Chapter 6 Applications in Business and Management Enterprise e-Business Systems

Chapter Highl ights

Section ICustomer-Relationship Management:The Business FocusIntroductionReal World Case: Canada Post, Foster Parents Plan, andErnex Marketing Technologies, Inc.: CRM ImplementationWhat Is CRM?The Three Phases of CRMBenefits and Challenges of CRMTrends in CRMSection IIEnterprise Resource Planning:The Business BackboneIntroductionReal World Case: Indigo Books & Music Inc.: Selectingand Implementing an ERP SystemWhat Is ERP?Benefits and Challenges of ERPTrends in ERPSection IIISupply Chain Management:The Business NetworkIntroductionReal World Case: Wal-Mart and Mattel: Supply ChainManagement Best PracticesWhat Is SCM?The Role of SCMBenefits and Challenges of SCMTrends in SCMReal World Case: Call Centres: CRM Challenges

Learning Ob ject ives

After reading and studying this chapter, you should be able to:

Identify and give examples to illustrate the followingaspects of customer-relationship management, enter-prise resource management, and supply chain man-agement systems:a. Business processes supported.b. Customer and business value provided.c. Potential challenges and trends.

M o d u l eI I I

BusinessApplications

InformationTechnologies

FoundationConcepts

DevelopmentProcesses

ManagementChallenges

C h a p t e r 6

Appl icat ions i n Bus i ne ss a nd Ma nagement

Enterprise e -Bus i ne ss Systems

Customer-Relat ionsh ip Management :The Bus iness Focus

Today, customers are in charge. It is easier than ever for customers to comparison shopand, with a click of the mouse, to switch companies. As a result, customer relationshipshave become a company’s most valued asset. These relationships are worth more thanthe company’s products, stores, factories, Web addresses, and even employees. Everycompany’s strategy should address how to find and retain the most profitable customerspossible [9].

The primary business value of customer relationships today is indisputable. That’swhy we emphasized in Chapter 2 that becoming a customer-focused business wasone of the top business strategies that can be supported by information technology.Thus, many companies are implementing customer-relationship management(CRM) business initiatives and information systems as part of a customer-focused or customer-centric strategy to improve their chances for success in today’s competitivebusiness environment. In this section, we will explore basic CRM concepts and tech-nologies, as well as examples of the benefits and challenges faced by companies thathave implemented CRM systems as part of their customer-focused business strategy.Let’s start with a real world example.

Read the Real World Case on Canada Post, Foster Parents Plan, and Ernex Mar-keting Technologies on the next page. We can learn a lot from these organizations’realization that implementing a CRM solution is tough going—requiring seriouscommitment and major organizational change. However, for companies willing tomake that investment, the results are paying off.

Analyzing CanadaPost, Foster ParentsPlan, and ErnexMarketingTechnologies

Introduction

S e c t i o n I

174 ● Module III / Business Applications

Canada has two official languages in which CRM must be conducted, and evenin the United States, statistics show a growing cultural diversity. According to theU.S. Census Bureau, there are more than 2.4 million Chinese-speakers in the United States, and four out of five of them prefer to speak Chinese at home.The number of Korean and Vietnamese speakers is also on the rise.

David Graddol, president of The English Company (UK) Ltd. consultancy inMilton Keynes, England, has spent years studying the ways in which languagesspread. He says many companies pin all of their hopes on English, creating a cul-ture of isolation that ignores the real problems of managing multilingualism.

Barry McGoldrick of electronics component manufacturer Molex Inc. is familiar with the challenges. Molex is headquartered in Chicago and has officesin Toronto, but it is organized into four regions: the Americas, Europe, Far EastNorth (Japan and Korea), and Far East South, which is the rest of Asia. The company began a CRM strategy several years ago using an SAP solution to assistwith procurement, customer care, logistics, and marketing fulfilment. AlthoughMolex has workers scattered around the globe, McGoldrick says the tools fortracking sales opportunities are offered in only two languages: Japanese and English. The lack of translation capabilities limits the extent to which Molexemployees globally can share information: “If you’ve got a guy in Japan and he’sentering a [sales] opportunity and he’s entering the text all in Japanese, it’s notmuch use to anyone outside of Japan.”

Gary Moore, vice-president of global business development for mySAP CRMat SAP AG, says its software supports several languages, and more will likely follow. “It’s just a question of managing the workload and the cycle with theresources that you have,” he says [22].

MulticulturalAspects of CRM

Re a l W o r l d C a s e 1

Canada Post , Foster Parents P lan , and ErnexMarket ing Technologies :CRM Implementat ion

major thrust of Canada Post in its CRM initiativehas been to make it easier for customers to dobusiness. Since 1999, Canada Post has reportedly

spent $280 million on “business transformation,” addressingpeople, processes, and technology. “It wasn’t a systems im-plementation, it was a business transformation,” says CalHart, vice-president of product management and businesstransformation for Canada Post, based in Toronto. “We havea better view of the relationship between the customer andCanada Post.” That includes offering differentiated serviceto different customers. “I always want my mom treated wellwhen she calls Canada Post, but I don’t think she needs to betreated as well as a customer who spends $100,000 per year.”

Before the project began, Canada Post spent a lot of timestudying CRM at other organizations, says Hart. But eventhen, the organization wasn’t fully prepared. “We spent a tonof time studying other companies.” Specifically, “we neededto be more sensitive to the amount of change we’re bringingto customers and staff.” There were challenges involved ingetting customers to adopt new processes, especially if newbenefits weren’t immediately obvious to them. A change“needs to add value for customers. Saying ‘make all thesechanges and we’ll give you a correct bill’ isn’t enough,” saysHart. “Why is this of benefit to them?”

Canada Post rolled out employee training centres acrossthe country. “Training is critical,” Hart affirms. Still, staffwanted to cling to the old ways, but overall, “the front-lineemployees embraced this better than we expected. We weregiving them an integrated tool to do their jobs.” Executivesupport is mandatory, and it has to be ongoing, says Hart.That’s why executives at Canada Post meet each Monday afternoon to review the business transformation.

Hart’s advice to other companies looking at CRM is tokeep the technology “as standard as possible.” Canada Post’simplementation is based on SAP technology. “It’s all fromSAP or SAP-certified partners, except one piece,” says Hart,“and that one piece has caused me more grief than the wholeof the implementation. The value will show itself when itcomes time for upgrades.”

Jerry Garcia, global partner for customer interaction atconsulting firm Accenture in Toronto, agrees standardiza-tion is critical. A heavily customized implementation will bedifficult to upgrade, he says: “Later on, you’ll pay for it inmaintenance and upgrades.”

When it comes to CRM, “don’t rush into it,” advisesGerry Wong, CIO at Foster Parents Plan in Toronto. His organization uses Cognos technology to manage its donordata. “It helps us define our customers, and how loyal they are,”says Wong. CRM should “facilitate and create relationships,”

he says. Canadians currently sponsor 115,000 children throughFoster Parents Plan in countries from Tanzania to Bangladeshto Brazil with monthly donations, as well as gifts and letters.The operational complexity of the task is significant. Wongsays it’s important to profile customers and to understand theirvarious points of interaction, whether that’s via mail, phone,fax, e-mail, or the Web. Foster Parents Plan is working on integrating all of those systems, as well as its finance and payment systems. That will be particularly important as the organization plans to roll out a “self-service” area on its Website, he says.

Ernex Marketing Technologies Inc. in Burnaby, BritishColumbia, provides real-time marketing solutions for clientsthat include Eddie Bauer, Nike, and Radio Shack. “Ernexhelps identify who customers are, and communicates back inmeaningful, targeted ways,” says Malcolm Fowler, executivevice-president of product marketing. The challenge is particularly difficult for retailers, he says, compared to otherorganizations (such as banks, for instance) that begin theirrelationships knowing critical information about theirclients. However, for retailers, the first interaction is generallyat the cash register. “Retailers at the outset don’t know whotheir customer is,” says Fowler.

In many cases, loyalty programs can become a CRM tool, he says. Over time, retailers can capture and understand buying history and patterns to better market to specific cus-tomers. Ernex uses Cognos tools to analyze data. “We enableprograms in real time at the point of sale,” says Fowler, explaining that retailers can immediately offer service orpromotions when ringing through a purchase, based on an

understanding of a specific client’s history. And while everycustomer should be treated well, he says, it doesn’t makesense to suggest that “the effort an organization should takewith best customer or worst customer should be the same.That’s the promise of CRM—to be able to react differentlydepending on what a customer is spending with the company—all customers are not equal to the organization.”

His recommendations for adoption of CRM are as follows:• Establish the program around the core of the

business, core values and beliefs.• Rally management and organizational support in the

store and behind the scenes.• Keep it fresh. Tailor the message to individual

customers. Test and conduct research to betterunderstand your customers.

• Keep it simple. “Complexity is not an asset to loyaltyprograms. If you can’t explain in 30 seconds to yourstaff how the program works so they get it, yourcustomers don’t have a hope,” says Fowler.

A

• Implement a strong point-of-sale strategy. The greatestinteraction with retail clients is when they’re makingpurchases, so create a strategy around the point of sale.

• Be upfront with a corporate privacy policy, socustomers understand how you will use theinformation they provide.According to Accenture’s Garcia, there’s often a “big gap”

between corporations’ expectations for return on investmentand what actually occurs. Executives must look beyondCRM as a technology investment, “as a way to completelytransform business processes. CRM may not reap the financialrewards at the pace you expect, but if implemented correctlyit will provide business stability and a customer-centric perspective.” Of note, an Accenture survey reported that91% of executives said “a greater focus on customer serviceand building customer loyalty is critically important, notonly in weathering the economic downturn, but also instrategically positioning their business for its eventual upswing.” Garcia outlines some recommendations for a successful implementation:• Define the business problem first, then look for the

solution. Don’t put the proverbial cart before thehorse. CRM doesn’t solve everything.

• Understand that CRM is not a tool: It is a new way of doing business. Expect an overall corporate

change, including training and culture. Many companiesimplement technology, “but don’t change the companyto align to the new CRM thinking,” he says. “There’sa lack of real focus on alignment.”

• Start from the top down—your CRM project needs tobe driven by corporate executives. Don’t leave it up toIT alone. Offer incentives to all staff to get involved.

“Companies often expect people to change their behaviour,but they fail to change the compensation or rewards,” notesGarcia. “The result is the same behaviour as before.”

Case Study Questions

1. Hart’s advice for implementation of CRM is to keepthe technology standard. Do you agree with thisadvice? Why or why not?

2. Why do you think participation of senior executivesin the implementation of CRM should be mandatory?

3. What are the pros and cons of CRM system imple-mentation in any organization?

Source: Adapted from Grace Casselman, “CRM Implementation at Canada Post, Foster Parents Plan, and Ernex Marketing Tech-nologies Inc.,” Computing Canada, January 17, 2003, vol. 29, no. 1.

Chapter 6 / Enterprise e-Business Systems ● 177

Managing the full range of the customer relationship involves two related objectives:one, to provide the organization and all of its customer-facing employees with a single,complete view of every customer at every touch point and across all channels; and, two,to provide the customer with a single, complete view of the company and its extendedchannels [26].

That’s why companies are turning to customer-relationship management to help thembecome customer-focused businesses. CRM uses information technology to create across-functional enterprise system that integrates and automates many of the customer-serving processes in sales, marketing, and customer services that interact with a company’s customers. CRM systems also create an IT framework of Web-enabledsoftware and databases that integrates these processes with the rest of a company’sbusiness operations. CRM systems include a family of software modules that providesthe tools that enable a business and its employees to provide fast, convenient,dependable, and consistent service to its customers. Siebel Systems, Oracle, People-Soft, SAP AG, and E.piphany are some of the leading vendors of CRM software.Figure 6.1 illustrates some of the major application components of a CRM system.Let’s take a look at each of them.

