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Chapter 3

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  • CLASSROOM OPENER GREAT BUSINESS DECISIONS – Richard Sears Decides to Sell Products Through a Catalog Sears Roebuck changed the shape of an entire industry by being lucky enough to discover a huge untapped market that lay waiting to be discovered. In the 1880s about 65 percent of the population (58 million) lived in the rural areas. Richard Sears lived in North Redwood, Minnesota, where he was an agent at the Minneapolis and St. Louis railway station. Sears began trading products such as lumber, coal, and watches, when the trains would pass through. Sears moved to Chicago in 1893 and partnered with Alvah C. Roebuck, and the Sears & Roebuck company was born. The company first published a 32 page catalog selling watches and jewelry. By 1895 the catalog was 532 pages long and included everything from fishing tackle to glassware. In 1893 sales reached $400,000 and by 1895 sales topped $750,000. Sears invented many new marketing campaigns and concepts that are still in use today, including a series of rewards (or loyalty programs) for customers who passed copies of the catalog on to friends and relatives. Sears was one of the first companies to recognize the importance of building strong customer relationships. Sears’ loyalty program gave each customer 24 copies of the catalog to distribute, and the customer would generate points each time an order was placed from one of the catalogs by a new customer. The Sears catalog became a marketing classic. It brought the world to the isolated farms and was a feast for the new consumers. The entire world was available through the Sears catalog, and it could be delivered to the remotest of doorsteps.
  • 3.1 List and describe the four basic components of supply chain management Supply chain strategy is the strategy for managing all the resources required to meet customer demand for all products and services Supply chain partners are the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metrics Supply chain operation is the schedule for production activities including testing, packaging, and preparation for delivery Supply chain logistics is the product delivery processes and elements including orders, warehouses, carriers, defective product returns, and invoicing 3.2 Explain customer relationship management systems and how they can help organizations understand their customers CRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprisewide level. If an organization does not embrace CRM on an enterprisewide level it will have a difficult time gaining a complete view of its customers. CRM can enable an organization to identify types of customers, design specific marketing campaigns tailored to each individual customer, and understand customer-buying behaviors.
  • 3.3 Summarize the importance of enterprise resource planning systems Enterprise resource planning systems provide organizations with consistency. Enterprise resource planning (ERP) integrates all departments and functions throughout an organization into a single IT system (or integrated set of IT systems) so that employees can make decisions by viewing enterprisewide information on all business operations. An ERP system provides a method for effective planning and controlling of all the resources required to take, make, ship, and account for customer orders in a manufacturing, distribution, or service organization. The key word in enterprise resource planning is enterprise . 3.4 Identify how an organization can use business process reengineering to improve its business The purpose of BPR is to make all your processes the best-in-class. Companies frequently strive to improve their business processes by performing tasks faster, cheaper, and better. Companies often follow the same indirect path for doing business, not realizing there might be a different, faster, and more direct way of doing business. BPR provides companies with a way to find the different, more direct way of doing business, such as Progressive Insurance. If your students are unfamiliar with business processes have them review plug-in B2 – Business Processes for a detailed look at common business processes, business process modeling, continuous improvement, and business process reengineering.
  • This chapter provides an overview of SCM, CRM, BPR, and ERP Explain to your students that this is simply an introduction of SCM, CRM, BPR, and ERP Each of these initiatives is discussed in detail throughout the text There are also business plug-ins offering advanced material on SCM, CRM, BPR, and ERP
  • To help your students understand a supply chain, ask them to discuss and determine the steps typically taken when a customer buys a bike from Trek Customer places an order for a Trek bike with a store Store (such as Gart Sports, local bike shop, or local sporting goods store) receives the order Store receives the payment from the customer Store orders the bike from Trek Store sends payment to Trek Trek orders materials from its suppliers, such as packaging material, metal, and accessories Trek sends payments to suppliers Trek receives materials from suppliers Trek assembles the bike Trek ships the bike to the store Customer picks up the Trek bike from the store
  • There are dozens of steps required to achieve and carry out each of the four basic components of SCM Supply chain strategy is the strategy for managing all the resources required to meet customer demand for all products and services. Supply chain partners are the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metrics. Supply chain operation is the schedule for production activities including testing, packaging, and preparation for delivery. Supply chain logistics is the product delivery processes and elements including orders, warehouses, carriers, defective product returns, and invoicing. An organization generates tremendous operational efficiencies when it automates these steps and the information flows among them CLASSROOM EXERCISE Supply Chaining the Room Divide your class into four groups and assign a different SCM component to each group Ask your students to create a list describing the details of the work involved in their assigned component Ask your students to discuss how this work was accomplished prior to the invention of the computer Ask your students to describe the effect SCM software has on work accomplished among the four components
  • Wal-Mart and P&G implemented a tremendously successful SCM System links Wal-Mart’s distribution centers directly to P&G’s manufacturing centers Each time a Wal-Mart customers purchases a P&G product, the system sends a message directly to P&G’s factory for a reorder Explain how Wal-Mart’s and P&G’s relationship would be affected if a catastrophic incident destroyed the SCM system? How would Wal-Mart reorder products? How would Wal-Mart send payments? How would P&G know which products to send to Wal-Mart?
