ERP, CRM, SCM, & BI Reading

Terms you need to know: ERP, CRM, SCM, BI and have a general understanding of what these systems do, their benefits and challenges. Know to about the business benefits of IT and the types of industries that are focused on improving their customer service.

In this reading we will learn about Enterprise Resource Planning Systems (ERPs) and the add-on components of Customer Relationship Management Systems (CRM), Supply Chain Management Systems (SCM) and Business Intelligence Systems (BI). It is frequently expected by employers that hire MIS and other technology savvy students that job candidates understand these technologies. This reading is just a high level overview of what these systems are and what they can do for companies, you will learn more about them in later courses.

Business Benefits of Information Technology Below are some benefits companies can get from IT and application software…why do you think customer service is first the top most benefiting function?

Customer Service is a major concern for today’s companies. The Internet has created more knowledgeable consumers many of whom are very price sensitive. This is particularly true with products that are very similar (i.e. are not easily differentiated) such as books, electronics, toys, etc. One paperback copy of The Hunger Games is no different from another paperback copy of the book so where you buy it – at Amazon.com, or Barnes & Noble, or Wal-mart - makes no difference in product quality. What can vary between book sellers is price or service. Search engines, such as Google, and price comparison tools take the effort out of determining which store has the best price so competition on price is difficult for today’s businesses. Thus the main way for companies to differentiate themselves to consumers is through customer service. If you like the service Fry’s Electronics provides over the service provided by Amazon.com you may well choose to make your purchase at Fry’s even if it costs a bit more than would the purchase at Amazon.com. This is

why customer service is such a big deal in today’s competitive markets and why new IT solutions supporting customer service are sought. Some tools that can improve customer service are ERPs and CRMs and less directly, SCM and BI.

Application software can support many different business processes across the company. For example:

Business Process Functional Applications Enterprise Application Software

Sales and Marketing

Lead generation & tracking

Customer Management

Sales forecasting

Product and Brand management Customer Relationship Management

(CRM)

Customer Service

Account tracking

Customer support & training

Order entry and tracking

Enterprise Resource Planning

(ERP)

Human Resources

Recruiting

Compensation

Assessment

Development

HR Planning

Accounting

General Ledger

AR & AP

Cash Management

Cost Accounting

Manufacturing & Operations

Forecasting and Planning

Inventory (raw → finished goods)

Logistics (Inbound & Outbound)

Supplier Management

Manufacturing Planning (MRP)

Real-time scheduling

Order management

Supply Chain Management

(SCM)

Let’s begin our discussion of these tools with an explanation of ERPs.

ERP

Wailgum, Thomas (2007). “ERP Definition and Solutions,” A CIO.com Tutorial, http://www.cio.com/article/40323/ERP_Definition_and_Solutions#erp, Accessed 10/12/2013.

ERP Defined

“Enterprise resource planning software, or ERP, doesn’t live up to its acronym. Forget about planning—it doesn’t do much of that—and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs.

That is a tall order, building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse. Each of those departments typically has its own computer system optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.

That integrated approach can have a tremendous payback if companies install the software correctly.

Take a customer order, for example. Typically, when a customer places an order, that order begins a mostly paper-based journey from in-basket to in-basket around the company, often being keyed and rekeyed into different departments’ computer systems along the way. All that lounging around in in-baskets causes delays and lost orders, and all the keying into different computer systems invites errors. Meanwhile, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse’s computer system to see whether the item has been shipped. "You’ll have to call the warehouse" is the familiar refrain heard by frustrated customers.

ERP vanquishes the old standalone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Most vendors’ ERP software is flexible enough that you can install some modules without buying the whole package. Many companies, for example, will just install an ERP finance or HR module and leave the rest of the functions for another day.

How can ERP improve a company’s business performance?

ERP’s best hope for demonstrating value is as a sort of battering ram for improving the way your company takes a customer order and processes it into an invoice and revenue—otherwise known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesn’t handle the up-front selling process (although most ERP vendors have developed CRM software or acquired pure-play CRM providers that can do this); rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module, for example).

