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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


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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.


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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


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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


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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).”


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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


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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


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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


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The Original System


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The Original System


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The New System


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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?


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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


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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


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



Customer orders via Internet EDI, Fax, phone


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



Enter order Retrieve customer data from DB Check credit Check inventory


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



Item in inventory Shipping notice to warehouse


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



Warehouse generates picking list Pick and ship order System updates A/R


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



AR sends invoice to customerPost payment from customer Update customer credit limit


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



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


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



Vendor sends invoiceEnter invoiceUpdate A/PSend payment to vendor


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Customer

Catalog

Order XML EDI Fax

OrderProcessing



Invoice

Goods (materials)


Shipment

AccountsPayable

Payment

Invoice




Payment

AccountsReceivable

1.

2.



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


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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


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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


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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


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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

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