  • This is a good time to readdress Porter’s Five Forces Model Ask your students to diagram Porter’s Five Forces and then walk-thru each of the above bullets and explain how SCM is causing this effect
  • Is it a good idea to try to influence buyer power and supplier power? Why would a company wants to decrease its buyer power and increase its supply power? Decreasing buyer power gives a company a competitive advantage as Apple discovered with the introduction of its iPod. Being the first to market and the only supplier of a product puts the company in the coveted position of being able to set prices and control the market. Discuss how SCM systems can drive buyer power and supplier power
  • CRM systems help organizations understand and manage their customers Charles Schwab recouped the cost of a multimillion-dollar CRM system in less than two years The system allowed Schwab to segment its customers in terms of serious and nonserious investors The CRM system looked for customers that had automatic withdrawal from a bank account as a sign of a serious investor The CRM system looked for stagnant balances as a sign of a nonserious investor Charles Schwab could then focus efforts on selling to serious investors, and spend less time attempting to sell to nonserious investors Kaiser used CRM to enforce more rigorous eye-screening for diabetic patients Ask your students to list other organizations that use CRM to increase sales and improve operations Ritz-Carlton Hotels Harrah’s Harley-Davidson
  • CRM is not just a technology, but a strategy that an organization must embrace on an enterprisewide level Although CRM has many technical components, it is actually a process and business goal simply enhanced by technology Organizations must first decide that they want to build strong customer relationships and then they determine how IT can support their goals Provide examples of bad customer experiences you have had in the past Are you still doing business with that company? What could the company have done to attempt to keep your business? Do you see the value in CRM and how beneficial it can be for an organization to develop and maintain strong customer relationships?
  • Customers contact organizations multiple times through numerous channels Each contact can be stored in a different system or different database. For example, a sales call and a billing call will be maintained in two different databases The CRM system tracks all of the different contacts through the various channels and collates the information into a central repository This gives the organization a complete and total view of its customers, along with their purchases, questions, issues, and concerns, in one single place Why is it so important for an organization to embrace CRM on an enterprisewide level? What happens if only one division in an organization embraced CRM? (not enterprisewide) What happens if the customer service system or order fulfillment system were not part of the CRM system in the above diagram? How would the company determine orders or provide customer service?
  • CLASSROOM EXERCISE Reengineering a Process There is nothing more frustrated than a broken process. Ask your students to break into groups and discuss examples of broken processes that are currently causing them pain. The process can be a university process, mail-order process, Internet-order process, return merchandise process, etc. Ask your students to agree on one of the broken processes and to reengineer the process. Students should diagram the “As-Is” process and then diagram their “To-Be” process. Bring in a large roll of brown package wrapping paper and masking tape. Give each group two large pieces of the paper and ask them to tape the paper to the wall. These make for great “As-Is” and “To-Be” process maps.
  • BPR reached its heyday in the early 1990s when Michael Hammer and James Champy published their best-selling book, Reengineering the Corporation . The authors promoted the idea that radical redesign and reorganization of an enterprise (wiping the slate clean) sometimes was necessary to lower costs and increase quality of service and that information technology was the key enabler for that radical change. Hammer and Champy believed that the workflow design in most large corporations was based on invalid assumptions about technology, people, and organizational goals. They suggested seven principles of reengineering to streamline the work process and thereby achieve significant improvement in quality, time management, and cost.
  • Companies frequently strive to improve their business processes by performing tasks faster, cheaper, and better The above figure displays different ways to travel the same road A company could improve the way that it travels the road by moving from foot to horse and then from horse to car However, true BPR would look at taking a different path. A company could forget about traveling on the same old road and use an airplane to get to its final destination. Companies often follow the same indirect path for doing business, not realizing there might be a different, faster, and more direct way of doing business.