CRM software helps sales, marketing, and service professionals capture and trackrelevant data about every past and planned contact with prospects and customers, aswell as other business and life cycle events of customers. Information is capturedfrom all customer touchpoints, such as telephone, fax, e-mail, the company’s Website, retail stores, kiosks, and personal contact. CRM systems store the data in a com-mon customer database that integrates all customer account information and makesit available throughout the company via Internet, intranet, or other network linksfor sales, marketing, service, and other CRM applications.

A CRM system provides sales reps with the software tools and company data sourcesthey need to support and manage their sales activities and optimize cross-selling andup-selling. Examples include sales prospect and product information, product con-figuration, and sales quote generation capabilities. CRM also gives them real-timeaccess to a single common view of the customer, enabling them to check on all

Sales

Contact and AccountManagement

What Is CRM?

Prospect orCustomer

Fax e-Mail

Telephone Web

Marketing andFulfilment

Sales• Cross-sell• Up-sell

CustomerService and

Support

Retentionand LoyaltyPrograms

Contact andAccount

Management

The major applicationcomponents of a customer-relationship managementsystem.

F i g u r e 6 . 1

Source: Adapted from Ravi Kalakota and Marcia Robinson, E-Business 2.0: Roadmap for Success(Reading, MA: Addison-Wesley, 2001), p. 180. © 2001 Addison-Wesley Publishing Company,Inc. Reprinted by permission of Addison-Wesley Longman, Inc.

aspects of a customer’s account status and history before scheduling their sales calls.For example, a CRM system would alert a bank sales rep to call customers who makelarge deposits to sell them premier credit or investment services. Or it would alerta salesperson of unresolved service, delivery, or payment problems that could beresolved through a personal contact with a customer.

CRM systems help marketing professionals accomplish direct marketing campaignsby automating such tasks as qualifying leads for targeted marketing and schedulingand tracking direct marketing mailings. Then the CRM software helps marketingprofessionals capture and manage prospect and customer response data in the CRMdatabase and analyze the customer and business value of a company’s direct marketingcampaigns. CRM also assists in the fulfilment of prospect and customer responsesand requests by quickly scheduling sales contacts and providing appropriate infor-mation on products and services to them, while capturing relevant information forthe CRM database.

A CRM system provides service reps with software tools and real-time access to thecommon customer database shared by sales and marketing professionals. CRM helpscustomer-service managers create, assign, and manage requests for service by cus-tomers. Call centre software routes calls to customer-support agents based on theirskills and authority to handle specific kinds of service requests. Help desk softwareassists customer-service reps in helping customers who are having problems with aproduct or service, by providing relevant service data and suggestions for resolvingproblems. Web-based self-service enables customers to easily access personalizedsupport information at the company Web site, while giving them an option to receivefurther assistance online or by phone from customer-service personnel.

• It costs six times more to sell to a new customer than to sell to an existing one.

• A typical dissatisfied customer will tell eight to ten people about his or herexperience.

• A company can boost its profits 85% by increasing its annual customerretention by only 5%.

• The odds of selling a product to a new customer are 15%, whereas the oddsof selling a product to an existing customer are 50%.

• Seventy percent of complaining customers will do business with the companyagain if it quickly takes care of a service snafu [9].

That’s why enhancing and optimizing customer retention and loyalty is a majorbusiness strategy and primary objective of customer-relationship management. CRMsystems try to help a company identify, reward, and market to its most loyal andprofitable customers. CRM analytical software includes data mining tools and otheranalytical marketing software, while CRM databases may consist of a customer datawarehouse and CRM data marts. These tools are used to identify profitable and loyalcustomers and direct and evaluate a company’s targeted marketing and relationshipmarketing programs toward them. Figure 6.2 is an example of part of a proposedWeb-based report format for evaluating Charles Schwab & Co.’s customer retentionperformance.

Retention andLoyalty Programs

Customer Serviceand Support

Marketing andFulfilment


Australia’s Telstra Corporation provides fixed, wireless, and e-commerce servicesto a customer base in 19 countries. In addition, Telstra offers voice, data, Internet,multimedia, managed communications services, and customer-contact centre solu-tions globally through its strategic alliances and partnerships. The Melbournecompany is Australia’s largest communications carrier and the clear market leader.

TelstraCorporation:The Business Value of CRM


CustomerRetention

Customer-retentionrate

Household-retentionrate

Average customertenure

Retention rate bycustomer cohort

Retention rate bycustomer segment

Customer loyaltyrating

Competitors’ offers

Share of portfolio

Comparative retention

Comparative customertenure

CustomerSpending

Average revenue percustomer

Average profitabilityper customer

Growth in customerassets

Customer lifetimevalue

Revenues per customersegment

Profits per customersegment

Growth in customerassets per segment

Total brokerage assets

Growth in brokerageassets

CustomerExperience

Satisfaction bycustomer segment

Satisfaction bycohort

Satisfaction bycustomer scenario

Customer satisfactionby:• Task• Touchpoint• Channel partner

End-to-end perfor-mance by scenario

Customer satisfactionwith quality of information provided

Comparative satisfaction:

Competitors:• Other online brokers• Other financial service

firms• All products and

services

Daily log-ins at marketopening

Revenue trades per day

Percentage increase incustomer assets

Cost to serve bytouchpoint

Elapsed time for commonlyperformed tasks

Accuracy of Web searchresults

Percentage of tradesexecuted with priceimprovement

Percentage of e-mailsanswered accuratelyin one hour

Percentage of customerswho are active Web users

Percentage of customerswho interact via e-mail

Decline in customer activity

Propensity to defect

Navigation Performance Operations Environment

A proposed report format for evaluating the customer-retention performance of Charles Schwab & Co.

F i g u r e 6 . 2

Source: Adapted from Patricia Seybold, The Customer Revolution (New York: Crown Business, 2001), p. 225.

To succeed in transforming its relationship with its customers, Telstra deter-mined that it needed a CRM solution that would provide both its customer-facingemployees and channel partners a single view of each customer relationship. The solution would also require the integration of more than 20 core legacybilling and operations databases across all of its product lines. After exploring several options, Telstra chose a variety of Siebel Systems products to provide itse-business solution.

For its initial deployment, Telstra rolled out a Siebel Call Center to more than250 telesales representatives and 150 telephone account managers in its outboundcall centres, which are geographically dispersed throughout Australia. “This waswhere we could most quickly impact our business,” explains Ross Riddoch, generalmanager of retail technology products. “We rolled out account, contact, andopportunity management modules.” This Siebel CRM product was deployed inapproximately three months, on time and on budget.

User acceptance and business benefits quickly followed. “Users found theSiebel Call Center’s Web-based interface to be extremely intuitive and easy touse,” says Riddoch. “This enabled us to reduce our training time and get ourusers up to speed in record time. Within four months of employing Siebel CallCenter, our account management team doubled its weekly revenue, and weachieved a three-fold gain in employee productivity” [26].


Figure 6.3 illustrates another way to think about the customer and business valueand components of customer-relationship management. We can view CRM as an integrated system of Web-enabled software tools and databases accomplishing avariety of customer-focused business processes that support the three phases of therelationship between a business and its customers [9].

• Acquire. A business relies on CRM software tools and databases to help itacquire new customers by doing a superior job of contact management, salesprospecting, selling, direct marketing, and fulfilment. The goal of these CRMfunctions is to help customers perceive the value of a superior product offeredby an outstanding company.

• Enhance. Web-enabled CRM account management and customer-service and -support tools help keep customers happy by supporting superior servicefrom a responsive networked team of sales and service specialists and businesspartners. And CRM sales force automation and direct marketing and fulfilmenttools help companies cross-sell and up-sell to their customers, thus increasingtheir profitability to the business. The value perceived by customers is theconvenience of one-stop shopping at attractive prices.

• Retain. CRM analytical software and databases help a company proactivelyidentify and reward its most loyal and profitable customers, to retain and expandits business via targeted marketing and relationship marketing programs. The value perceived by customers is of a rewarding personalized businessrelationship with “their” company.

The potential business benefits of customer-relationship management are many.For example, CRM allows a business to identify and target its best customers—thosewho are the most profitable to the business—so they can be retained as lifelong customers for greater and more profitable services. It makes possible real-time cus-tomization and personalization of products and services based on customer wants,needs, buying habits, and life cycles. CRM can also keep track of when a customercontacts the company, regardless of the contact point. And CRM systems can enable

Benefits andChallenges of CRM

The ThreePhases of CRM

How CRM supports thethree phases of the relation-ship between a business andits customers.

F i g u r e 6 . 3CustomerLife Cycle

CRMIntegratedSolution

SharedCustomer Data

CollaborativeService

Partner

The Internet

Company Customer

CRMFunctionalSolutions

Direct Marketing Cross-Sell and Up-Sell Proactive Service

Sales Force Automation Customer Support

Acquire Enhance Retain

Source: Adapted from Ravi Kalakota and Marcia Robinson, E-Business 2.0: Roadmap forSuccess (Reading, MA: Addison-Wesley, 2001), p. 179, © 2001 Addison-Wesley PublishingCompany, Inc., reprinted by permission of Addison-Wesley Longman Inc.; and CraigFellentstein and Ron Wood, Exploring E-commerce, Global E-business, and E-societies(Upper Saddle River, NJ: Prentice-Hall, 2000), p. 192.


a company to provide a consistent customer experience and superior service and support across all of the contact points a customer chooses. All of these benefitswould provide strategic business value to a company and major customer value toits customers [6, 7, 8].

Boise Cascade Office Products (BCOP) is a $4-billion subsidiary of paper giantBoise Cascade and a purveyor to large and midsized businesses of everything frompaper to paper clips to office furniture. A few years ago, the company had its“eureka” moment. “Here we had tons of data on our customers and were doingnothing with it,” says senior vice-president of marketing Dave Goudge, the leaderof BCOP’s customer data initiative. “We could distinguish ourselves in an increas-ingly competitive industry by collecting that data in one place, organizing it, andthen using it to create great customer service.”

Easier said than done. For starters, BCOP’s customer information was buriedin dozens of separate databases that couldn’t speak to one another. Liberating thatdata and installing a new customer-relationship management system without dis-rupting BCOP’s ongoing business would be challenge enough. But the organiza-tional hurdles were higher still. For BCOP to make full use of its data, servicerepresentatives would have to learn to sell, territorial sales reps would have toshare data on their clients, and once-autonomous brands within BCOP wouldhave to be consolidated.

Still, phase one of the initiative dubbed One Boise went into effect on April 1,2001, on time and within 1% of the $20 million the firm had budgeted—and lifebegan to get dramatically easier for BCOP clients. Now when you call to place anorder (or log on—about 18% of sales come via the Web), you key up an identi-fying number and are soon greeted by name by a rep whose screen shows all ofyour most recent BCOP interactions. Based on your past dealings with the com-pany, your call might get special routing—to a specialist in a particular kind ofmerchandise, say, or to a Spanish-speaking rep—all before the rep even picks upthe phone.

Lost on the Web site? Click “Need Assistance?” and a pop-up screen askswhether you would like help by instant message or by phone. Choose the formerand a rep will be on your screen immediately. Choose the latter and the phonewill ring within 30 seconds. “BCOP has taken much of the aggravation out ofordering supplies,” says Bob Powell, purchasing manager at Citizens BankingCorp., an $8-billion midwestern U.S. bank [23].

Boise Cascade:Success inCustomer Service

The business benefits of customer-relationship management are not guaranteed and,instead, have proven elusive at many companies. Surveys by industry research groupsinclude a report that over 50% of CRM projects did not produce the results thatwere promised. In another research report, 20% of businesses surveyed reported that CRM implementations had actually damaged long-standing customer relation-ships. And in a survey of senior management satisfaction with 25 management tools,CRM ranked near the bottom in user satisfaction, even though 72% expected tohave CRM systems implemented shortly [19].

