CHAPTER 9 Customer Relationship Management and Supply Chain Management

CHAPTER 9 Customer Relationship Management and Supply Chain Management
Copyright John Wiley & Sons Canada

Copyright John Wiley & Sons Canada
CHAPTER 9: Customer Relationship Management and Supply Chain Management 9.1 Defining Customer Relationship Management 9.2 Operational Customer Relationship Management Systems 9.3 Analytical Customer Relationship Management Systems 9.4 Other Types of Customer Relationship Management Systems 9.5 Supply Chains 9.6 Supply Chain Management 9.7 Information Technology Support for Supply Chain Management Copyright John Wiley & Sons Canada

LEARNING OBJECTIVES Define “customer relationship management” and “collaborative CRM,” and identify the primary functions of both processes. Describe the two major components of operational CRM systems, list three applications used in each component, and provide at least one example of how businesses use each application. Describe “analytical CRM systems,” and describe four purposes for which businesses use these systems. Copyright John Wiley & Sons Canada

LEARNING OBJECTIVES (CONTINUED)
Define “mobile CRM systems,” “on-demand CRM systems,” and “open-source CRM systems,” and identify one main advantage and one main drawback of each. Define the term, “supply chain,” and describe the three components and the three flows of a supply chain. Copyright John Wiley & Sons Canada

LEARNING OBJECTIVES (CONTINUED)
Identify two major challenges in setting accurate inventory levels throughout the supply chain, and describe three popular strategies to solve supply chain problems. Define “electronic data interchange (EDI),” “extranet,” and “portal,” and explain how each of these applications helps support supply chain management. Copyright John Wiley & Sons Canada

OPENING CASE CASE 9.1 The Next Step in Customer Relationship Management Taste profiling is when websites track what you buy or look at and remember your tastes. Persuasion profiling tries to guess what will persuade you to buy something. Persuasion profiling can provide many benefits but also has drawbacks. To prevent advertisers from pouncing on your personal psychological weak spots, you should watch for signs of persuasion profiling and view all marketing arguments with a grain of salt. Micro-profiling, or micro-personalization, can encase individuals in a silent, subtle bubble, isolating them from discoveries and insights that fall outside their usual tastes and interests. This bubble is invisible, so users are unaware of how their Internet and the websites they visit differ from what other people see. In fact, several years ago, when users searched a particular topic, everyone would get the same result. Today, different people who Google the same topic can get different results. These different results are based on the enormous amount of data (through search, Gmail, Maps, and other services) that Google maintains on its users. Copyright John Wiley & Sons Canada

OPENING CASE The Problem Because many websites track what you buy or look at, it’s hard to remain anonymous on the Internet. Advertisers also know what you like and try to sell you more of the same with targeted ads on almost every page. This process is called taste profiling, and if taste profiling isn’t personal enough, it’s called persuasion profiling. Persuasion profiling can cause problems like micro-profiling (or micro-personalization). Micro-profiling can encase individuals in a silent, subtle bubble, isolating them from discoveries and insights that fall outside their usual tastes and interests. Copyright John Wiley & Sons Canada

OPENING CASE The Solution Researchers can track what kind of pitch is most persuasive for each person (whether it’s appeal to authority, social proof, high need for cognition, or hit over the head). Your persuasion profile would be worth quite a lot of money to many companies as persuasion profiling can provide many benefits. Copyright John Wiley & Sons Canada

OPENING CASE The Results To prevent advertisers from pouncing on your personal psychological weak spots, you should watch for signs of persuasion profiling and view all marketing arguments with a grain of salt. Copyright John Wiley & Sons Canada

OPENING CASE Discussion Copyright John Wiley & Sons Canada

OPENING CASE What We Learned From This Case It provides a specific example of the evolving nature of the business-customer relationship. As personal technology usage changes, so too must the methods that businesses use to interface with their customers. Organizations increasingly are emphasizing a customer-centric approach to their business practices. Copyright John Wiley & Sons Canada

