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Copyright 2004 John Wiley & Sons, Inc.
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Information Technology: Strategic Decision Making For Managers
Henry C. Lucas Jr.
John Wiley & Sons, Inc
Dinesh MirchandaniUniversity of Missouri – St. Louis
Copyright 2004 John Wiley & Sons, Inc.
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Copyright 2004 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.
Copyright 2004 John Wiley & Sons, Inc.
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Chapter 17
Business Process: Examples from ERP and CRM
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Benefits of Enterprise Resource Planning Systems
• Provide efficient processing – measured by indicators like the number of transactions
per employee, cycle time reductions and supply chain efficiency
• Provide a level of process standardization– leads to efficiencies for companies with many different
locations
• Provide a platform for the development of new systems– ERP gives management an option for the future
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Benefits of Customer Relationship Management (CRM) Systems
• Improved customer relations leading to repeat business
• Reduced costs for acquiring a customer • Reduced costs per customer service call • Greater customer satisfaction• Opportunities for cross-selling and for
additional business from an existing customer
• Increased revenue
Copyright 2004 John Wiley & Sons, Inc.
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Measures of the Contribution of ERP Systems
• Transactions processed per employee • Cycle time reduction in the production of
goods or services and the development of new products
• As an option for other applications
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Measures of the Contribution of CRM Systems
• Customer satisfaction• Customer retention (amount of repeat
business)• Cost of acquiring a customer• Cost per sales call• Cost to process a customer support
interaction
Copyright 2004 John Wiley & Sons, Inc.
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Understanding Business Processes
• Business Process Reengineering– “… the fundamental rethinking and radical
redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed (Hammer and Champy, 1993).”
Copyright 2004 John Wiley & Sons, Inc.
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Reengineering
• Fundamental– Why does the firm do things a certain way?
• Radical – reinvention as opposed to making superficial changes
or minor enhancements
• Dramatic – focuses on achieving quantum leaps in performance
• Processes– a collection of activities that takes one or more kinds of
inputs and produces some output of value
Copyright 2004 John Wiley & Sons, Inc.
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What is a Process?
• A process is like a system– it begins with some inputs, involves processing,
and ends with an objective accomplished (e.g., order fulfillment)
• A process may – extend across many organization boundaries
– involve a large number of individuals
– require many decisions and actions along the way
Copyright 2004 John Wiley & Sons, Inc.
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An Example of A Process at Merrill Lynch
• The customer brings documents to a branch office
• The branch does preliminary processing• Certificates are sent to a processing center• The center verifies and checks the certificates• The center processes certificates• The center posts data to the customer's account
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The Original System
Copyright 2004 John Wiley & Sons, Inc.
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The Original System
Copyright 2004 John Wiley & Sons, Inc.
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The Original System
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The New System
Copyright 2004 John Wiley & Sons, Inc.
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The New System
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The New System
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Impact of the New System
• Reduction of occupancy from two locations to one
• Reduction in depository fees• Interest savings on receivables• Reduction of microfilm costs• Savings in security services• Reduction in staff
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Execution of Business Process Reengineering/Redesign
• Technological leveling• Production automation• Electronic workflows
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Improving Processes
• Questions to ask include– What are our key business processes?– Do we have to execute this process at all?– What totally new ways, taking advantage of information
technology, exist to perform this process?– What does redesigning a process imply for the structure
of the organization?– How can we use IT design variables in conjunction with
process redesign to change the structure of the organization?
Copyright 2004 John Wiley & Sons, Inc.
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Enterprise Resource Planning Systems
• ERP packages are integrated and provide consistent interfaces– Include modules that encompass the processing for
major subsystems like order processing, manufacturing, accounts receivable, general ledger, human resources, production planning, etc.
• Before the advent of ERP systems, companies developed applications for different functions
• Major ERP package vendors include SAP and Oracle
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Customer orders via Internet EDI, Fax, phone
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Enter order Retrieve customer data from DB Check credit Check inventory
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Item in inventory Shipping notice to warehouse
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Warehouse generates picking list Pick and ship order System updates A/R
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
AR sends invoice to customerPost payment from customer Update customer credit limit
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
MRP determines materials needed Generate purchase order and transmitVendor ships goodsEnter receipt of goods
Item not in stock Compute available to promise Submit to production planning system
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Vendor sends invoiceEnter invoiceUpdate A/PSend payment to vendor
Copyright 2004 John Wiley & Sons, Inc.
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Customer
Catalog
Order XML EDI Fax
OrderProcessing
Manufacturing Master Production Schedule Materials Requirements Planning
Purchasing Purchase VendorOrder
Invoice
Goods (materials)
Inventory (Warehouse)
Shipment
AccountsPayable
Payment
Invoice
Sales Reporting General Ledger
Orders ManufacturingBacklog Work in processShipments Finished goods
Cost buildupAccounts PayableAccounts ReceivableSales
Payment
AccountsReceivable
1.
2.
1. Item in stock, ship from inventory2. Out of stock, manufacture and ship
Enterprise Resources Planning:A Schematic of a Firm’s Transactions Processing
Manufacturing makes product Control systems tracks production Product shipped directly to customer or placed in inventory for later shipment Shipping-payments cycle same as for item sent from inventory
Copyright 2004 John Wiley & Sons, Inc.
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Detail and Complexity of ERP Packages
• Package vendors – customize the package for various industries
or assemble different building blocks for industries
– include a lot of options in the software– allow custom coding
• However suggest changes to the firm’s business
procedures before changing the package
Copyright 2004 John Wiley & Sons, Inc.
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The Implementation Challenge
• Failed ERP implementations– Hershey’s chocolates, Nike, Whirlpool
• Strategies for successful implementation– utilize significant consultant help– convince employees to change their
procedures– carefully decide whether to change business
processes to match the software or utilize configuration and enhancements to the software to match current business processes
Copyright 2004 John Wiley & Sons, Inc.
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Customer Relationship Management Software
• Help create a highly personalized relationship with each customer leading to greater customer satisfaction and a stronger, more profitable business relationship– Personalized recommendations, collaborative
filtering, etc.• Popular CRM software include Siebel and
Salesforce.com
Copyright 2004 John Wiley & Sons, Inc.
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Summary
• Improved business processes improve efficiency and reduce costs
• CRM applications can increase revenue
• Major ERP or CRM packages have options components in addition to the immediate benefits they provide