:

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems
NIKE’S SUPPLY CHAIN

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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.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 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

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

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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems
THE BULLWHIP EFFECT

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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.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems

• Supply chain management software

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems

SOUTHWEST AIRLINES TAKES OFF WITH BETTER SUPPLY CHAIN

MANAGEMENT

Read the Interactive Session and discuss the following questions

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• Why is parts inventory management so important at Southwest
Airlines? What business processes are affected by the airlines’
ability or inability to have required parts on hand?
• Why management, organization, and technology factors were
responsible for Southwest’s problems with inventory
management?
• How did implementing the i2 software change the way Southwest
ran its business?
• Describe two decisions that were improved by implementing the
i2 system?

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems

• Global supply chain issues

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems

• Supply chain management systems

Push-based model (build-to-stock)

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 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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems
THE BULLWHIP EFFECT

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

FIGURE 9-4

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems

• Business value of SCM systems

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Supply Chain Management Systems
THE FUTURE INTERNET-DRIVEN SUPPLY
CHAIN
The future Internet-
driven supply chain

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems

• Knowing the customer

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems
CUSTOMER
RELATIONSHIP

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems

• CRM software

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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
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems

• CRM packages typically include tools for:

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems
HOW CRM
SYSTEMS

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems

CRM SOFTWARE
CAPABILITIES

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems
CUSTOMER LOYALTY MANAGEMENT PROCESS MAP

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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems

• Operational CRM:

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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)

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems
ANALYTICAL CRM DATA WAREHOUSE

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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.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Customer Relationship Management
Systems

• Business value of CRM

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Applications: New
Opportunities and Challenges

• Highly expensive to purchase and implement

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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Applications: New
Opportunities and Challenges

• Next-generation enterprise applications

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Applications: New
Opportunities and Challenges
ENTERPRISE APPLICATIONS MOVE TO THE CLOUD
Read the Interactive Session and discuss the following questions

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• What types of companies are most likely to adopt cloud-based
ERP and CRM software services? Why? What companies might
not be well-suited for this type of software?
• What are the advantages and disadvantages of using cloud-based
enterprise applications?
• What management, organization, and technology issues should
be addressed in deciding whether to use a conventional ERP or
CRM system versus a cloud-based version?

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Applications: New
Opportunities and Challenges

• Service platform:

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
 Enterprise Applications: New
Opportunities and Challenges

ORDER-TO-
CASH SERVICE

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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

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon