Chapter 8 - Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management Supply chain management (SCM) systems supporting business-to-business (B2B) transactions, customer relationship management (CRM) systems promote sales and long-term customer relationships

Administrivia Project 2 – Due at the end of class Project 3 – Due in two weeks Exam #2 – In three weeks!

A short learning moment – System Crashes You all experienced a moment of panic when a system went down Several of you ~2pm today Consider the role of an IT administrator – What might you want to do because of this? What does this mean for organizations like eBay or Amazon or Healthcare.gov?

Societal Level Changes Facilitated By IT Executing Firm Strategy How This Influences Firm Positioning How do we know where we should be? Aligning the firm around the strategic objective Supply Chain Management (Upstream) Management of Internal Firm Processes (ERP) Customer Relationship Management (Downstream)

Agenda Today we are going to talk about upstream supply chain management Just In Time Production Vendor Managed Inventory We are then going to talk about CRM

Chapter 8 Learning Objectives Supply Chain Management Describe supply chain management systems and how they help to improve interorganizational business processes. Customer Relationship Management Describe customer relationship management systems and how they help to improve the activities involved in promoting and selling products to customers as well as providing customer service and nourishing long-term relationships.

Question Who works for a company which manufactures some product? What do you make? What stuff do you need to make your product? Where do you get this stuff? What happens to you if they run out of this stuff?

Recall the Game What happened when you had too much inventory on hand? How would your task be complicated by additional suppliers? How would your task be complicated by additional customers?

Your Warehouse at the end of Phase 2 Instead of picturing pallets of finished goods… picture the capital that it took to produce your finished goods… Not in the textbook What is the total worth of all of the raw materials and finished goods tied up in the entire supply chain (your organization and your partner’s)

Question The term ________ is commonly used to refer to a collection of companies and processes involved in moving a product from the suppliers of raw materials to the customer. A) supply chain B) distribution resource planning C) procurement D) demand chain E) value network

Supply Network

Supply Chain for Apple’s iPhone

Supply chain for a ThinkPad Video Card: Canada Motherboard: Taiwan LCD: South Korea Hard drive: Japan Mouse: Mexico CPU: US Assembly: China

Benefits and Problems with Supply Chains Potential benefits (the well oiled machine!) Process innovations Just-In-time Production (JIT) Vendor-Managed Inventory (VMI) Potential problems (with primitive supply chains) Distorted information Excessive inventories Inaccurate capacity plans Missed product schedules

Question Which of the following statements about just-in-time strategies is true? A) Companies using this strategy allow the suppliers to manage the manufacturer's inventory levels based on preestablished service levels. B) Companies using this strategy are trying to optimize their ordering quantities such that parts or raw material arrive just when they are needed for production. C) Retailers using this strategy allow suppliers to maintain ownership of inventory within their warehouses or stores until items are scanned at the point of sale. D) The manufacturer or retailer using this strategy shares real-time sales data with their suppliers, who maintain inventory levels based on preestablished agreements. E) Companies using this strategy maintain large inventories of supplies, parts, warehousing resources, and extra workers to meet production contingencies.

Question Computer maker, Dell, realized the problems with keeping large inventories, especially because of the fast rate of obsolescence of electronics components. Dell now keeps only about two hours of inventory in its factories. The company is most likely using a ________. A) vendor-managed inventory system B) scan-based trading system C) just-in-case inventory management system D) customer-managed inventory system E) just-in-time inventory management system

Just-in-Time Production (JIT) Keeping inventory is costly (storage, capital, missed production schedules). JIT optimizes ordering quantities. Parts and raw materials arrive when needed for production. As orders arriver in smaller quantities, but at higher frequency) investment in storage space and inventory is minimized. The approach was pioneered by Toyota. It is used extensively by computer manufacturers to avoid component obsolescence e.g. Dell keeps only two hours of inventory in stock JIT requires tight cooperation between all partners in the supply network.

Vendor-Managed Inventory (VMI) VMI is a business model in which suppliers manage the manufacturer’s (or retailer’s) inventory levels based on pre-established service levels. Supplier monitor’s stock levels and sales data. VMI requires manufacturer (retailer) to share real-time data. Benefits? Cost savings Minimized stock-out situations Accurate forecasts Reduced errors Prioritized goods shipments

Functions That Optimize the Supply Network Supply Chain Management (SCM) improves the coordination of suppliers, product or service production, and distribution.

Given this, why would we want to integrate our SCM tools with our ERP? ERP systems are primarily used to optimize business processes within the organization. SCM is used to improve business processes that span organizational boundaries.

Question ________ involves the development of various resource plans to support the efficient and effective production of goods and services. A) Supply chain analytics B) Supply chain planning C) Supply chain network D) Supply chain execution E) Supply chain visibility

Question Inventory and safety stock planning ________. A) focuses on the coordination of all activities needed to create the product or service B) focuses on the development of inventory estimates C) leads to the development of the overall demand forecast D) focuses on delivering products or services to consumers as well as warehousing E) leads to the development of a transportation schedule

Supply Chain Visibility and Analytics Supply chain visibility—the ability to track products as they move through the supply chain but also to foresee external events. Supply chain analytics—the use of key performance indicators to monitor performance of the entire supply chain, including sourcing, planning, production, and distribution.

Radio Frequency Identification (RFID) Source: METRO AG.

Bullwhip effect in SC

Bullwhip effect: causes and consequences Downstream has incentive to exaggerate demand Especially true for hot items In fear of out of stock, retailers exaggerate demand to get more quota Example: hot cell phone—orders are 3 times of real demand Promotions Distort the natural demand from consumers Information not shared through the supply chain Consequences Higher production costs and transportation costs More inventories in the supply chain Overall, less efficient supply chain

Bullwhip effect Demand fluctuation is amplified up the supply chain Pyke-Johnson, posted on BB

Solution to Bullwhip problem Sharing information across the supply chain All parties face the same demand information Make decisions based on the same information Exaggeration is eliminated Example: vendor managed inventory However, not everyone wants to share information Holding information privately can give you stronger negotiation power Recall Porter five forces model Information advantage Retailer or manufacturer? Before the bar code revolution (1970s) After the bar code revolution Supply chain management system is reshaping the balance Incentive design is the key to motivate partners to share information

The Big Picture

Time For a Break We just talked about Supply Chain Management Specifically Just in time production Vendor Managed Inventory Supply chain analytics Bullwhip Effect

Societal Level Changes Facilitated By IT Executing Firm Strategy How This Influences Firm Positioning How do we know where we should be? Aligning the firm around the strategic objective Supply Chain Management (Upstream) Management of Internal Firm Processes (ERP) Customer Relationship Management (Downstream)

Agenda Before the break we covered four parts of the supply chain as augmented by IT Just in time production Vendor Managed Inventory Supply chain analytics Bullwhip Effect Now we are going to move to downstream supply chain Customer relationship management (CRM)

Customer Relationship Management Supply Chain Management Describe supply chain management systems and how they help to improve interorganizational business processes. Customer Relationship Management Describe customer relationship management systems and how they help to improve the activities involved in promoting and selling products to customers as well as providing customer service and nourishing long-term relationships.

First Principles What is the objective of the firm? How can this be done? Given this information, how does IT fit into the equation at a conceptual level? IT is not a means in and of itself. It is part of the system which furthers the firm towards its objective. The role of the business professional is to see how this tool can be exploited.

Question Forget about MIS and technology and computer systems…as a business professional, what do you think about when it comes to attracting and retaining the most profitable customers? What information do you need to do these things?

Sales - “Art” or “Science”? This begs the immediate question, is sales an art or is sales a science? The answer quite obviously is both As a class you have heard my diatribes on the absurdity of relying solely on intuition Ergo, data allows us to resolve issues of speculation so the firm can deploy skilled human capital to resolve market failures

Question Which of the following is a main objective of customer relationship management applications focusing on downstream information flows? A) to track global spend by supplier B) to portray a positive corporate image C) to develop demand forecasts D) to collaborate demand and production planning E) to encourage bullwhip effect

Customer Relationship Management (CRM) The management of all aspects of the relationship between the firm and its customers Objective? Increase loyalty, retention, and above all, profitability Customer relationship management (CRM) – involves managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization's profitability CRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprise-wide level CRM can enable an organization to: Identify types of customers Design individual customer marketing campaigns Treat each customer as an individual Understand customer buying behaviors

Customer Relationship Management (CRM) What does this enable? Identify customer types, i.e. classification Customization of marketing Comprehension of buying behaviors Why would we do this? Increase willingness to pay Customer relationship management (CRM) – involves managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization's profitability CRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprise-wide level CRM can enable an organization to: Identify types of customers Design individual customer marketing campaigns Treat each customer as an individual Understand customer buying behaviors

Customer Relationship Management(CRM) (cont’d) Companies search for ways to widen, lengthen, and deepen customer relationships.

Customer Relationship Management Like all enterprise systems, CRM spans many functional areas Multiple Contact Points The goal is to provide a single, integrated view of all customer activity, available to all employees who interact with the customer. Feedback, Individual Needs, and Cross Selling Having better information enables workers to provide better service, meet the individual needs of each customer.

Developing a CRM Strategy More than just software purchase and installation Enterprise-wide changes

Policy and Business Process Changes Policies and procedures need to reflect customer-focused culture.

Customer Service Changes Key metrics need to reflect customer-focused measures of quality. Companies that implement successful CRM strategy, experience greater customer satisfaction.

Employee Training Changes Employees from all business areas must value customer service and satisfaction.

Data Collection, Analysis, and Sharing Changes All aspects of customer experience must be tracked, analyzed, and shared. Consider ethical concerns.

Architecture of a CRM Environment

Question ________ includes the systems used to enable customer interaction and service. A) Data warehouse B) Operational CRM C) Integrated CRM D) Collaborative CRM E) Analytical CRM

Question Which of the following is a component of the operational CRM system? A) business intelligence B) data warehouses C) ERP systems D) data mining and visualization E) sales force automation

Operational CRM Systems for customer interaction and service Enables direct interaction with customers Personalized and efficient customer service Access to complete information about customer

Question ________ refers to systems that automate complaints, product returns, and information requests, among others. A) Customer service and support B) Sales force automation C) Enterprise marketing management D) Data warehouse E) Execution management

Customer Service and Support (CSS)

Enterprise Marketing Management (EMM) Third component of an operational CRM is Enterprise Marketing Management (EMM) Improve management of promotional campaigns Make sure right messages are sent to the right people through the right channels Customer lists need to be managed carefully Individualized attention to each potential customer Extensive analytical capabilities that can help to analyze effectiveness of campaigns

Question ________ focuses on studying customer behavior and perceptions in order to provide the business intelligence necessary to identify new opportunities and to provide superior customer service. A) Collaborative CRM B) Integrated CRM C) Analytical CRM D) Sales force automation E) Operational CRM

Analytical CRM Analysis of customer behavior and perceptions Customized marketing Up-selling, cross-selling Retaining customers Key technologies used to create predictive models Data mining Decision support systems Continuous data collection and analysis is necessary.

Digital Dashboards for CRM Digital dashboards help to visualize key CRM performance metrics.

Dealing with Multiple Identities Many people have various different online identities Different social networks Multiple e-mail addresses Analytical CRM helps merge different identities for the same person Uses fuzzy logic-based algorithms

Question Which of the following is a component of the collaborative CRM system? A) technologies to facilitate communication B) enterprise resource planning systems C) enterprise marketing management D) data mining and visualization E) sales force automation

Collaborative CRM CRM refers to systems providing effective and efficient communication with the customer from the entire organization. Collaborative CRM enhances communication. Greater customer focus Understanding of historical and current needs Lower communication barriers Communication preferences of the customer considered Increased information integration Customer information shared across the organization

Critical Thinking… The traditional approach to market research taken by firms has been to ask customers what they want There are extreme shortcomings to this approach Take five minutes to discuss, why might simply interviewing customers be the last thing we want to do?

Critical Thinking Do customers actually know what they want? Steve Jobs would be the king of arguing no Hawthorne Effect Gregory House’s first principle How can we extract this information? Experimentation Observe action

Recap Today we talked about CRM Types CRM Strategies Operational Analytical Collaborative CRM

Project 2 Hand it in