9.1 DEFINING CUSTOMER RELATIONSHIP MANAGEMENT
Customer relationship management (CRM) is a customer-focused and customer-driven organizational strategy. Returns to personal marketing rather than market to a mass of people or companies, businesses market to each customer individually. Companies can implement a crm tool that manages distribution, scheduling, billing, and customer information. Is not a process or a technology per se; rather, it is a customer-centric way of thinking and acting. Helps companies acquire new customers, retain existing profitable customers, and grow relationships with existing customers. Customer relationship management (CRM) is a customer-focused and customer-driven organizational strategy. returns to personal marketing rather than market to a mass of people or companies, businesses market to each customer individually. companies can implement a CRM tool that manages distribution, scheduling, billing, and customer information. is not a process or a technology per se; rather, it is a customer-centric way of thinking and acting. helps companies acquire new customers, retain existing profitable customers, and grow relationships with existing customers. Copyright John Wiley & Sons Canada

FROM NEIGHBORHOOD STORES…….
Before the supermarket, the mall, and the automobile, people purchased goods at their neighbourhood store. The owners and employees recognized customers by name and knew their preferences and wants. For their part, customers remained loyal to the store and made repeated purchases. Before the supermarket, the mall, and the automobile, people purchased goods at their neighbourhood store. The owners and employees recognized customers by name and knew their preferences and wants. For their part, customers remained loyal to the store and made repeated purchases. Copyright John Wiley & Sons Canada

TO TODAY….. Over time personal customer relationship became impersonal as people moved from farms to cities, consumers became mobile, and supermarkets and department stores achieved economies of scale through mass marketing. Although prices were lower and products were more uniform in quality, the relationship with customers became nameless and impersonal. Over time personal customer relationship became impersonal as people moved from farms to cities, consumers became mobile, and supermarkets and department stores achieved economies of scale through mass marketing. Although prices were lower and products were more uniform in quality, the relationship with customers became nameless and impersonal. Copyright John Wiley & Sons Canada

THE CRM PROCESS The process begins with marketing efforts, where the organization solicits prospects from a target population of potential customers. A certain number of these prospects will make a purchase, thus becoming customers. Of the organization’s customers, a certain number will become repeat customers. The organization then segments its repeat customers into low-value and high-value repeat customers. An organization’s overall goal is to maximize the lifetime value of a customer, which is that customer’s potential revenue stream over a number of years. The organization inevitably will lose a certain percentage of customers, a process called customer churn. The optimal result of the organization’s CRM efforts is to maximize the number of high-value repeat customers while minimizing customer churn. Figure 9.1 The customer relationship management process. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 9.1 induPlast With around 70 employees, induPlast manufactures injection-molded plastic containers, which can be customized for patrons. Unfortunately, induPlast began to experience problems providing adequate support to their customers. For example, information for a single customer ended up in different silos of information, making it very difficult for induPlast to track business dealings. induPlast needed a CRM system that would provide a 360-degree view of each customer. induPlast chose Sugar CRM, an open-source tool that enables the company to stream-line its customer information and communication, and induPlast is now able to monitor trends in both the market and customer accounts in real time. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 9.1 Discussion Why was information stored in “information silos” at induPlast in the first place? Why is a 360-degree view of each customer so important to induPlast? Copyright John Wiley & Sons Canada

CUSTOMER TOUCH POINTS Figure 9.2 Customer touch points. Customer touch points: the numerous and diverse interactions that organizations have with their customers. Traditional customer touch points include telephone contact, direct mailings, and actual physical interactions with customers during their visits to a store. Organizational CRM systems must manage additional touch points including , websites, and communications via smart phones Copyright John Wiley & Sons Canada

DATA CONSOLIDATION Data Consolidation = 360-Degree View of Customers Data consolidation also is critical to an organization’s CRM efforts. Customer data must be managed effectively by the organization’s CRM systems. Collaborative CRM systems provide effective and efficient interactive communication with the customer throughout the entire organization. collaborative CRM systems integrate communications between the organization and its customers in all aspects of marketing, sales, and customer support. Typically a CRM system in an organization contains two major components: operational CRM systems and analytical CRM systems. Copyright John Wiley & Sons Canada

9.2 OPERATIONAL CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS
Two major components of Operational CRM: Customer-facing applications: an organization’s sales, field service, and customer interaction centre representatives interact directly with customers Customer-touching or electronic CRM (e-CRM) applications: customers interact directly with these technologies and applications Operational CRM systems support front-office business processes. Front-office processes are those that directly interact with customers; that is, sales, marketing, and service. Copyright John Wiley & Sons Canada

CUSTOMER-FACING APPLICATIONS
Customer service and support Sales force automation Marketing Campaign management Customer service and support include systems that automate service requests, complaints, product returns, and requests for information. Sales force automation (SFA) is the component of an operational CRM system that automatically records all of the components in a sales transaction process. SFA systems include a contact management system, which tracks all contacts that have been made with a customer, the purpose of each contact, and any follow-up that might be necessary. Marketing systems enable marketers to identify and target their best customers, to manage marketing campaigns, and to generate quality leads for the sales teams. Campaign management applications help organizations plan campaigns that send the right messages to the right people through the right channels. Copyright John Wiley & Sons Canada

MARKETING Cross selling Up selling Bundling Cross selling is the marketing of additional related products to customers based on a previous purchase. Up selling is a sales strategy in which the business provides to customers the opportunity to purchase higher-value related products or services in place of, or along with, the consumer’s initial product or service selection. Bundling is a form of cross selling in which a business sells a group of products or services together at a price lower than their combined individual prices. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 9.2 Chinatrust Philippines CRM Effort Chinatrust Philippines implemented a new CRM system to record all customer interactions. Sales agents can now access and analyze customers’ transaction history and use appropriate strategies for targeting customers more effectively, including up and cross-selling. Call agents also have access to customer data at their fingertips, and call service levels (calls answered within 10 seconds) were drastically improved from 35% to 85%. Customer interaction centres (CIC), where organizational representatives use multiple channels such as the web, telephone, fax, and face-to-face interactions to communicate with customers. The call centre is a centralized office set up to receive and transmit a large volume of requests by telephone. Call centres enable companies to respond to a large variety of questions, including product support and complaints. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 9.2 Discussion To what extent is technology important in a call centre? Why is historical transaction data so important in CRM? Why is the integration between communication technology and the CRM so important for effective CRM? Copyright John Wiley & Sons Canada

CUSTOMER-TOUCHING APPLICATIONS
Search and Comparison Capabilities Technical & Other Information Services Customized Products & Services Personalized Web Pages FAQ’s & Automated Response Loyalty Programs Click on the links to review examplesof customer touching applications In customer-touching applications, customers interact directly with online technologies and applications rather than interact with a company representative. Customers typically can use these applications to help themselves. To assist customers, many on-line stores and malls offer search and comparison capabilities, as do independent comparison websites. Goodyear’s website provides information about tires and their use. The Gap allows customers to “mix and match” (customize) an entire wardrobe. Many organizations permit their customers to create personalized web pages. Frequently asked questions (FAQs) are a simple tool for answering repetitive customer queries. Inexpensive and fast, is used not only to answer inquiries from customers but also to disseminate information, send alerts and product information, and conduct correspondence on any topic. Loyalty programs recognize customers who repeatedly use a vendor’s products or services (example: airlines’ frequent flyer programs) Copyright John Wiley & Sons Canada

BENEFITS OF OPERATIONAL CRM SYSTEMS
Provide efficient, personalized marketing, sales, and service. Get a 360-degree view of each customer. Give sales and service employees access to a complete history of customer interaction with the organization Improve sales and account management Copyright John Wiley & Sons Canada

BENEFITS OF OPERATIONAL CRM SYSTEMS (CONTINUED)
Form individualized relationships with customers Identify the most profitable customers Provide employees with the information and processes necessary to know their customers. Understand and identify customer needs Effectively build relationships among the company, its customer base, and its distribution partners. Copyright John Wiley & Sons Canada

9.3 ANALYTICAL CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS
Analytical CRM systems analyze customer data for a variety of purposes: designing and executing targeted marketing campaigns increasing customer acquisition, cross selling, and up selling providing input into decisions relating to products and services providing financial forecasting and customer profitability analysis Analytical CRM systems provide business intelligence by analyzing customer behaviour and perceptions. Copyright John Wiley & Sons Canada

9.3 ANALYTICAL CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS (CONTINUED)
Figure 9.3 The relationship between operational CRM and analytical CRM. Important technologies in analytical CRM systems include data warehouses, data mining, decision support, and other business intelligence technologies After these systems have completed their various analyses, they supply information to the organization in the form of reports and digital dashboards. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 9.3 Harry Rosen Harry Rosen Inc. is a Canadian retail store that sells high-end men’s clothing. Since its beginning, Harry Rosen has been committed to providing excellent customer service, and in order to do so, the company relies on a one-on-one sales approach. However, this system suffered from a number of problems (primarily a lack of easy access to information). The company selected the SalesLogix CRM system, which combines applications for web deployment, mobile devices, and system integration capabilities. The system is able to determine which type of merchandise a customer is more likely to be interested in, know when a new shipment of merchandise will arrive, and schedule tasks (e.g., suit tailoring)—all while still on the sales floor. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 9.3 Discussion Explain how the analytical CRM and operational CRM systems are related in the case of Harry Rosen. Explain how the two are interconnected. Should companies inform customers about the use of CRM software? Why or why not? Support your answer. Copyright John Wiley & Sons Canada

9.4 OTHER TYPES OF CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS
On-demand Mobile Open-source Click on the links to examples of customer relationship management vendors On-demand CRM system is one that is hosted by an external vendor in the vendor’s data centre. The concept of on-demand is also known as utility computing or software-as-a-service. Mobile CRM system is an interactive system that enables an organization to conduct communications related to sales, marketing, and customer service activities through a mobile medium for the purpose of building and maintaining relationships with its customers. Open-source CRM systems, therefore, are CRM systems whose source code is available to developers and users. Copyright John Wiley & Sons Canada

9.5 SUPPLY CHAINS Supply chain is the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end customers; it includes the organizations and processes that create and deliver products, information, and services to end customers. Supply chain visibility is the ability for all organizations in a supply chain to access or view relevant data on purchased materials as these materials move through their suppliers’ production processes and transportation networks to their receiving docks. organizations can access or view relevant data on outbound goods as they are manufactured, assembled, or stored in inventory and then shipped through their transportation networks to their customers’ receiving docks. the sooner a company can deliver products and services after receiving the materials required to make them—that is, the higher the inventory velocity—the more satisfied the company’s customers will be. Copyright John Wiley & Sons Canada

9.5 SUPPLY CHAINS (CONTINUED)
Supply chain involves three segments: 1. Upstream, where sourcing or procurement from external suppliers occurs. 2. Internal, where packaging, assembly, or manufacturing takes place. 3. Downstream, where distribution takes place, frequently by external distributors. Figure 9.4 shows several tiers of suppliers. As the diagram indicates, a supplier may have one or more subsuppliers, a subsupplier may have its own subsupplier(s), and so on Figure 9.4 Generic supply chain. Copyright John Wiley & Sons Canada

FLOWS OF THE SUPPLY CHAIN
Material: physical products, raw materials, supplies, etc. that flow along the chain Information: data related to demand, shipments, orders, returns, and schedules, as well as changes in any of these data Financial: money transfers, payments, credit card information and authorization, payment schedules, e-payments, and credit-related data. Material flows also include reverse flows (or reverse logistics)—returned products, recycled products, and disposal of materials or products. A supply chain thus involves a product life cycle approach, from “dirt to dust.” Copyright John Wiley & Sons Canada

9.6 SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) Interorganizational information system (IOS) Supply chain management (SCM) is to plan, organize, and optimize the various activities performed along the supply chain. Interorganizational information system (IOS), information flows among two or more organizations. Copyright John Wiley & Sons Canada

INTERORGANIZATIONAL INFORMATION SYSTEM (IOS)
Reduces costs of routine business transactions Improves quality of information flow by reducing or eliminating errors Compresses cycle time in fulfilling business transactions Eliminates paper processing and its associated inefficiencies and costs Makes transfer and processing of information easier for users Copyright John Wiley & Sons Canada

PUSH MODEL Push model, also known as make-to-stock, the production process begins with a forecast, which is simply an educated guess as to customer demand. Push model, also known as make-to-stock, the production process begins with a forecast, which is simply an educated guess as to customer demand. The forecast must predict which products customers will want as well as the quantity of each product. The company then produces the amount of products in the forecast, typically by using mass production, and sells, or “pushes,” those products to consumers. Copyright John Wiley & Sons Canada

PULL MODEL Pull model, also known as make-to-order, the production process begins with a customer order. Pull model, also known as make-to-order, the production process begins with a customer order. Therefore, companies make only what customers want, a process closely aligned with mass customization. Copyright John Wiley & Sons Canada

PROBLEMS ALONG THE SUPPLY CHAIN
Poor customer service Poor quality product High inventory costs Loss of revenues The problems along the supply chain arise primarily from two sources: Uncertainties (2) The need to coordinate multiple activities, internal units, and business partners Copyright John Wiley & Sons Canada

THE BULLWHIP EFFECT The bullwhip effect is erratic shifts in orders up and down the supply chain Figure 9.5 The bullwhip effect. Copyright John Wiley & Sons Canada

SOLUTIONS TO SUPPLY CHAIN PROBLEMS
Vertical Integration Using Inventories Just-in-time Information Sharing Vendor-managed inventory (VMI) Vertical integration is a business strategy in which a company purchases its upstream suppliers to ensure that its essential supplies are available as soon as they are needed. The most common solution to supply chain problems is building inventories as insurance against supply chain uncertainties. Just-in-time (JIT) inventory system, which attempts to minimize inventories. That is, in a manufacturing process, JIT systems deliver the precise number of parts, called work-in-process inventory, to be assembled into a finished product at precisely the right time. Information sharing can be facilitated by electronic data interchange and extranets. Vendor-managed inventory (VMI) occurs when the supplier, rather than the retailer, manages the entire inventory process for a particular product or group of products. Copyright John Wiley & Sons Canada

9.7 INFORMATION TECHNOLOGY SUPPORT FOR SUPPLY CHAIN MANAGEMENT
Electronic Data Interchange (EDI) Extranets Web Services Electronic data interchange (EDI) is a communication standard that enables business partners to exchange routine documents, such as purchasing orders, electronically. EDI formats these documents according to agreed-upon standards (for example, data formats). It then transmits messages over the Internet using a converter, called a translator. Copyright John Wiley & Sons Canada

EDI BENEFITS Minimize data entry errors Length of messages are shorter Messages are secured Reduces cycle time Increases productivity Enhances customer service Minimizes paper usage and storage Copyright John Wiley & Sons Canada

EDI LIMITATIONS Sometimes business processes must be restructured EDI is being replaced by XML-based web services Multiple EDI standards exist Copyright John Wiley & Sons Canada

EDI LIMITATIONS (CONTINUED)
Figure 9.6 Comparing purchase order (PO) fulfillment with and without EDI. See Figure 10.3. Copyright John Wiley & Sons Canada

EXTRANETS Major benefits: Faster processes Information flow Improved order entry and customer service Lower costs Overall improved business effectiveness An extranet allows external business partners to enter the corporate intranet, via the Internet, to access data, place orders, check the status of those orders, communicate, and collaborate. It also enables partners to perform self-service activities such as checking inventory levels. Extranets use virtual private network (VPN) technology to make communication over the Internet more secure. Copyright John Wiley & Sons Canada

EXTRANETS (CONTINUED)
To implement IOSs and SCM systems, a company must connect the intranets of its various business partners to create extranets. Extranets link business partners over the Internet by providing them access to certain areas of each other’s corporate intranets as illustrated in Figure 9.7. Figure 9.7 The structure of an extranet. Copyright John Wiley & Sons Canada

EXTRANETS (CONTINUED)
There are 3 basic types of extranets A single company An entire industry Joint ventures and other business partnerships There are 2 corporate portals: Procurement (sourcing) Distribution A company and its dealers, customers or suppliers – centers around one company (example: Fedex) An industry’s extranet – major players in an industry team up to create an extranet. Joint ventures and other business partnerships – partners in a joint venture use extranet as a vehicle for communications and collaboration. Sometimes extranets are part of corporate portals: procurement (sourcing) portals for a company’s suppliers (upstream in the supply chain), and distribution portals for a company’s customers (downstream in the supply chain). Procurement portals automate the business processes involved in purchasing or procuring products between a single buyer and multiple suppliers. Distribution portals automate the business processes involved in selling or distributing products from a single supplier to multiple buyers. Copyright John Wiley & Sons Canada

CHAPTER CLOSING Customer relationship management (CRM) is an organizational strategy that is customer focused and customer driven. Collaborative CRM is an organizational CRM strategy where data consolidation and the 360-degree view of the customer enable the organization’s functional areas to readily share information about customers. Copyright John Wiley & Sons Canada

CHAPTER CLOSING (CONTINUED)
Two major components of operational CRM systems: customer-facing CRM, customer-touching applications. Analytical CRM systems analyze customer behaviour and perceptions in order to provide business intelligence. Three additional CRM systems: mobile, on-demand, and, open-source Copyright John Wiley & Sons Canada

Supply chain is the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end customers. three components: upstream, internal, downstream three flows: material, information, financial Two major challenges: demand forecast, bullwhip effect three popular solutions: building inventories, just-in-time (JIT), vendor-managed inventory (VMI) Copyright John Wiley & Sons Canada

Electronic data interchange (EDI) is a communication standard that enables the electronic transfer of routine documents, such as purchasing orders, between business partners. Extranets are networks that link business partners over the Internet. Corporate Portals offer a single point of access through a web browser to critical business information in an organization. Copyright John Wiley & Sons Canada

CLOSING CASE CASE 9.2 IT Helps Cannondale Manage Its Complex Supply Chain The Problem Cannondale is a pioneer in the engineering and manufacturing of high-end bicycles, apparel, footwear, and accessories. Because Cannondale is an international company that is affected by market and weather conditions, the firm is faced with highly complex and volatile consumer demand. Cannondale’s primary objective was to find an IT solution that would improve the accuracy of the company’s parts flow, support the company’s need for flexibility, and operate within the confines of its existing business systems—all at an affordable cost. Copyright John Wiley & Sons Canada

CLOSING CASE The Solution Cannondale selected the Kinaxis RapidResponse system for its integrated demand and supply planning and monitoring. It provides users with necessary information in minutes, as opposed to eight hours with the previous system. RapidResponse has transformed Cannondale’s entire supply chain. Supply chain participants located around the world now can instantly simulate, share, and score what-if scenarios to evaluate and select the actions they need to take to respond to changing supply and demand conditions. Copyright John Wiley & Sons Canada

CLOSING CASE The Results Today, Cannondale responds to customer orders quickly, and it has significantly reduced its inventory, together with its associated costs. In addition, the company has benefited from higher inventory returns, reductions in safety stock, improvement in cycle times, reduced lead times, and more accurate promise dates. As a result, customer satisfaction has improved. Copyright John Wiley & Sons Canada

CLOSING CASE Discussion Describe Cannondale’s complex manufacturing environment, and identify some of the problems that this environment created. Describe the RapidResponse system’s impact on Cannondale’s global supply chain management. Draw a diagram of Cannondale’s supply chain, including the physical flow, information flow, and financial flow. Provide two examples describing other types of IT solutions to support the supply chain that Cannondale could use. Copyright John Wiley & Sons Canada

CHAPTER 9 Customer Relationship Management and Supply Chain Management

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