People in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system and track it down. With luck, the order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.”

Summary of ERP System benefits:

Efficient business processes that are effective and “best of breed”

Inventory reduction

Lead-time reduction

Improved customer service

Greater real-time insight into organization

Higher profitability

No data inconsistency problems due to integrated database

Business process blueprints tested in hundreds of organizations

But there are also challenges to ERPs

ERPs are large, complex systems that are notoriously hard and costly to implement. The cost varies widely…from 100,000 for small companies to 300 million for large companies (ex. Nestle)

Despite many improvements in the software, failed ERP implementations are still far too common

According to Gartner, the average failure rate for an ERP project is 66 percent. With those results, it is no wonder that some organizations view ERP as a necessary, strategic evil. The key word here though is necessary.

Many companies strive to make good financial decisions by making smart investments. The best way to ensure a good investment in ERP is to understand why failure occurs and how to avoid it.

The first challenge is that ERP comes in many flavors. Its main purpose is to provide support and automation to a business process. The business world has many different business models with many ERP products available that serve them. Companies must find the right fit before it purchases an ERP system. Why Is ERP So

Hard To Implement? 80% of problems with ERP implementations are organizational, only 20% are technical (Accenture). Problems often stem from firms:

underestimating the complexity of the planning, development, and training people need

trying to do too much, too fast

believing everything the software vendors and/or consultants say

dismal attempts at Change Management

failure to involve the “soon-to-be-disrupted” employees in the planning & development phases

seeing an ERP project as an IS project not as an organization-wide strategy

Customer Relationship Management (CRM)

Wailgum, Thomas (2007). “Customer Relationship Management Definition and Solutions,” A CIO.com Tutorial, http://www.cio.com/article/2439505/customer-relationship-management/crm-definition-and-solutions.html, Accessed 10/12/2013.

“What is CRM?

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. 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 strategic process that will help you better understand your customers’ needs and how

you can meet those needs and enhance your bottom line at the same time. This strategy depends on bringing together lots of

pieces of information about customers and market trends so you can sell and market your products and services more

effectively.

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. With an effective CRM strategy, a business can increase revenues by:

providing services and products that are exactly what your customers want

offering better customer service

cross selling products more effectively

helping sales staff close deals faster

retaining existing customers and discovering new ones

That sounds rosy. How does it happen?

It doesn't happen by simply buying software and installing it. For CRM to be truly effective, an organization must first

understand who its customers are and what their value is over a lifetime. The company must then determine what the needs

of its customers are and how best to meet those needs. 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. 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?

You need CRM when it is clear you don’t have an accurate view of who your customers are and what their needs or desires

are or will be at any given stage in their lives. If you are losing customers to a competitor, that’s a clear indication that you

should improve your understanding of your customers.”

CRM Summary:

CRM is not just a technology, but a strategy that an organization must embrace on an enterprise-wide level - although CRM has many technical components, it is actually a process and business goal simply enhanced by technology. To use CRM effectively, organizations must first decide that they want to build strong customer relationships and then they determine how IT can support their goals

CRM can enable an organization to:

Identify types of customers. Not all customers are good customers. CRM can help businesses identify and keep good (high ROI) customers. As the business world increasingly shifts from product-focus to customer-focus, most organizations recognize that treating existing customers well is the best source of profitable and sustainable revenue growth.

Design individual customer marketing campaigns

Treat each customer as an individual

Understand customer buying behaviors

Clearly define the sales process

Discover new customers

Help sales staff manage the sales process and close deals faster

Increase revenue & margins

Cross sell products more effectively

Provide better customer service

Make call centers more efficient

Simplify marketing and sales processes

Help predict future behavior

CRM is particularly helpful for sales personnel. Sales departments were the first to begin developing CRM systems with sales force automation – a system that automatically tracks all of the steps in the sales process. Such a process is illustrated below:

CRM can also provide graphical representations of trends, customers, sales projections and product research through dashboards such as the one below from salesforce.com.

The major CRM vendors in the market today (Forbes)

Salesforce.com CRM -1.28% is the world’s leading CRM software vendor with 14% market share in 2012 ($2.5B in sales)

SAP (12.9%, $2.3B in sales)

Oracle ORCL NaN% (11.1%, 2.01B in sales)

Microsoft MSFT -1.59% (6.3%, $1.1B in sales)

IBM IBM -0.59% (3.6%, $649M in sales) and all others. The top ten vendors worldwide generated $10.9B in sales alone in 2012.

Supply Chain Management

Wailgum, Thomas (2007). “Supply Chain Management Definition and Solutions,” A CIO.com Tutorial, http://www.cio.com/article/40940/Supply_Chain_Management_Definition_and_Solutions#scm_abc, Accessed 10/12/2013.

SCM Defined

“Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM.

1. Plan—This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

2. Source—Next, companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments.

3. Make—This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain—one where companies are able to measure quality levels, production output and worker productivity.

4. Deliver—This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

5. Return—This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.

What does supply chain management software do?

Supply chain management software is possibly the most fractured group of software applications on the planet. Each of the

five major supply chain steps previously outlined is comprised of dozens of specific tasks, many of which have their own

specific software. Some vendors have assembled many of these different chunks of software together under a single roof,

but no one has a complete package that is right for every company. For example, most companies need to track demand,

supply, manufacturing status, logistics (i.e. where things are in the supply chain), and distribution. They also need to share

data with supply chain partners at an ever increasing rate. While products from large ERP vendors like SAP's Advanced Planner

and Optimizer (APO) can perform many or all of these tasks, because each industry's supply chain has a unique set of

challenges, many companies decide to go with targeted best of breed products instead, even if some integration is an

inevitable consequence.

It's worth mentioning that the old adage about systems only being as good as the information that they contain applies doubly

to SCM. If the information entered into a demand forecasting application is not accurate, then you will get an inaccurate

forecast. Similarly, if employees bypass the supply chain systems and try to manage things manually (using the fax machine or

spreadsheets), then even the most expensive systems will provide an incomplete picture of what is happening in a company's

supply chain.

What is the relationship between ERP, CRM and SCM?

Many SCM applications are reliant upon the kind of information that is stored inside enterprise resource planning (ERP)

software and, in some cases, to some customer relationship management (CRM) packages. Theoretically a company could

assemble the information it needs to feed the SCM applications from legacy systems (for most companies this means Excel

spreadsheets spread out all over the place), but it can be nightmarish to try to get that information flowing on a fast, reliable

basis from all the areas of the company. ERP is the battering ram that integrates all that information in a single application,

and SCM applications benefit from having a single major source to go to for up-to-date information. Most CIOs who have tried

to install SCM applications say they are glad they did ERP first. They call the ERP projects "putting your information house in

order." Of course, ERP is expensive and difficult, so you may want to explore ways to feed your SCM applications the

information they need without doing ERP first. These days, most ERP vendors have SCM modules, so doing an ERP project may

be a way to kill two birds with one stone. In addition, the rise and importance of CRM systems inside companies today puts

even more pressure on a company to integrate all of its enterprisewide software packages. Companies will need to decide if

these products meet their needs or if they need a more specialized system.

Applications that simply automate the logistics aspects of SCM are less dependent upon gathering information from around

the company, so they tend to be independent of the ERP decision. But chances are, companies will need to have these

applications communicate with ERP in some fashion. It's important to pay attention to the software's ability to integrate with

the Internet and with ERP applications because the Internet will drive demand for integrated information. For example, if a

company wants to build a private website for communicating with their customers and suppliers, the company will want to

pull information from ERP and supply chain applications together to present updated information about orders, payments,

manufacturing status and delivery.

What is the goal of installing supply chain management software?

Before the Internet came along, the aspirations of supply chain software devotees were limited to improving their ability to

predict demand from customers and make their own supply chains run more smoothly. But the cheap, ubiquitous nature of

the Internet, along with its simple, universally accepted communication standards, have thrown things wide open. Now,

companies can connect their supply chain with the supply chains of their suppliers and customers together in a single vast

network that optimizes costs and opportunities for everyone involved. This was the reason for the B2B explosion; the idea

that everyone a company does business with could be connected together into one big happy, cooperative family.

Of course, reality isn't quite that happy and cooperative. But today most companies share at least some data with their supply

chain partners. The goal of these projects is greater supply chain visibility. The supply chain in most industries is like a big card

game: the players don't want to show their cards because they don't trust anyone else with the information, but if they

showed their hands they could all benefit. Suppliers wouldn't have to guess how many raw materials to order, and

manufacturers wouldn't have to order more than they need from suppliers to make sure they have enough on hand if demand

for their products unexpectedly increases. And retailers would have fewer empty shelves if they shared the information they

had about sales of a manufacturer's product in all their stores with the manufacturer. The Internet makes showing your hand

to others possible, but centuries of distrust and lack of coordination within industries make it difficult.

During the last few years most companies have gotten over the trust issue. In many cases "gotten over" is a euphemism for

"have been bullied into sharing supply chain information from a dominant industry player." Want to sell your goods in Wal-

Mart? Better be prepared to share data and adhere to Wal-Mart's data-exchange standards. (For more on this topic, see "How

Wal-Mart Lost Its Technology Edge.")

The payoff of timely and accurate supply chain information is the ability to make or ship only as much of a product as there is

a market for. This is the practice known as just-in-time manufacturing, and it allows companies to reduce the amount of

inventory that they keep. This can cut costs substantially, since you no longer need to pay to produce and store excess goods.

But many companies and their supply chain partners have a long way to go before that level of supply chain flexibility can be

achieved.”

The main reasons companies use SCM:

On average, companies that employ SCM well deliver 17% better fulfillment, hold 15% less inventory, and have 65% the cash-to-cash cycle time. Some companies save up to 8% of revenue in total supply chain costs

Business Intelligence Mulcahy, Ryan, (2007). “Business Intelligence Definition and Solutions,” A CIO.com Tutorial,

http://www.cio.com/article/40296/Business_Intelligence_Definition_and_Solutions, Accessed 10/12/2013.

“What is business intelligence?

Business intelligence, or BI, is an umbrella term that refers to a variety of software applications used to analyze an

organization’s raw data. BI as a discipline is made up of several related activities, including data mining, online analytical

processing, querying and reporting.

Companies use BI to improve decision making, cut costs and identify new business opportunities. BI is more than just

corporate reporting and more than a set of tools to coax data out of enterprise systems. CIOs use BI to identify

inefficient business processes that are ripe for re-engineering.

With today’s BI tools, business folks can jump in and start analyzing data themselves, rather than wait for IT to run

complex reports. This democratization of information access helps users back up—with hard numbers—business

decisions that would otherwise be based only on gut feelings and anecdotes.

Although BI holds great promise, implementations can be dogged by technical and cultural challenges. Executives have

to ensure that the data feeding BI applications isclean and consistent so that users trust it.

What kind of companies use BI systems?

Restaurant chains such as Hardee’s, Wendy’s, Ruby Tuesday and T.G.I. Friday’s are heavy users of BI software. They use

BI to make strategic decisions, such as what new products to add to their menus, which dishes to remove and which

underperforming stores to close. They also use BI for tactical matters such as renegotiating contracts with food suppliers

and identifying opportunities to improve inefficient processes. Because restaurant chains are so operations-driven, and

because BI is so central to helping them run their businesses, they are among the elite group of companies across all

industries that are actually getting real value from these systems.

One crucial component of BI—business analytics—is quietly essential to the success of companies in a wide range of

industries, and more famously essential to the success of professional sports teams such as the Boston Red Sox, Oakland

A’s and New England Patriots.

With an analytical approach, the Patriots managed to win the Super Bowl three times in four years. The team uses data

and analytical models extensively, both on and off the field. In-depth analytics help the team select players and stay

below the NFL salary cap. Patriots coaches and players are renowned for their extensive study of game film and

statistics, and Coach Bill Belichick reads articles by academic economists on statistical probabilities of football outcomes.

Off the field, the team uses detailed analytics to assess and improve the "total fan experience." At every home game, for

example, 20 to 25 people have specific assignments to make quantitative measurements of the stadium food, parking,

personnel, bathroom cleanliness and other factors.

In retail, Wal-Mart uses vast amounts of data and category analysis to dominate the industry. Harrah’s has changed the

basis of competition in gaming from building mega-casinos to analytics around customer loyalty and service. Amazon

and Yahoo aren't just e-commerce sites; they are extremely analytical and follow a "test and learn" approach to business

changes. Capital One runs more than 30,000 experiments a year to identify desirable customers and price credit card

offers.

What are some potential problems?

User resistance is one big barrier to BI success; others include having to winnow through voluminous amounts of irrelevant

data and poor data quality.

The key to getting accurate insights from BI systems is standard data. Data is the most fundamental component of any BI

endeavor. It's the building blocks for insight. Companies have to get their data stores and data warehouses in good working

order before they can begin extracting and acting on insights. If not, they'll be operating based on flawed information.

Another potential pitfall is BI tools themselves. Though the tools are more scalable and user friendly than they used to be, the

core of BI is still reporting rather than process management, although that's slowly beginning to change. Be careful not

to confuse business intelligence with business analytics.

A third impediment to using BI to transform business processes is that most companies don't understand their business

processes well enough to determine how to improve them. And companies need to be careful about the processes they

choose. If the process does not have a direct impact on revenue or the business isn't behind standardizing the process across

the company, the entire BI effort could disintegrate. Companies need to understand all the activities that make up a particular

business process, how information and data flow across various processes, how data is passed between business users, and

how people use it to execute their particular part of the process. And they need to understand all this before they start a BI

project, if they hope to improve how people do their jobs.

What are some benefits of business intelligence efforts?

A broad range of applications for BI has helped companies rack up impressive ROI figures. Business intelligence has been used

to identify cost-cutting ideas, uncover business opportunities, roll ERP data into accessible reports, react quickly to retail

demand and optimize prices.

Besides making data accessible, BI software can give companies more leverage during negotiations by making it easier to

quantify the value of relationships with suppliers and customers.

Within the walls of the enterprise, there are plenty of opportunities to save money by optimizing business processes and

focusing decisions. BI yields significant ROI when it sheds light on business bloopers. For example, employees of the city of

Albuquerque used BI software to identify opportunities to cut cell phone usage, overtime and other operating expenses,

saving the city $2 million during three years. Likewise, with the help of BI tools, Toyota realized it had been double-paying its

shippers to the tune of $812,000 in 2000. Companies that use BI to uncover flawed business processes are in a much better

position to successfully compete than companies that use BI merely to monitor what's happening.”

BI Summary

BI enables business users to receive data for analysis that is:

Reliable

Consistent

Understandable

Easily manipulated

BI Helps a firm know where it has been, where, it is now and where will it be in the near future. An example analysis a BI system can provide is association detection. Association Detection reveals the degree to which variables are related and the nature and frequency of these relationships in the information. Maytag uses association detection to ensure that each generation of appliances is better than the previous generation. Maytag’s warranty analysis tool automatically detects potential issues, provides quick and easy access to reports, and performs multidimensional analysis on all warranty information

Here’s an example graphical representations of association detection

Another BI technique is Market Basket Analysis which can detect customers’ buying behavior and predict future behavior by identifying affinities among customers’ choices of products and services