What is the reason for such a high rate of failure or dissatisfaction with CRMinitiatives? Research shows that the major reason is a familiar one: lack of under-standing and preparation. That is, business managers rely too often on a major newapplication of information technology (like CRM) to solve a business problem, without first developing the business process changes and change management programs that are required. For example, in many cases, failed CRM projects were implemented without the participation of the business stakeholders involved.

CRM Failures


Therefore, employees and customers were not prepared for the new processes orchallenges that were part of the new CRM implementation. We will discuss the topicof failures in information technology management, system implementation, andchange management further in Chapters 9 and 12.

No amount of high-level cooperation will protect a CRM project from rank-and-file employees who hate it. Lisa Harris, CIO at HR-services firm Gevity HR basedin Bradenton, Florida, faced rebellion from the staff when she installed OracleCRM software that helped solve some customers’ problems online—without thehelp of a live operator. Call centre employees felt that the software threatenedtheir jobs, so they quietly discouraged customers from using it. “Our operatorswould say, ‘Wouldn’t you rather call us? I’ll take care of everything you need,’”Harris says. She stuck with the online CRM, but also belatedly began talking toemployees about the software. She changed their work routines to include morecustomer hand-holding and less data entry, which was increasingly done online.

CRM software is complex to install because it often touches many differentlegacy systems. Harris says she spent millions of dollars integrating a CRM appli-cation in 1997 for a previous employer. But when the project was finished, it tookoperators too long to get data on-screen. The company had bogged down theperformance of the new CRM implementation by trying to integrate too manycomplex business systems. The project ended up a total failure, she says [2].

And when Monster.com rolled out a CRM program in 1998, it was sure it hada new moneymaking strategy on its hands. The Massachusetts-based job listingscompany had invested over $1 million in customized software and integrated allof its computer systems in an attempt to boost the efficiency of its sales force.These CRM applications had been specially developed to allow Monster.com’ssales representatives instant access to data for prospective customers.

However, the new system proved to be frighteningly slow—so slow, in fact,that salespeople in the field found themselves unable to download customer infor-mation from the company’s databases onto their laptops. Every time they tried,their machines froze. Eventually, Monster.com was forced to rebuild the entiresystem. It lost millions of dollars along the way, not to mention the goodwill ofboth customers and employees [19].

Gevity HR andMonster.com:Failures in CRMImplementation

Increasingly, enterprises must create tighter collaborative linkages with partners, suppliers, and customers, squeezing out time and costs while enhancing the customerexperience and the total value proposition [21].

Figure 6.4 outlines four types or categories of CRM that are being implemented bymany companies today and summarizes their benefits to a business. These categoriesmay also be viewed as stages or trends in how many companies implement CRMapplications, and also outlines some of the capabilities of CRM software products.Most businesses start out with operational CRM systems, such as sales force automationand customer-service centres. Then analytical CRM applications are implementedusing several analytical marketing tools, such as data mining, to extract vital dataabout customers and prospects for targeted marketing campaigns.

Increasingly, businesses are moving to collaborative CRM systems, to involvebusiness partners as well as customers in collaborative customer services. Thisincludes systems for customer self-service and feedback, as well as partner-relationshipmanagement (PRM) systems. PRM applications apply many of the same tools used inCRM systems to enhance collaboration between a company and its business partners,such as distributors and dealers, to better coordinate and optimize sales and service

Trends in CRM


to customers across all marketing channels. Finally, many businesses are buildingInternet, intranet, and extranet Web-based CRM portals as a common gateway forvarious levels of access to all customer information, as well as operational, analytical,and collaborative CRM tools for customers, employees, and business partners [3, 9].Let’s look at a real world example.

Operational CRM • Supports customer interaction with greater convenience through a variety of channels, including phone, fax, e-mail, chat, and mobile devices

• Synchronizes customer interactions consistently across all channels

• Makes your company easier to do business with

Collaborative CRM • Enables easy collaboration with customers, suppliers, and partners

• Improves efficiency and integration throughout the supply chain

• Allows greater responsiveness to customer needs through sourcing of products and services outside of your enterprise

Portal-based CRM • Provides all users with the tools and information that fit their individual roles and preferences

• Empowers all employees to respond to customer demands more quickly and become truly customer-focused

• Provides the capability to instantly access, link, and use all internal and external customer information

Analytical CRM • Extracts in-depth customer history, preferences, and profitability information from your data warehouse and other databases

• Allows you to analyze, predict, and derive customer value and behaviour and forecast demand

• Lets you approach your customers with relevant information and offers that are tailored to their needs

Types of CRM Business Value

Many companies are implementing CRM systems with some or all of these capabilities.F i g u r e 6 . 4

Source: Adapted from mySAP Customer Relationship Management, mySAP.com, 2001, p. 7; and Brian Caulfield, “Toward a More Perfect(and Realistic) E-Business,” Business 2.0, January 2002, p. 80.

The success of Telstra’s initial implementation of a CRM system led the companyto expand its CRM deployment to target four work streams: sales and accountmanagement, commissions, order fulfilment, and marketing. Based on this strategy,Telstra is now managing seven concurrent projects and rolling out e-business appli-cations to the majority of its field sales, call centre, telesales, and business partners.

Within its marketing organization, for example, Telstra has deployed SiebelMarketing and Siebel eAnalytics applications to more than 80 marketing profes-sionals. These CRM applications enable Telstra’s marketing managers to performcustomer segmentation analysis using customer information from across all touch-points and create targeted campaigns that effectively reach its customers throughcall centres, direct mail, and e-mail. They also help Telstra manage, analyze, andtrack channel and marketing effectiveness through real-time reporting, enablingthe company to continually refine its marketing efforts across all channels.

To better integrate partners into its channel system, Telstra also is deployingSiebel eChannel—a Web-based partner-relationship management portal for com-munication of customer and sales data between Telstra and its many business partners. By integrating its channel partners into its CRM system, Telstra wants toensure that it maintains a seamless view of the customer across all points of inter-action between customers, partners, and Telstra customer-facing professionals [25].

TelstraCorporation:Expanding theScope of CRM


Enterprise Resource P lanning: The Bus iness Backbone

What do Microsoft, Coca-Cola, Cisco, Eli Lilly, Alcoa, and Nokia have in common?Unlike most businesses, which operate on 25-year-old back-office systems, these marketleaders reengineered their businesses to run at breakneck speed by implementing atransactional backbone called enterprise resource planning (ERP). These companiescredit their ERP systems with having helped them reduce inventories, shorten cycletimes, lower costs, and improve overall operations [9].

Businesses of all kinds have now implemented enterprise resource planning (ERP)systems. ERP serves as a cross-functional enterprise backbone that integrates andautomates many internal business processes and information systems within the man-ufacturing, logistics, distribution, accounting, finance, and human resources functionsof a company. Large companies throughout the world began installing ERP systemsin the 1990s as a conceptual framework and catalyst for re-engineering their businessprocesses. ERP also served as the vital software engine needed to integrate andaccomplish the cross-functional processes that resulted. Now, ERP is recognized asa necessary ingredient that many companies need in order to gain the efficiency, agility,and responsiveness required to succeed in today’s dynamic business environment.

Read the Real World Case on Indigo Books & Music Inc. on the next page. We canlearn a lot about issues that should be considered in selecting and implementing anERP system.

Indigo Books & Music Inc. selected mySAP Retail as its IT platform for all retailoperations. The system helps the national retailer perform inventory and categorymanagement, supply chain management, and customer-relationship managementacross its entire operation, including its 89 superstores, its 188 mall stores, and itsonline division.

Analyzing IndigoBooks & Music Inc.

Introduction

S e c t i o n I I

Montréal-based software reseller Tangerine (www.tangerinesoftware.com) hasentered into an agreement with France developer Adonix (www.adonix.com) andwill be marketing the 25-year-old company’s ERP solution, X3, on the Canadianmarket. The software is directed at the small and medium business [SMB] space,says Adonix North America CEO Alexandre Attal.

The small and medium business market makes up 99.8% of all businesses inCanada, 29% of the IT market, and over $12 billion in IT spending, accordingto IDC Canada research. ERP solutions have begun attracting the attention ofthese businesses for many reasons. Some, like large enterprises, want the softwareto aid increasing productivity without having to increase headcount. But SMBsare more importantly looking for a system able to sustain future growth, so thatfuture growth can be supported through their IT structure—in this case, an ERPproduct that runs their business processes.

“That’s very important, especially for the small guys getting out there,” saysGreg Brown, president of Adonix. “Everyone is very ambitious, always, but thereare businesses out there that have a business model that must see them grow bya certain percentage year by year. They’re looking for a system they don’t haveto change, a long term [investment] that will aid their growth” [20].

Adonix andTangerine: FrenchFirm Sees CanadianERP Opportunitywith SMBs


Ind igo Books & Music Inc . :Se lect ing and Implement ing an ERP System

oug Caldwell, Indigo Books & Music Inc.’s chieftechnology officer, says one of the primary driversfor standardizing on SAP was the acquisition of

Chapters, finalized in early 2001, which included box storesbearing the Chapters name, its Pegasus distribution business,the World’s Biggest Bookstore in Toronto, and SmithBooksand Coles outlets. Essentially, the business was sliced up intofour divisions with their own cultures and systems. “As webrought the whole company together, the main focus of2001 was ‘let’s just get it onto common systems.’”

When it came to the retail locations at the time of themerger, says Caldwell, it made sense to defer to the 300-someChapters stores rather than the 15 Indigo locations for thepurposes of scalability. We implemented a Retek merchan-dising system back in 1996. “The version of Retek we havewas very customized, to the extent that about 60% of thecode was customized, and they have evolved that productquite a bit since then,” explains Caldwell. Currently, Indigouses Oracle Financials for its reporting capabilities

Indigo made a decision at the executive level in November2001 that selecting a new IT platform would be a strategicinitiative for 2002, says Caldwell. “Are we going to fix what wealready have, upgrade, or replace?” The first step was to maphow the organization functioned. “Out of that we identifieda lot of what we called negative variances,” says Caldwell,“things that were broken. That gave us a list of requirementsthat we needed to go to the market with.” By February of thenext year, Indigo had a laundry list of what it liked and whatit didn’t like. At that point in time, he says, Indigo hired CapGemini Ernst & Young to aid in the selection process.

One of the challenges particular to the book industry,notes Caldwell, is that in the larger stores, there are about100,000 titles to be managed at any given point, and about25,000 titles in the smaller stores. “When you look at thatacross 300 stores, the number of individual store/book com-binations you’re managing is in the tens of millions.” Addthe characteristics of each item—availability, demand, andseasonal variance, for example—and “it’s just a huge amountof data to try to manage.” The existing Retek system looks ata one-metre linear section of fiction the same way every-where, whether it’s at a large Indigo store in downtownToronto or a small Coles location on the east coast. “If I’m inMoncton, I probably want to have [less] fiction than history,”Caldwell says. “I want to bring in some of the local history.”But Retek just looks at it as one metre of books—the systemdoesn’t care what it is. “The tool was really outdated for theways we wanted to merchandise the stores.”

Hence, category management is one of the top function-alities Indigo hopes to pull out of its mySAP deployment, aswell as to improve its supply chain to better forecast what titles the bookseller needs. “We’d love to be able to sharethat with the publishers, to enable them to have better forecasts in terms of their production runs.” When Indigo

decided to go to market for a solution, Caldwell says, it hadto decide whether it would select one solution to meet all ofits needs or go with a best-of-breed approach. “The chal-lenge we’re faced with right now is the number of interfacesthat need to be maintained,” he explains. “Each store has itsown master file of data. It becomes incredibly challenging tomake sure we have consistent data across the organization. Thedesign goal definitely was to reduce that as much as possible.”That didn’t necessarily mean picking an all-in-one answer,notes Caldwell. Early on, Indigo didn’t even consider droppingOracle for its financials—the priority was the merchandiseplanning and forecasting, and category management.

The bookseller ended up evaluating four packages, including SAP and the latest version of Retek, through one-day demos to the various stakeholders in the Indigo organization, some 30-odd people, says Caldwell. “In thatevaluation process, we looked at four criteria: category man-agement, inventory management, execution, and customersupport.” Indigo also checked customer references and hadits own IT people look under the covers to gauge exposed interfaces, upgrade capabilities, stability of the vendor, andtraining available. At the end of the day, SAP came out ontop. “Before we made a commitment,” says Caldwell, “wedid what we call a four-day conference room pilot. We actuallytook our data, had SAP load it on to its system, and broughtthat same core team of 30 people for a four-day ‘down-and-dirty’ of what a day in the life of Indigo would be like withSAP. That gave us a chance to really see how the systemwould work with our data. By the end of June, we were ableto say that SAP is the platform we want to go forward with.”

Indigo has just embarked on a three-month blueprintingphase, says Caldwell, and it has already discovered some potential improvements to existing processes—for example,the classification of SKUs [stock-keeping units] themselves.“If you look at cookbooks, The Joy of Cooking is a standardstaple item book,” he notes. “You always want to have two instock in small stores and you may want to have four or five in stock in a large store. All you need to do is keep it in stockunless you’re promoting it, so the thinking is to do some automatic classification of some of those items.” In this model,The Joy of Cooking would always be replenished automaticallywhen a copy was sold, without any human intervention.


1. What are the challenging aspects of category manage-ment at Indigo?

2. Why was detailed analysis of business processes atIndigo completed before selecting mySAP?

3. What are the challenging aspects of mySAP retailsystem implementation at Indigo?

Source: Adapted from Gary Hilson, “ERP at Indigo Books & Music Inc.,” Computing Canada, January 31, 2003, vol. 29, no. 2.

D


ERP is the technological backbone of e-business, an enterprise-wide transaction frame-work with links into sales order processing, inventory management and control,production and distribution planning, and finance [9].

Enterprise resource planning is a cross-functional enterprise system driven by anintegrated suite of software modules that supports the basic internal business processesof a company. For example, ERP software for a manufacturing company will typicallyprocess the data from and track the status of sales, inventory, shipping, and invoicing,as well as forecast raw material and human resources requirements. Figure 6.5 presentsthe major application components of an ERP system. Figure 6.6 illustrates someof the key cross-functional business processes and supplier and customer informationflows supported by ERP systems.

ERP gives a company an integrated real-time view of its core business processes,such as production, order processing, and inventory management, tied together bythe ERP application software and a common database maintained by a database man-

What Is ERP?

The major applicationcomponents of enterpriseresource planningdemonstrate the cross-functional approach of ERP systems.

F i g u r e 6 . 5

Customer/Employee

ProductionPlanning

Sales,Distribution,

OrderManagement

IntegratedLogistics

Accounting andFinanceHuman

Resources

Source: Adapted from Ravi Kalakota and Marcia Robinson, e-Business 2.0:Roadmap for Success (Reading, MA: Addison-Wesley, 2001), p. 243. © 2001Addison-Wesley Publishing Company, Inc. Reprinted by permission ofAddison-Wesley Longman, Inc.

Source: Adapted from Grant Norris, James Hurley, Kenneth Hartley, John Dunleavy, and John Balls, E-Business and ERP:Transforming the Enterprise, p. 83. © 2000 by John Wiley & Sons, Inc. Reprinted by permission.

ManufacturingProcess

Planning Processes

ProcurementProcess

Order CaptureProcess

ForecastRequirements

PurchaseRequirements

Customer Forecast

Customer Orders

Delivered OrdersProduction Materials

Returns & Repairs

Order-FulfilmentProcess

Some of the business process flows and customer and supplier information flows supported byERP systems.

F i g u r e 6 . 6


agement system. ERP systems track business resources (such as cash, raw materials,and production capacity), and the status of commitments made by the business (suchas customer orders, purchase orders, and employee payroll), no matter which depart-ment (manufacturing, purchasing sales, accounting, etc.) has entered the data intothe system [21].

ERP software suites typically consist of integrated modules of manufacturing,distribution, sales, accounting, and human resources applications. Examples of manu-facturing processes supported are material requirements planning, production planning,and capacity planning. Some of the sales and marketing processes supported by ERPare sales analysis, sales planning, and pricing analysis, while typical distributionapplications include order management, purchasing, and logistics planning. ERP systems support many vital human resources processes, from personnel requirementsplanning to salary and benefits administration, and accomplish most required financialrecord-keeping and managerial accounting applications. Figure 6.7 illustrates theprocesses supported by the ERP system installed by the Colgate-Palmolive Company.Let’s take a closer look at the company’s experience with ERP.

Colgate-Palmolive is a global consumer products company that implemented theSAP R/3 enterprise resource planning system. Colgate embarked on an imple-mentation of SAP R/3 to allow the company to access more timely and accuratedata, get the most out of working capital, and reduce manufacturing costs. Animportant factor for Colgate was whether it could use the software across theentire spectrum of the business. Colgate needed the ability to coordinate globallyand act locally. The implementation of SAP across the Colgate supply chain con-tributed to increased profitability. Now installed in operations that produce mostof Colgate’s worldwide sales, SAP was expanded to all Colgate divisions worldwideduring 2001. Global efficiencies in purchasing—combined with product and pack-aging standardization—also produced large savings.

• Before ERP, it took Colgate U.S. anywhere from one to five days to acquirean order, and another one to two days to process the order. After ERP, orderacquisition and processing combined took four hours, not up to seven days. Distribution planning and picking used to take up to four days; after ERP, ittook 14 hours. In total, the order-to-delivery time was cut in half.

• Before ERP, on-time deliveries used to occur only 91.5% of the time, andcases ordered were delivered correctly 97.5% of the time. After R/3, the figureswere 97.5% and 99.0%, respectively.

• After ERP, domestic inventories dropped by one-third and receivables out-standing dropped to 22.4 days from 31.4 days. Working capital as a percentageof sales plummeted to 6.3% from 11.3%. Total delivered cost per case wasreduced by nearly 10% [9].

Colgate Palmolive:The Business Valueof ERP

As the example of Colgate-Palmolive has just shown, ERP systems can generate sig-nificant business benefits for a company. Many other companies have found majorbusiness value in their use of ERP in several basic ways [15]:

• Quality and Efficiency. ERP creates a framework for integrating andimproving a company’s internal business processes that results in significantimprovements in the quality and efficiency of customer service, production,and distribution.

• Decreased Costs. Many companies report significant reductions in transactionprocessing costs and hardware, software, and IT support staff compared to thenon-integrated legacy systems that were replaced by their new ERP systems.

Benefits andChallenges of ERP


• Decision Support. ERP provides vital cross-functional information on businessperformance quickly to managers to significantly improve their ability to makebetter decisions in a timely manner across the entire business enterprise.

• Enterprise Agility. Implementing ERP systems breaks down many formerdepartmental and functional walls or “silos” of business processes, informationsystems, and information resources. This results in more flexible organizationalstructures, managerial responsibilities, and work roles, and therefore results ina more agile and adaptive organization and workforce that can more easilycapitalize on new business opportunities.

An ERP implementation is like the corporate equivalent of a brain transplant. Wepulled the plug on every company application and moved to PeopleSoft software. Therisk was certainly disruption of business, because if you do not do ERP properly, youcan kill your company, guaranteed [9].

So says Jim Prevo, CIO of Green Mountain Coffee of Vermont, commenting onthe company’s successful implementation of an ERP system. Although the benefitsof ERP are many, the costs and risks are also considerable, as we will continue tosee in some of the real world cases and examples in this text. Figure 6.8 illustratesthe relative size and types of costs of implementing an ERP system in a company.Notice that hardware and software costs are a small part of total costs, and that thecosts of developing new business processes (re-engineering) and preparing employeesfor the new system (training and change management) make up the bulk of the costsof implementing a new ERP system. Converting data from previous legacy systemsto the new cross-functional ERP system is another major category of ERP imple-mentation costs [15].

The costs and risks of failure in implementing a new ERP system are substantial.Most companies have had successful ERP implementations, but a sizeable minorityof firms experienced spectacular and costly failures that heavily damaged their overallbusiness. Big losses in revenue, profits, and market share resulted when core businessprocesses and information systems failed or did not work properly. In many cases,orders and shipments were lost, inventory changes were not recorded correctly, andunreliable inventory levels caused major stock-outs to occur for weeks or months.

The Costs of ERP

MRPInboundInventory

Plant Mgmt.

Finance and Accounting

Sup

plie

rs

Human Resources

Manufacturing& ProductionScheduling

InventoryControl &

Warehousing

Distribution& AccountsReceivable

OrderEntry

Cus

tom

ers

Purchasing& Accounts

Payable

Enterprise Resource Planning

DemandPlanning

ManufacturingPlanning

LogisticsPlanning

DistributionPlanning

The business processes and functions supported by the ERP system implemented by theColgate-Palmolive Company.

F i g u r e 6 . 7

Source: Adapted from Ravi Kalakota and Marcia Robinson, E-Business 2.0: Roadmap for Success (Reading, MA: Addison-Wesley,2001), p. 259. © 2001 Addison-Wesley Publishing Company, Inc. Reprinted by permission of Addison-Wesley Longman, Inc.


Companies like Sobey’s Inc., Hershey Foods, Nike, A-Dec, and CIGNA sustainedlosses running into hundreds of millions of dollars in some instances. In the case ofFoxMeyer Drugs, a $5-billion pharmaceutical wholesaler, the company had to file forbankruptcy protection and then was bought out by its arch competitor McKessonCorp. [9]. Let’s take a look at an example of a more recent failed ERP project.

Re-Engineering43%

Hardware12%

Software15%

DataConversions

15%

Training andChange

Management15%

Typical costs of implement-ing a new ERP system.

F i g u r e 6 . 8

Source: Grant Norris, James Hurley, Kenneth Hartley, JohnDunleavy, and John Balls, E-Business and ERP: Transformingthe Enterprise (New York: John Wiley & Sons, 2000), p. 54.

SAP AG’s software applications for retailers continue to be stung by a series ofhigh-profile installation problems that many say illustrate the complexity of tryingto fit an integrated suite of enterprise resource planning (ERP) software into aretail operation. A major example came late in January 2001, when Canadiansupermarket chain Sobeys Inc. abandoned an $89.1-million SAP Retail implemen-tation. “SAP Retail has insufficient core functionality . . . to effectively deal with theextremely high number of transactions in our retail operating environment,” saidBill McEwan, president and CEO of the Stellarton, Nova Scotia–based retail chain.

Sobeys isn’t alone. Jo-Ann Stores, Inc. in Hudson, Ohio, and pet supplyretailer Petsmart, Inc. in Phoenix both attributed low financial results to prob-lems with their SAP Retail roll-outs. Both, however, said they’re pleased with thesystem overall. SAP officials continued to defend the capabilities of SAP Retail.Geraldine McBride, general manager of the consumer sector business unit at SAPAmerica, Inc., said the German vendor has signed up 264 retailers as customers,128 of which have gone live. But Greg Girard, an analyst at AMR Research inBoston, said most of the retailers are running SAP’s financial and human resourcesapplications, not the SAP Retail core ERP application itself. “I can’t point to asingle happy SAP Retail account in North America,” said Girard.

Canada’s second-largest supermarket chain abandoned the $80-million imple-mentation of SAP AG’s business applications for retailers after a five-day databaseand systems shutdown affected the company’s business operations for nearly amonth. McEwan said during a conference that all “growing pains” expected bythe 1,400-store retail chain in the two-year-old project became “in fact, systemic

Sobey’s Inc.: Failure in ERPImplementation


What have been the major causes of failure in ERP projects? In almost every case,the business managers and IT professionals of these companies underestimated thecomplexity of the planning, development, and training that were needed to preparefor a new ERP system that would radically change their business processes and infor-mation systems. Failure to involve affected employees in the planning and develop-ment phases and change management programs, or trying to do too much too fastin the conversion process, were typical causes of failed ERP projects. Insufficienttraining in the new work tasks required by the ERP system, and failure to do enoughdata conversion and testing, were other causes of failure. In many cases, ERP fail-ures were also due to overreliance by company or IT management on the claims ofERP software vendors or the assistance of prestigious consulting firms hired to leadthe implementation [11]. The following experiences of companies that did it rightgive us a helpful look at what is needed for a successful ERP implementation.

Causes of ERPFailures

problems of a much more serious nature.” McEwan, who inherited the SAPimplementation when he joined Sobeys in November 2000, added that it wouldhave taken another two years to finish the software rollout.

The system shutdown in December 2000 resulted in “unprecedented” out-of-stock issues with products at many of Sobeys’ corporate-owned stores, McEwan said.The disruption also forced Sobeys to implement work-arounds for its accountingdepartment. Sobeys plans to replace the SAP applications with software that canbe installed more quickly and that “will fully meet all the business requirements”at the company, McEwan said [14].

SAP Retail is a good ERP product, argues Kevin Restivo, a Canada-based analystwho works for IDC in Framingham, Massachusetts. But technology is never a“silver bullet, just part of a larger puzzle” that includes making sure internal busi-ness processes are in tune with the software’s capabilities, Restivo said. That’sespecially true given the processing complexities faced by retailers, he added.

In late 1998, Reebok International Ltd. was the first U.S. company to go livewith SAP Retail, which now supports 115 outlet stores run by the Stoughton,Massachusetts–based footwear maker. Peter Burrows, Reebok’s chief technologyofficer, said the SAP ERP system is producing “a very high level of stock accuracy”in the stores. But the year-long development and installation process wasn’t easyand required some adjustments as the project went along, Burrows said.

The Home Depot, Inc. recently completed an SAP ERP installation in thecompany’s Argentina operations. Gary Cochran, vice-president of informationservices, said he made “limited use” of SAP’s consulting services. Instead, Cochranput together a team of 50 top employees—IT personnel and end-users. Becauseof the team’s familiarity with the traditional legacy systems, he said, it didn’t have to“face some of the configuration issues that have been problematic for other people.It went so smoothly there was literally no ripple in corporate organization,”Cochran said [13].

Reebok and Home Depot:Success with ERP

Today, ERP is still evolving—adapting to developments in technology and the demandsof the market. Four important trends are shaping ERP’s continuing evolution: improve-ments in integration and flexibility, extensions to e-business applications, a broader reachto new users, and the adoption of Internet technologies [9].

Trends in ERP


Figure 6.9 illustrates four major developments and trends evolving in ERP applications[9, 12]. First, the ERP software packages that were the mainstay of ERP imple-mentations in the 1990s—and were often criticized for their inflexibility—have gradually been modified into more flexible products. Companies that installed ERPsystems pressured software vendors to adopt more open, flexible, standards-basedsoftware architectures. This makes the software easier to integrate with other application programs of business users, as well as making it easer to make minormodifications to suit a company’s business processes. An example is SAP R/3 Enter-prise, released in 2002 by SAP AG as a successor to earlier versions of SAP R3.Other leading ERP vendors, including Oracle, PeopleSoft, and J. D. Edwards, havealso developed more flexible ERP products.

Web-enabling ERP software is a second development in the evolution of ERP.The growth of the Internet and corporate intranets and extranets prompted soft-ware companies to use Internet technologies to build Web interfaces and networkingcapabilities into ERP systems. These features make ERP systems easier to use andconnect to other internal applications, as well as the systems of a company’s businesspartners. This Internet connectivity led to the development of interenterprise ERPsystems that provide Web-enabled links between key business systems (such as inven-tory and production) of a company and its customers, suppliers, distributors, and others. These external links signalled a move toward the integration of inter-nal-facing ERP applications with the external-focused applications of supply chainmanagement (SCM) and a company’s supply chain partners. We will discuss supplychain management in Section III.

All of these developments have provided the business and technological momen-tum for the integration of ERP functions into e-business suites. The major ERP soft-ware companies have developed modular, Web-enabled software suites that integrateERP, customer-relationship management, supply chain management, procurement,decision support, enterprise portals, and other business applications and functions.Examples include Oracle’s E-Business Suite and SAP’s mySAP. Some e-businesssuites disassemble ERP components and integrate them into other modules, whileother products keep ERP as a distinct module in the software suite. Of course, thegoal of these software suites is to enable companies to run most of their businessprocesses using one Web-enabled system of integrated software and databases,instead of a variety of separate e-business applications. See Figure 6.10 and then let’slook at a real world example.

e-Business Suites

Interenterprise ERP

Web-enabled ERP

Flexible ERP

Trends in the evolution of ERP applications.

F i g u r e 6 . 9

Source: Adapted from Ravi Kalakota and Marcia Robinson, E-Business 2.0: Roadmap forSuccess (Reading, MA: Addison-Wesley, 2001), p. 244. © 2001 Addison-Wesley PublishingCompany, Inc. Reprinted by permission of Addison-Wesley Longman, Inc.


The application components of Oracle’s E-Business Suite software product.F i g u r e 6 . 1 0

Advanced Planninge-Commerce

FinancialsManufacturingProcurement

ProjectsTraining

Business IntelligenceEnterprise Asset Management

Human ResourcesMarketing

Product DevelopmentSales

Treasury

ContractsExchanges

Interaction CentreOrder Fulfilment

Professional Services AutomationService

ORACLE E-BUSINESS SUITE

Source: Adapted from Oracle Corporation, “E-Business Suite: Manage by Fact with Complete Automation and Complete Information,”Oracle.com, 2002.

Despite the innovations brought to global commerce by Visa’s sophisticated con-sumer payments processing system, Visa International had surprisingly outdatedsystems managing some of its most critical internal business processes. “KPMGdid an analysis of our business and found that our internal systems were becominga risk to our organization,” said Gretchen McCoy, senior vice-president of VisaInternational. “We were in the red zone.”

McCoy found that Visa’s internal systems were unnecessarily complex and utilized few of the advantages that technology can bring to an enterprise. The finan-cial management infrastructure was fragmented, complex, and costly to maintain.Data were not standardized, resulting in many different databases making disparateinterpretations of business data. Corporate purchasing, accounts payable, andasset management were managed manually, resulting in time-consuming delaysand discrepancies. Fragmented internal systems are not unusual in a company thatexperiences rapid growth. Visa experienced double-digit growth for 11 consecu-tive years. Visa chose Oracle E-Business Suite to remedy the problems that comewith a complex and inefficient back office.

The resulting implementation turned Visa’s cumbersome, outdated desktopprocedures into Web-based e-business solutions that met Visa’s demands for allroles and processes. For example, Oracle Financials automated Visa’s old orga-nization and created a more agile system capable of accounting for the impact offinancial activities on a global scale. Accounts payable was transformed from acumbersome manual process into a streamlined system that automatically checksinvoices against outgoing payments and requests review of any discrepancies viae-mail. And Oracle iProcurement helped automate Visa’s requisitioning and pur-chasing system by streamlining the entire purchasing process and implementinga self-service model to increase processing efficiency, said McCoy [17].

Visa International: Implementing an e-Business Suite


Supply Cha in Management : The Bus iness Network

Starting an e-business takes ideas, capital, and technical savvy. Operating one, however,takes supply chain management (SCM) skills. A successful SCM strategy is based onaccurate order processing, just-in-time inventory management, and timely order fulfill-ment. SCM’s increasing importance illustrates how a tool that was a theoretical process10 years ago is now a hot competitive weapon [9].

That’s why many companies today are making supply chain management (SCM)a top strategic objective and major e-business application development initiative.Fundamentally, supply chain management helps a company get the right productsto the right place at the right time, in the proper quantity, and at an acceptable cost.The goal of SCM is to efficiently manage this process by forecasting demand; con-trolling inventory; enhancing the network of business relationships a company haswith customers, suppliers, distributors, and others; and receiving feedback on thestatus of every link in the supply chain. To achieve this goal, many companies todayare turning to Internet technologies to Web-enable their supply chain processes,decision making, and information flows. Let’s take a look at a real world example.

Read the Real World Case on Wal-Mart and Mattel on the next page. We can learna lot from this case about how optimal supply chain management is used in supportof a company’s strategic advantage.

Analyzing Wal-Martand Mattel

Introduction

S e c t i o n I I I

Canadian businesses are still gun-shy about supply chain management technology.You hear it in the way they dance around the technological issues and focus onthe basic business bottom line. “We have a vision for our company, to have atechnologically enabled fleet and distribution system,” says Yannick Rivard, managerof delivery services at the Société des alcools du Québec (SAQ), the provincialliquor board. “But the technology itself wasn’t the goal.”

The goal was to create a system to track every shipment and every truck inSAQ’s fleet to ensure the safety of drivers on the province’s long rural highwaysand make sure the booze keeps flowing to the corporation’s 400 outlets. Everytruck has an onboard computer and GPS; every case of wine is followed from thewarehouse to the customer’s hands. If you need to know if there’s a case ofChâteau Lafite Rothschild 1964 in transit between Montréal and Trois Rivières,Rivard can tell you. He uses logistics management software from Waterloo,Ontario-based Descartes Systems. He just doesn’t use terms such as SCM todescribe it. “I can distribute products without it,” he says. “That isn’t the point.The point is we can manage our distribution more efficiently, eliminate duplicateroutes, reduce costs, and improve service.”

Rivard’s view is fairly typical of that of Canadian businesses that were burnedwhen the economic asteroid of 2001 smashed into the e-commerce boom andsent the economy reeling. “The whole industry and economy went through amajor slowdown in the last two years,” says John Kellett, Canadian general managerof Descartes Systems. “The trend we’re seeing today is customers who are readyto take out cost and add services, even if they’re not eager to be on the techno-logical bleeding edge” [5].

Société des alcoolsdu Québec:Working OutSupply Chain Kinks

Wal-Mart and Matte l :Supply Cha in Management Best Pract ices


eing a supplier to Wal-Mart is a two-edgedsword,” says Joseph R. Eckroth Jr., CIO ofMattel, Inc. (www.mattel.com), based in

El Segundo, California. “They’re a phenomenal channel buta tough customer. They demand excellence.”

It’s a lesson that the toy manufacturer and thousands of other suppliers learned as the world’s largest retailer—Wal-Mart Stores (www.walmart.com)—built an inventoryand supply chain management system that changed the faceof business. By investing early and heavily in cutting-edgetechnology to identify and track sales on the individual itemlevel, the Bentonville, Arkansas-based retail giant made itsIT infrastructure a key competitive advantage that has beenstudied and copied by companies around the world.

“We view Wal-Mart as the best supply chain operator ofall time,” says Pete Abell, retail research director at high-techconsultancy AMR Research in Boston. Abell says he expectsthe company to remain in the vanguard: “Wal-Mart is evolv-ing; they’re not standing still.” The company is still pushingthe limits of supply chain management, he says, searchingfor and supporting better technology that promises to makeits IT infrastructure more efficient. Radio frequency identi-fication (RFID) microchips, for example, may replace barcodes and security tags with a combination technology thatcosts less money.

Early on, Wal-Mart saw the value of sharing that datawith suppliers, and it eventually moved that information onlineon its Retail Link Web site. Opening its sales and inventorydatabases to suppliers is what made Wal-Mart the power-house it is today, says Rena Granofsky, a senior partner atJ.C. Williams Group, a Toronto-based retail consulting firm.While its competition guarded sales information, Wal-Martapproached its suppliers as if they were partners, not adver-saries, says Granofsky. By implementing a collaborativeplanning, forecasting, and replenishment (CPFR) program,Wal-Mart began a just-in-time inventory program that reduced carrying costs for both the retailer and its suppliers.“There’s a lot less excess inventory in the supply chain because of it,” says Granofsky.

That efficiency is the key factor in maintaining Wal-Mart’slow-price leadership among retailers, says Abell. “Theirmargins can be far lower than other retailers’ because theyhave such an efficient supply chain,” he says. The company’scost of goods is 5 to 10% less than that of most of its com-petitors, Abell estimates.

Wal-Mart’s success with supply chain management hasinspired other retail companies, which are now playingcatch-up, says Abell. “Others are now just starting. They’veall had inventory systems, but sharing the data with theirpartners hasn’t been easy,” he says. Wal-Mart’s influence hasextended beyond the retail sector. Mattel’s Eckroth says that

he studied Wal-Mart’s supply chain best practices when heworked at a manufacturing division of General Electric Co.“[Wal-Mart is] a benchmark company,” he says.

One reason Wal-Mart is studied so closely is that it getsbuy-in from its suppliers to an incredible degree. That’s because its programs and practices benefit not just the retailer, but its partners as well, says Eckroth. CPFR, he sayshas “blurred the lines between supplier and customer. You’reboth working to the same end: to sell as much product aspossible without either of us having too much inventory.We’ve learned that if we listen to Wal-Mart, take theirinitiatives seriously, and align our strategies with making

them successful, we both can succeed,” he says.Mattel has learned a lot from working with Wal-Mart

and is bringing those lessons to bear in its relationships withother channels, says Eckroth. “Getting the supply chain optimized inside of Mattel is only 50% of the equation,” hesays. “The other 50% is getting tightly linked with every oneof our customers so that we’re reacting as quickly as they’regiving us data.” Tight links, Eckroth says, will enable Mattelto tackle the next big business problem—increasing manu-facturing efficiency.

“My ability to get information about the sales pace of atoy and either ramping up or shutting down manufacturingdepends on my having data,” he says. Having sales data on adaily or hourly basis is necessary to figure out on a microlevel what is selling best where and tailor manufacturing accordingly. The greatest efficiencies will appear when thekind of trusting, mutually beneficial relationship Mattel haswith Wal-Mart is duplicated with the rest of the manufac-turer’s retail outlets.

“Having that data on a global basis from every one of mycustomers allows me to optimize the sales of my productsand the fill rates of my customers,” Eckroth says. “Thetheme for the future is that at the end of the day, there can bea symbiotic relationship between companies.”


1. Do you agree that Wal-Mart is “the best supply chainoperator of all time”? Why or why not?

2. What has Mattel learned from Wal-Mart? How wellis Mattel applying this knowledge to its own business?Explain your evaluation.

3. What can other businesses learn from the experiencesof Wal-Mart and Mattel that could improve theirsupply chain performance? Use an example to illus-trate your answer.

Source: Adapted from Amy Johnson, “A New Supply ChainForged,” Computerworld, September 30, 2002, pp. 38–39.

“B


Legacy supply chains are clogged with unnecessary steps and redundant stockpiles. Forinstance, a typical box of breakfast cereal spends an incredible 104 days getting fromfactory to supermarket, struggling its way through an unbelievable maze of whole-salers, distributors, brokers, and consolidators, each of which has a warehouse. The e-commerce opportunity lies in the fusing of each company’s internal systems to those of its suppliers, partners, and customers. This fusion forces companies to better inte-grate interenterprise supply chain processes to improve manufacturing efficiency anddistribution effectiveness [9].

So, supply chain management is a cross-functional interenterprise system that usesinformation technology to help support and manage the links between some of acompany’s key business processes and those of its suppliers, customers, and businesspartners. The goal of SCM is to create a fast, efficient, and low-cost network ofbusiness relationships, or a supply chain, to get a company’s products from conceptto market.

What exactly is a company’s supply chain? Let’s suppose a company wants tobuild and sell a product to other businesses. Then it must buy raw materials and avariety of contracted services from other companies. The interrelationships with sup-pliers, customers, distributors, and other businesses that are needed to design, build,and sell a product make up the network of business entities, relationships, andprocesses that is called a supply chain. And since each supply chain process shouldadd value to the products or services a company produces, a supply chain is frequentlycalled a value chain, a different but related concept we discussed in Chapter 2. Inany event, many companies today are using Internet technologies to create inter-enterprise e-business systems for supply chain management that help a companystreamline its traditional supply chain processes.

Figure 6.11 illustrates the basic business processes in the supply chain life cycleand the functional SCM processes that support them. It also emphasizes how manycompanies today are re-engineering their supply chain processes, aided by Internettechnologies and supply chain management software. For example, the demands oftoday’s competitive business environment are pushing manufacturers to use theirintranets, extranets, and e-commerce Web portals to help them re-engineer theirrelationships with their suppliers, distributors, and retailers. The objective is to sig-nificantly reduce costs, increase efficiency, and improve their supply chain cycletimes. SCM software can also help to improve interenterprise coordination amongsupply chain process players. The result is much more effective distribution andchannel networks among business partners. The Web initiatives of Moen Inc. illus-trate these developments.

What Is SCM?

In late 1998, faucet maker Moen Inc. started sending electronic files of new product designs by e-mail. A few months later, it launched ProjectNet, an onlineextranet site where Moen can share digital designs simultaneously with suppliersworldwide. Every supplier can make changes immediately. Moen consolidates allof the design changes on a master Web file. That way, design problems are discovered instantly and adjustments can be made just as quickly, cutting the timeit takes to lock in a final design to three days.

Next, the company attacked the cumbersome process of ordering parts fromsuppliers and updating them by fax or phone. In October 2000, the companylaunched its SupplyNet extranet site that allows parts suppliers to check the statusof Moen’s orders online. Every time Moen changes an order, the supplier receivesan e-mail. If a supplier can’t fill an order in time, it can alert Moen right away sothe faucet maker can search elsewhere for the part. Today, the 40 key suppliers whomake 80% of the parts that Moen buys use SupplyNet. The result: The company

Moen Inc.: Web-Enabling the Supply Chain


Electronic data interchange (EDI) was one of the earliest uses of information technology for supply chain management. EDI involves the electronic exchange ofbusiness transaction documents over the Internet and other networks between supply chain trading partners (organizations and their customers and suppliers). Datarepresenting a variety of business transaction documents (such as purchase orders,invoices, requests for quotations, and shipping notices) are automatically exchangedbetween computers using standard document message formats. Typically, EDI software

Electronic DataInterchange

has shaved $3 million, or almost 6%, off its raw materials and work-in-progressinventories since October.

Moen’s approach is high-speed compared with that of competitors, many ofwhich still rely on fax machines to do most of their business. The percentage of companies using the Net to speed the supply chain in the construction/homeimprovement field, which includes plumbing, is expected to rise to just 7.7% in2004, up from 3.2% in 2000, according to Forrester Research. “Moen is a stepahead of its peers in embracing Internet technologies,” says analyst Navi Radjouof Forrester Research.

Moen may be ahead of its peers, but there’s plenty of work to do. The mostsensitive task is CustomerNet, the company’s attempt to wire wholesalers, whichaccount for 50% of the company’s business. Unlike suppliers, who depend onMoen for most of their business, the company has little sway with wholesalersthat buy plumbing, heating, and other products—not just faucets—from manymanufacturers. Most still order by fax, even though that process causes errors upto 40% of the time. Moen execs are undaunted. They’re courting wholesalers withthe same methodical determination that has made Moen a Web-smart company [10].

CommitSupplyChain

Life CycleSchedule Make Deliver

SCMIntegratedSolution

SharedMarket Data

CollaborativeFulfilment

Supplier

The Internet

Manufacturer Retailer Customer

SCMFunctionalProcesses

Strategic Sourcingand Procurement

Forecast and Demand Planning

Customer Order Fulfilment/Service

Distribution Network and Warehouse Operations

Transportation and Shipment Management

ProductionLogistics

Supply chain managementsoftware and Internet tech-nologies can help companiesre-engineer and integrate thefunctional SCM processesthat support the supply chainlife cycle.

F i g u r e 6 . 1 1

Source: Adapted from Ravi Kalakota and Marcia Robinson, E-Business 2.0: Roadmap for Success (Reading,MA: Addison-Wesley, 2001), pp. 280–289, © 2001 Addison-Wesley Publishing Company, Inc., reprintedby permission of Addison-Wesley Longman, Inc.; and Craig Fellenstein and Ron Wood, Exploring E-commerce, Global E-business, and E-societies (Upper Saddle River, NJ: Prentice-Hall, 2000), p. 192.


is used to convert a company’s own document formats into standardized EDI for-mats as specified by various industry and international protocols. Thus, EDI is anexample of the almost complete automation of an e-commerce supply chain process.And EDI over the Internet, using secure virtual private networks, is a growing B2B e-commerce application.

Formatted transaction data are transmitted over network links directly betweencomputers, without paper documents or human intervention. Besides direct networklinks between the computers of trading partners, third-party services are widely used.Value-added network companies like GE Global Exchange Services and ComputerAssociates offer a variety of EDI services for relatively high fees. But many EDI service providers now offer secure, lower-cost EDI services over the Internet.Figure 6.12 illustrates a typical EDI system [25].

EDI is still a popular data transmission format among major trading partners,primarily to automate repetitive transactions, although it is slowly being replaced byXML-based Web services. EDI automatically tracks inventory changes; triggersorders, invoices, and other documents related to transactions; and schedules and confirms delivery and payment. By digitally integrating the supply chain, EDIstreamlines processes, saves time, and increases accuracy. And by using Internettechnologies, lower-cost Internet-based EDI services are now available to smallerbusinesses [28, 31].

Telefonica is Spain’s largest supplier of telecommunications services, serving theSpanish-speaking and Portuguese-speaking world with affiliates in Latin America,Canada, and the United States. Telefonica Servicios Avanzados de Informacion(TSAI) is a subsidiary of Telefonica that handles 60% of Spain’s electronic datainterchanged (EDI) traffic. TSAI’s customers are supply chain trading partners—merchants, suppliers, and others involved in business supply chains from designto delivery.

Telefonica TSAI:Internet EDI

Purchaser

PaymentAuthorization

Supplier

Supplier’s BankPurchaser’s Bank

Request for QuotePurchase Order, Purchase Order Change, Receiving Notice,

and Payment Advice

Response to Request for QuotePurchase Order Acknowledgment,

Status Response, Shipping Notice, and Invoice

Payment Remittance NoticeElectronic Transfer of Funds

DepositNotice

PaymentRemittance

Notice

PaymentRemittance

Notice

A typical example of electronic data interchange activities, an important form of business-to-business electronic commerce. EDI over the Internet is a major B2B e-commerce application.

F i g u r e 6 . 1 2


Figure 6.13 helps us understand the role and activities of supply chain managementin business more clearly. The top three levels of Figure 6.13 show the strategic, tac-tical, and operational objectives and outcomes of SCM planning, which are thenaccomplished by the business partners in a supply chain at the execution level of SCM.The role of information technology in SCM is to support these objectives with inter-enterprise information systems that produce many of the outcomes a business needsto effectively manage its supply chain. That’s why many companies today areinstalling SCM software and developing Web-based SCM information systems [17].

The Role of SCM

What?Establish objectives, policies,

and operating footprint

• Objectives

• Supply policies (service levels)

• Network design

When? Where?Schedule, monitor, control, and

adjust production

• Work centre scheduling

• Order/inventory tracking

DoBuild and transport

• Order cycle

• Material movement

How much?Deploy resources to match supply

to demand

• Demand forecast

• Production, procurement, logistics plan

• Inventory targets

Strategic

Tactical

Operational

Execution

SCM Objectives SCM Outcomes

The objectives and outcomes of supply chain management are accomplished for a businesswith the help of interenterprise SCM information systems.

F i g u r e 6 . 1 3

Source: Adapted from Keith Oliver, Anne Chung, and Nick Samanach, “Beyond Utopia: The Realist’s Guide to Internet-Enabled SupplyChain Management,” Strategy and Business, Second Quarter, 2001, p. 99.

To tap into the sizeable market of smaller businesses that can’t afford standardEDI services, TSAI offers an Internet EDI service, InfoEDI, based on ECXpertelectronic commerce software. InfoEDI allows transactions to be entered andprocessed on the Internet, so smaller trading partners no longer have to buy andinstall special connections, dedicated workstations, and proprietary software. Instead,they can access the EDI network through the Internet via TSAI’s Web portal.

InfoEDI’s forms-based interface lets businesses connect with the InfoEDI simply by using modems and Web browsers. They can then interact with thelargest suppliers and retailers to send orders, issue invoices based on orders, sendinvoice summaries, track status of documents, and receive messages. InfoEDI alsoprovides a product database that lists all details of trading partners’ products.Once a trading relationship has been established, each partner has encryptedaccess to details of its own products. Because those details remain accessible onTSAI’s Web server, users need enter only minimal information to create links tothat data, which are then plugged in as needed [31].


Until recently, SCM software products have typically been developed for eithersupply chain planning or execution applications. SCM planning software from vendors such as i2 and Manugistics support a variety of applications for supply anddemand forecasting. SCM execution software from vendors such as EXE Technologiesand Manhattan Associates supports applications like order management, logisticsmanagement, and warehouse management. However, big ERP vendors like Oracleand SAP are now offering Web-enabled software suites of e-business applicationsthat include SCM modules. Examples include Oracle’s E-Business Suite and SAPAG’s mySAP [3].

Figure 6.14 gives you a good idea of the major planning and execution functionsand outcomes that can be provided by SCM software as promised by mySAP’s supply chain management module. Now let’s look at a real world example of an SCM execution system.

A few years ago, Cardinal Glass’s legacy systems were making it a weak link inone of its key customer’s supply chain. The system, a hodgepodge of custom andpurchased applications, caused so many errors that it was “shameful and embar-rassing,” says Dan Peterson, director of corporate information systems at theMinneapolis-based maker of glass products. So when the customer decided thatits products required delivery on a just-in-time basis, with lead times of just hours,there was no way the existing supply chain management applications could keepup the pace.

Luckily, Cardinal found that by installing supply chain event management(SCEM) applications from Minneapolis-based HighJump Software, it could deliverproducts at nearly 100% accuracy. “We probably cut the error rate by 90%,”Peterson says.

SCEM applications let companies see—in real time, or as close as possible—whether their existing supply chain management (SCM) systems are working. Theapplications are attached to an SCM server and get updates on supply chain activity through middleware connectors. Depending on preset rules and benchmarks,SCEM software can monitor SCM applications, run simulations of supply chainscenarios, automatically take control of supply chain processes, or send out alertsto customers, suppliers, and company management. Anomalies, such as a dis-crepancy in an order, will trigger appropriate alert and order fulfilment responses,making the system more sensitive to real-time needs.

Cardinal did contemplate replacing its legacy enterprise resources planning(ERP) system, but Cardinal officials decided that they needed SCM executionsoftware. Cardinal wanted to address errors in the system on the fly, he explains—something traditional supply chain management and ERP systems wouldn’t beable to do.

At Cardinal, when an order is received, inventory is checked immediately foravailability. If a shortage is detected, the HighJump SCEM system will send alertsvia e-mail to the customer and appropriate Cardinal managers. This speeds upthe supply chain, reducing lead times and meeting their customer responsivenessgoals, says Peterson. There were bottom-line benefits, too. The SCM executionsystem cut by about two-thirds the amount of personnel needed to compensatefor errors such as inventory erroneously being marked “in” when it wasn’t there,or shipments being sent incorrectly [29].

Cardinal Glass:Supply Chain Event Management


Creating a real-time SCM infrastructure is a daunting and ongoing issue and quiteoften, a point of failure, for several reasons. The chief reason is that the planning,selection, and implementation of SCM solutions is becoming more complex as the pace oftechnological change accelerates and the number of a company’s partners increases [9].

The real world experiences of companies like Cardinal Glass and the promised out-comes that are outlined in Figure 6.14 emphasize the major business benefits that arepossible with effective supply chain management systems. Companies know that SCMsystems can provide them with key business benefits such as faster, more accurateorder processing, reductions in inventory levels, quicker time to market, lower trans-action and materials costs, and strategic relationships with their suppliers. All of thesebenefits of SCM are aimed at helping a company achieve agility and responsivenessin meeting the demands of its customers and the needs of its business partners.

Developing effective SCM systems has proven to be a complex and difficultapplication of information technology to business operations, however. So achievingthe business value and customer value goals and objectives of supply chain manage-ment, as illustrated in Figure 6.15, has been a major challenge for most companies.

What are the causes of problems in supply chain management? Several stand out.A lack of proper demand planning knowledge, tools, and guidelines is a major sourceof SCM failure. Inaccurate or overoptimistic demand forecasts will cause major pro-duction, inventory, and other business problems, no matter how efficiently the rest

Benefits andChallenges ofSCM

Planning

• Optimize network of suppliers, plants, and distribution centres

Execution

Materials management • Share accurate inventory and procurement order information

• Ensure materials required for production are available in the right place at the right time

• Reduce raw material spending, procurement costs, safety stocks, and raw material and finished goods inventory

Supply chain design

Collaborative demand and supply planning

• Develop an accurate forecast of customer demand by sharing demand and supply forecasts instantaneously across multiple tiers

• Internet-enable collaborative scenarios, such as collaborative planning, forecasting, and replenishment (CPFR), and vendor-managed inventory

Collaborative manufacturing

• Optimize plans and schedules while considering resource, material, and dependency constraints

Supply chain eventmanagement

• Monitor every stage of the supply chain process, from price quotation to the moment the customer receives the product, and receive alerts when problems arise

Supply chain performancemanagement

• Report key measurements in the supply chain, such as filling rates, order cycle times, and capacity utilization

Collaborative fulfilment

• Commit to delivery dates in real time

• Fulfil orders from all channels on time with order management, transportation planning, and vehicle scheduling

• Support the entire logistics process, including picking, packing, shipping, and delivery in foreign countries

SCM Functions SCM Outcomes

The supply chain management functions and potential benefits offered by the SCM module inthe mySAP e-business software suite.

F i g u r e 6 . 1 4

Source: Adapted from SAP AG, mySAP Supply Chain Management, mySAP.com, 2002, p. 8.


of the supply chain management process is constructed. Inaccurate production,inventory, and other business data provided by a company’s other information systemsare a frequent cause of SCM problems. And lack of adequate collaboration amongmarketing, production, and inventory management departments within a company,and with suppliers, distributors, and others, will sabotage any SCM system. Eventhe SCM software tools themselves are considered to be immature, incomplete, andhard to implement by many companies who are installing SCM systems [1]. Theseproblems are spotlighted in the real world example of Solectron Corporation.

SCM theory contends that technologically driven improvements in inventorymanagement—like “just-in-time” production, direct online sales, and supply chainmanagement software—will prompt increased efficiency and allow managers totailor output to match demand exactly. That, in turn, would increase working capital, boost margins, and help companies smooth out the ups and downs in thebusiness cycle.

SCM lesson one is that killer software applications can’t compensate for old-fashioned business judgement. There’s a flaw in the premise that technology cansynchronize every party in the product chain by providing a transparent view ofsupply and demand: The forecasts driving the entire flow of work are still con-cocted by people, not by real-time blips of data from retail shelves. No matterhow mechanized the system becomes, sales managers and CEOs still shoot forthe moon in a boom and don’t share internal market intelligence with outsiders.

The experience of Solectron Corp., the world’s largest electronics contractmanufacturer, is a case in point. In the fall of 2000, company officials say they couldtell a supply glut of telecom equipment was brewing. Each of their big customers,which include Cisco, Ericsson, and Lucent, was expecting explosive growth forwireless phones and networking gear. But since Solectron supplies every majorplayer, it knew the numbers didn’t add up, even under the rosiest scenario.

Nevertheless, the telecom giants told Solectron and other contractors to produceflat out, assuring them that they would pay for excess materials. But when thebottom finally fell out and its clients ordered production cutbacks, it was too latefor Solectron to halt orders from all of its 4,000 suppliers. By the spring of 2001,Solectron was left holding the bag for $4.7 billion in inventory [4].

Solectron Corp.:Failures in SCM

InterenterpriseCoordination of

Manufacturing andBusiness Process

EffectiveDistribution and

Channel Partnerships

Responsiveness andAccountabilityto Customers

Objectives of Supply Chain Management

Business Value GoalsRapid Demand Fulfilment

Collaborative SupplyChain Planning and

Execution

Customer Value GoalsGive customers what theywant, when and how theywant it, at the lowest cost

Achieving the goals andobjectives of supply chainmanagement is a majorchallenge for manycompanies today.

F i g u r e 6 . 1 5

Source: Adapted from Ravi Kalakota and Marcia Robinson, E-Business 2.0: Roadmap for Success (Reading,MA: Addison-Wesley, 2001), pp. 273–79. © 2001 Addison-Wesley Publishing Company, Inc. Reprintedby permission of Addison-Wesley Longman, Inc.


The supplier-facing applications arena will see the continued growth of public as wellas private networks that transform linear and inflexible supply chains into nonlinearand dynamic fulfillment networks. Supplier-facing applications will also evolve alonganother dimension: from automation and integration of supply chains to collaborativesourcing, planning, and design across their supplier networks [21].

Figure 6.16 illustrates the trends in the use of supply chain management today asthree possible stages in a company’s implementation of SCM systems. In the firststage, a company concentrates on making improvements to its internal supply chainprocesses and its external processes and relationships with suppliers and customers.Its e-commerce Web site and those of some of its trading partners provide accessto online catalogues and useful supply chain information, while supporting limitedonline transactions.

In stage two, a company accomplishes substantial supply chain managementapplications by using selected SCM software programs internally, as well as exter-nally via intranet and extranet links among suppliers, distributors, customers, andother trading partners. Companies in this stage also concentrate on expanding thebusiness network of Web-enabled SCM-capable trading partners in their supplychain to increase its operational efficiency and effectiveness in meeting their strate-gic business objectives.

In the third stage, a company begins to develop and implement cutting-edge col-laborative supply chain management applications using advanced SCM software, full-service extranet links, and private and public e-commerce exchanges. Examples includecollaborative supply chain planning and fulfilment applications such as collaborativeproduct design and delivery, and collaborative planning, forecasting, and replenishment(CPFR). In addition, collaborative marketing sales, and service applications withtrading partners, including customer- and partner-relationship management systems,may be developed. Companies in this third stage strive to optimize the developmentand management of their supply chains in order to meet their strategic customervalue and business value goals [18]. Let’s look at two real world examples.

Trends in SCM

• Current supply chain improvement• Supply chain, e-commerce loosely

coupled

• Intranet/extranet links to trading partners

• Supplier network expansion

• Collaborative planning andfulfilment

• Extranet and exchange-basedcollaboration

SCM Stage 1 SCM Stage 2 SCM Stage 3

InformationSharing

Product/Sales Data

Sourcing Help

Logistics

Order Fulfilment

OrderManagement

InventoryManagement

Resource Allocation

Systems Use andIntegration

CollaborativeMarketing

Sales and Service

SCM Optimization

Collaborative Designand Delivery

Stages in the use of supply chain management.F i g u r e 6 . 1 6

Source: Adapted from Charles Poirier and Michael Bauer, E-Supply Chain: Using the Internet to Revolutionize Your Business (San Francisco:Berrett-Koehler Publishers, 2000), p. 79.


CVS is a leading drug retail chain, while McKesson is the largest U.S. distribu-tor of pharmaceuticals, health care products, and medical/surgical supplies, withannual sales in excess of $20 billion. Better integration with McKesson is a keystrategic move for CVS, as management sees significant potential for improvingsales and margins through its enhanced pricing and promotional forecasting systems.Supply chain integration helps the retailer move from pull to push promotionsby allowing marketing managers to plan promotions more effectively, using itemhistory taken from historical point-of-sale data on a store-by-store basis. Theintegration with McKesson substantially reduces the amount of time needed toplan and to stock inventory for individual promotions.

A major objective in the CVS–McKesson chain is to improve business performance through better supply chain integration. This requires much closercooperation between McKesson and CVS, with McKesson taking responsibilityeven for CVS stock levels. McKesson monitors CVS’s store-level consumption viaWeb extranet links and replenishes the inventory to meet the agreed-on servicelevels—true supply chain integration. This cooperative process between supplierand customer is achieved through seamless interenterprise process integration andadvanced SCM applications that link CVS directly to McKesson’s productiondepartment [9].

Not every supply chain application requires a hefty up-front investment, however. Modern Plastics Technology (MPT), an injection mould manufacturerin Port Huron, Michigan, spends just several hundred dollars per month to accessthe i-Supply Service Web-based supply chain application from SupplySolution,Inc. The company had been using electronic data interchange transmissions tofill its orders and was having a tough time keeping up with unscheduled changesin orders, says Doug Archer, vice-president of Modern Plastics.

Then a large sealant manufacturer that was one of their customers persuadedModern Plastics to connect with its i-Supply Service application. This Web-basedSCM system enables them to see what their customers need on a real-time basis.Modern Plastics runs 30 to 40 different products through its presses, and i-Supplynow allows management to better plan long production runs or prioritize specificproduct runs. Additionally, i-Supply helps MPT accomplish more accurate demandforecasting and production scheduling [30].

CVS, McKesson,and MPT: Web-Based SCMIntegration


• Customer-Relationship Management: The BusinessFocus. Customer-relationship management is a cross-functional enterprise system that integrates and auto-mates many of the customer-serving processes in sales,marketing, and customer service that interact with acompany’s customers. CRM systems use informationtechnology to support the many companies that arereorienting themselves into customer-focused busi-nesses as a top business strategy. The major applicationcomponents of CRM include contact and accountmanagement, sales, marketing and fulfilment, customerservice and support, and retention and loyalty programs,all aimed at helping a company acquire, enhance, andretain profitable relationships with its customers as aprimary business goal. However, many companies havefound CRM systems difficult to properly implementdue to a lack of adequate understanding and preparationby management and affected employees. Finally, manycompanies are moving toward collaborative CRMsystems that support the collaboration of employees,business partners, and the customers themselves inenhancing profitable customer relationships.

• Enterprise Resource Planning: The BusinessBackbone. Enterprise resource planning is a cross-functional enterprise system that integrates and auto-mates many of the internal business processes of acompany, particularly those within the manufacturing,logistics, distribution, accounting, finance, and humanresources functions of the business. Thus, ERP servesas the vital backbone information system of the enter-prise, helping a company achieve the efficiency, agility,and responsiveness required to succeed in a dynamicbusiness environment. ERP software typically consistsof integrated modules that give a company a real-timecross-functional view of its core business processes,such as production, order processing, and sales, and

its resources, such as cash, raw materials, productioncapacity, and people. However, properly implementingERP systems is a difficult and costly process that hascaused serious business losses for some companies, that underestimated the planning, development, andtraining that were necessary to re-engineer their businessprocesses to accommodate their new ERP systems.However, continuing developments in ERP software,including Web-enabled modules and e-businesssoftware suites, have made ERP more flexible and user-friendly, as well as extending it outward to a company’sbusiness partners.

• Supply Chain Management: The Business Network.Supply chain management is a cross-functional inter-enterprise system that integrates and automates thenetwork of business processes and relationships betweena company and its suppliers, customers, distributors, andother business partners. The goal of SCM is to help acompany achieve agility and responsiveness in meetingthe demands of its customers and the needs of its sup-pliers, by enabling it to design, build, and sell its productsusing a fast, efficient, and low-cost network of businesspartners, processes, and relationships, or supply chain.SCM is frequently subdivided into supply chain planningapplications, such as demand and supply forecasting,and supply chain execution applications, such as inven-tory management, logistics management, and warehousemanagement. Developing effective supply chain systemsand achieving the business goals of SCM has proven tobe a complex and difficult challenge for many firms. But SCM continues to be a major concern and top e-business initiative, as companies increase their use of Internet technologies to enhance integration andcollaboration with their business partners, and improvethe operational efficiency and business effectiveness oftheir supply chains.

S u m m a r y

These are the key terms and concepts of this chapter. The page number of the first explanation of each is in parentheses.

For more resources, log on to the Online Learning Centre at www.mcgrawhill.ca/college/obrien and access Student Edition.

Web

1. Customer-relationship management (174)

a. Application components (177)

b. Business benefits (180)

c. Challenges (180)

d. Trends (182)

2. E-business suites (191)

3. Electronic data interchange (196)

4. Enterprise resource planning (184)



c. Challenges (187)

d. Trends (191)

5. Supply chain (195)

6. Supply chain management (193)



c. Challenges (200)

d. Trends (202)

K e y Te r m s a n d C o n c e p t s

D i s c u s s i o n Q u e s t i o n s

1. Should every company become a customer-focusedbusiness? Why or why not?

2. Why would systems that enhance a company’s relation-ships with customers have such a high rate of failure?

3. Refer to the Real World Case on Canada Post, FosterParents Plan, and Ernex Marketing Technologies Inc.in the chapter. What organizations would benefit mostfrom implementation of CRM? Justify your response.

4. How could some of the spectacular failures of ERPsystems have been avoided?

5. Should companies continue to use EDI systems? Why or why not?

6. Refer to the Real World Case on ERP at Indigo Books& Music Inc. in the chapter. What happens if Indigo experiences inconsistent data across the organization?

7. How can the problem of overenthusiastic demandforecasts in supply chain planning be avoided?

8. What challenges do you see for a company that wantsto implement collaborative SCM systems? How wouldyou meet such challenges?

9. Refer to the Real World Case on Wal-Mart and Mattelin the chapter. What other types of organizations couldimplement an efficient supply chain such as the one atWal-Mart?

10. Should companies install e-business software suites or“best-of-breed” e-business software components? Why?

Match one of the key terms and concepts listed previously with one of the brief examples or definitions that follow. Try to findthe best fit for answers that seem to fit more than one term or concept. Defend your choices.

Re v i e w Q u i z

1. A cross-functional enterprise system that helps abusiness develop and manage its customer-facingbusiness processes.

2. A cross-functional enterprise system that helps abusiness integrate and automate many of its internalbusiness processes and information systems.

3. A cross-functional interenterprise system thathelps a business manage its network of relation-ships and processes with its business partners.

4. Includes contact and account management, sales,marketing and fulfilment, and customer-serviceand support systems.

5. Includes order management, production planning,accounting, finance, and human resources systems.

6. Includes demand forecasting, inventorymanagement, logistics management, andwarehouse management systems.

7. Acquiring, enhancing, and retaining profitablerelationships with customers.

8. Improvements in the quality, efficiency, cost, andmanagement of internal business processes.

9. Development of a fast, efficient, and low-costnetwork of business partners to get products fromconcept to market.

10. Resistance from sales and customer-serviceprofessionals who are not adequately involved inthe development of the system.

11. Failure of order-processing and inventoryaccounting systems that are re-engineered toaccommodate a new cross-functional system.

12. A lack of adequate demand planning knowledge,tools, and guidelines may cause major over-production and excess inventory problems.

13. Moves toward Web portals and collaborative systems involving business partners as well as customers to coordinate sales and service across all marketing channels.

14. Moves toward more flexible, user-friendly, Web-enabled software, integrated into e-businesssoftware suites.

15. Moves toward the use of Internet technologies to integrate and enhance collaboration with acompany’s network of business partners.

16. An integrated system of software modules forcustomer-relationship management, enterpriseresource planning, supply chain management, and other business applications.

17. The automatic exchange of electronic businessdocuments between the networked computers ofbusiness partners.

18. A network of business partners, processes, andrelationships that supports the design, manufacture,distribution, and sale of a company’s products.


Complete the following exercises as individual or group projects that apply the chapter concepts to real world business situations.

A p p l i c a t i o n E x e rc i s e s

1. NetLedger/Oracle Corporation: Oracle SmallBusiness Suite

NetLedger Inc., the company that developedand markets the Oracle Small Business Suite for

the Oracle Corporation, was selected by Time magazineas one of the five best Web sites in the Managing aSmall Business category of Time’s guide to the best Web sites for business (NetLedger Inc. news release,December 9, 2002). Check out NetLedger’s Web site at www.netledger.com, then click on Products and thenon Oracle Small Business Suite for access to extensiveinformation on this e-business software suite for smallbusinesses. See Figure 6.17.a. What are the business benefits of this suite of online

business software and services?b. What are the limitations and disadvantages of this

and similar online software applications?

c. Would you recommend this suite to a small businessowner? Why or why not?

2. SAP versus Oracle: mySAP versus E-Business SuiteCheck out the Web sites of SAP’s mySAPBusiness Suite (www.mysap.com) and Oracle’s

E-Business Suite (www.oracle.com/applications), the e-business software suites of these two major ERP, CRM,and SCM competitors. Review the extensive informationon the features and capabilities of both suites.a. What are the business benefits offered by such suites?b. What are the limitations and disadvantages of such

suites compared to individual “best-of-breed”business application software?

c. Which one of the two suites do you prefer? Give at least three reasons to support your selection.

Web

Web

The NetLedger Inc. OracleSmall Business suite.

F i g u r e 6 . 1 7

Source: Courtesy of Oracle Corporation.



Cal l Centres :CRM Chal lenges

he rise of voice over Internet protocol and broad-band technology will drive the call centre industrytoward a more distributed working environment,

according to experts at a Call Centre and CRM SolutionsCanada (www.cc-crmcanada.com) conference. In the nextthree years, a panel of vendors and customers predicted, callcentres will be making better use of interactive voice response(IVR), agents will be working from home, and Web-basedtraining tools will improve the relationship between managersand call centre agents. They also said customers would increasingly use self-service applications and “guided selling”experiences over a company’s Web site. The workstationsused by individual call centre agents, meanwhile, will bemuch less complex than they are today, said Patte Seaton,Bell Canada’s (www.bell.ca) vice-president of customer care,who oversees the phone company’s 21 call centre locationsacross Ontario. “I think, too, with some of the issues peoplehave with telemarketing, that will also move over to the Web.”

Kevin Hegebarth, director of strategic planning at callcentre software provider Witness Systems (www.witness.com),said technology is starting to allow the formation of virtualcall centres, where agents are working remotely. “Gone willbe the days where we have 1,000 people working in the samebuilding,” he said. “With the Web, decentralization will bealmost inevitable. Centralization has its advantages—youcan manage all of the people in the same place—but I thinkthe industry as a whole is moving away from that.”

In the meantime, however, call centres across the coun-try are struggling to offer consistent levels of service andprovide the kind of customer-relationship management that

earns loyalty and repeat business. Paul McDevitt, seniorvice-president of Avaya Canada (www.avaya.ca), said thatcompanies need to remember that their customers have amuch greater power of choice in the way they interact withthem—on Web sites, on the telephone or in person. “Thecall centre, though, is really the front door,” he said. “Insome cases, it’s the only door.” That’s because when a cus-tomer is unable to complete a transaction on a company’sWeb site, the call centre is usually the first place they turn.Although call centres began as a way of offloading some salesand complaint follow-up responsibilities, McDevitt said thatenterprises need to start looking at them as data gatheringtools that can help evaluate the company’s performance.Hegebarth agreed: “You can get competitive informationfrom your call centre, and you can get information on yourown products from the call centre,” he said. “We need totake that information and see it proliferate throughout theenterprise, so that the VP of marketing or the VP of salesknow what they’re saying.”


1. What is the major impact of interactive voiceresponse on business relationships with customers?Identify pros and cons of IVR technology.

2. What is the significance of virtual call centres?

3. What businesses benefit most from IVR systems?Explain your choices.

Source: Adapted from Shane Schick, “Hung Up on CRM Challenges,” ITBusiness.ca, March, 2002.

T

Documents

Chapter 6 Applications in Business and Management Enterprise e-Business Systems