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Information Technology: Strategic Decision Making For Managers Henry C. Lucas Jr. John Wiley & Sons, Inc Dinesh Mirchandani University of Missouri – St. Louis

Copyright 2004 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

Chapter 17 Business Process: Examples from ERP and CRM

Benefits of Enterprise Resource Planning Systems
Provide efficient processing
measured by indicators like the number of transactions per employee, cycle time reductions and supply chain efficiency
Provide a level of process standardization
leads to efficiencies for companies with many different locations
Provide a platform for the development of new systems
ERP gives management an option for the future

Benefits of Customer Relationship Management (CRM) Systems
Improved customer relations leading to repeat business
Reduced costs for acquiring a customer
Reduced costs per customer service call
Greater customer satisfaction
Opportunities for cross-selling and for additional business from an existing customer
Increased revenue

Measures of the Contribution of ERP Systems
Transactions processed per employee
Cycle time reduction in the production of goods or services and the development of new products
As an option for other applications

Measures of the Contribution of CRM Systems
Customer satisfaction
Customer retention (amount of repeat business)
Cost of acquiring a customer
Cost per sales call
Cost to process a customer support interaction

Understanding Business Processes
Business Process Reengineering
“… the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed (Hammer and Champy, 1993).”

Reengineering
Fundamental
Why does the firm do things a certain way?
Radical
reinvention as opposed to making superficial changes or minor enhancements
Dramatic
focuses on achieving quantum leaps in performance
Processes
a collection of activities that takes one or more kinds of inputs and produces some output of value

What is a Process?
A process is like a system
it begins with some inputs, involves processing, and ends with an objective accomplished (e.g., order fulfillment)
A process may
extend across many organization boundaries
involve a large number of individuals
require many decisions and actions along the way

An Example of A Process at Merrill Lynch
The customer brings documents to a branch office
The branch does preliminary processing
Certificates are sent to a processing center
The center verifies and checks the certificates
The center processes certificates
The center posts data to the customer's account

The Original System

The New System

Impact of the New System
Reduction of occupancy from two locations to one
Reduction in depository fees
Interest savings on receivables
Reduction of microfilm costs
Savings in security services
Reduction in staff

Execution of Business Process Reengineering/Redesign
Technological leveling
Production automation
Electronic workflows

Improving Processes
Questions to ask include
What are our key business processes?
Do we have to execute this process at all?
What totally new ways, taking advantage of information technology, exist to perform this process?
What does redesigning a process imply for the structure of the organization?
How can we use IT design variables in conjunction with process redesign to change the structure of the organization?

Enterprise Resource Planning Systems
ERP packages are integrated and provide consistent interfaces
Include modules that encompass the processing for major subsystems like order processing, manufacturing, accounts receivable, general ledger, human resources, production planning, etc.
Before the advent of ERP systems, companies developed applications for different functions
Major ERP package vendors include SAP and Oracle

Customer Catalog Order XML EDI Fax Order Processing Manufacturing Master Production Schedule Materials Requirements Planning Purchasing Purchase Vendor Order Invoice Goods (materials) Inventory (Warehouse) Shipment Accounts Payable Payment Invoice Sales Reporting General Ledger Orders Manufacturing Backlog Work in process Shipments Finished goods Cost buildup Accounts Payable Accounts Receivable Sales Payment Accounts Receivable 1. 2.
Item in stock, ship from inventory
Out of stock, manufacture and ship
Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing Customer orders via Internet EDI, Fax, phone

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing Enter order Retrieve customer data from DB Check credit Check inventory

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing Item in inventory Shipping notice to warehouse

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing Warehouse generates picking list Pick and ship order System updates A/R

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing AR sends invoice to customer Post payment from customer Update customer credit limit

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing MRP determines materials needed Generate purchase order and transmit Vendor ships goods Enter receipt of goods Item not in stock Compute available to promise Submit to production planning system

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing Vendor sends invoice Enter invoice Update A/P Send payment to vendor

Enterprise Resources Planning: A Schematic of a Firm’s Transactions Processing Manufacturing makes product Control systems tracks production Product shipped directly to customer or placed in inventory for later shipment Shipping-payments cycle same as for item sent from inventory

Detail and Complexity of ERP Packages
Package vendors
customize the package for various industries or assemble different building blocks for industries
include a lot of options in the software
allow custom coding
However suggest changes to the firm’s business procedures before changing the package

The Implementation Challenge
Failed ERP implementations
Hershey’s chocolates, Nike, Whirlpool
Strategies for successful implementation
utilize significant consultant help
convince employees to change their procedures
carefully decide whether to change business processes to match the software or utilize configuration and enhancements to the software to match current business processes

Customer Relationship Management Software
Help create a highly personalized relationship with each customer leading to greater customer satisfaction and a stronger, more profitable business relationship
Personalized recommendations, collaborative filtering, etc.
Popular CRM software include Siebel and Salesforce.com

Summary
Improved business processes improve efficiency and reduce costs
CRM applications can increase revenue
Major ERP or CRM packages have options components in addition to the immediate benefits they provide

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