  • Radical and fundamentally new business processes enabled Progressive Insurance to slash the claims settlement from 31 days to four hours. Typically, car insurance companies follow this standard claims resolution process: The customer gets into an accident, has the car towed, and finds a ride home. The customer then calls the insurance company to begin the claims process, which usually takes over a month (see Figure). Progressive Insurance improved service to its customers by offering a mobile claims process. When a customer has a car accident he or she calls in the claim on the spot. The Progressive claims adjustor comes to the accident and performs a mobile claims process, surveying the scene and taking digital photographs. The adjustor then offers the customer on-site payment, towing services, and a ride home. (see Figure).
  • A true BPR effort does more for a company than simply improve it by performing a process better, faster, and cheaper Progressive Insurance’s BPR effort redefined best practices for its entire industry The figure displays the different types of change an organization can achieve, along with the magnitude of change and the potential business benefit What is an example of each type of change on the change spectrum? Automate – answering phones with computers, auto grading an essay or Excel project Streamline – remove duplicate jobs in the process, use a different tool to perform the same task BPR – taking an airplane instead of a bike, horse, or car Strategic reengineering – taking BPR to the level where you redefine an entire industry – such as Progressive Insurance
  • What happens when sales and marketing departments are working from two different sets of customer information and product information? Would the marketing campaigns be accurate? Would sales be able to deliver the products it sells to its customers? Briefly explain the differences between SCM, CRM, and ERP SCM systems focus specifically on suppliers CRM systems focus specifically on customers ERP systems focus on everything, all processes, departments, and operations for an enterprise
  • When displaying the sales database example and the accounting database be sure to point out the differences in the data Ask your students why correlating these two spreadsheets would be difficult? How can you understand customers when one spreadsheet has customer name and one has customer ID? How can you understand sales reps when one spreadsheet has sales rep names and one spreadsheet has sales rep ID? Date format is different – will this cause problems? One quantity is in units and one quantity has decimal points – what problems will this cause? Unit price and unit cost is rounded to dollars in one spreadsheet and contains cents in another – what problems will this cause?
  • When displaying the sales database example and the accounting database be sure to point out the differences in the data Ask your students why correlating these two spreadsheets would be difficult? How can you understand customers when one spreadsheet has customer name and one has customer ID? How can you understand sales reps when one spreadsheet has sales rep names and one spreadsheet has sales rep ID? Date format is different – will this cause problems? One quantity is in units and one quantity has decimal points – what problems will this cause? Unit price and unit cost is rounded to dollars in one spreadsheet and contains cents in another – what problems will this cause?
  • The true benefit of an ERP system is its ability take the many different forms of data from across the different organizational systems and correlate, aggregate, and provide an enterprisewide view of organizational information The two previous spreadsheets display examples of differences in data that can be fixed by using an ERP system Ask your students why it is important to have an enterprisewide view of data? Without understanding how all of the different divisions, products, departments, etc. are operating you cannot run the business
  • 1. Evaluate how Apple can gain business intelligence through the implementation of a customer relationship management system. Apple could gain significant business intelligence through the implementation of a CRM system (that is, assuming they do not already have one). A CRM system could help Apple determine who is buying music on iTunes and it could tailor the Web site to customize offers to its customers, similar to Amazon. Apple could also offer cross-purchasing incentives such as free downloads on iTunes with the purchase of an iPod, or a free accessory item. The business intelligence gained through a CRM system is limitless.   2. Create an argument against the following statement: “Apple should not invest any resources to build a supply chain management system.” Supply chain management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability. Dozens of steps are required to achieve and carry out the processes between each party in the supply chain. SCM software can enable an organization to generate efficiencies within these steps by automating and improving the information flows throughout and among the different supply chain components. Apple is involved in all steps in the supply chain from the sourcing of raw materials to build its iPods to selling downloadable music. Without a supply chain Apple would find it extremely difficult to conduct business. 3. Why would a company like Apple invest in BPR? Without continuously improving the efficiency and effectiveness of its operations Apple would not be moving in the right direction. Any company must continuously dissect its current operations to ensure it is perform at highest efficiently and effectiveness levels. Apple needs to remain as a top innovation company and that means always looking for new innovative ways to perform business.
  • Additional Case Material Saab estimated that there were between 10 and 11 million people worldwide who would seriously consider buying one of its cars. The company wanted to use its CRM system to create a personal dialogue with each potential customer. Saab decided to send an e-mail to each of its prospects asking them whether they were contacted by a dealer, if they had gone to a dealership for a test drive, and how the dealer interaction went. The CRM system had a few trouble spots. Initially, the system sent out an e-mail to every name it had, including those brought in through sweepstakes and banner ads. Many of these potential customers were not qualified and dealers found themselves inundated with nonqualified leads. The dealers began demanding leads with a higher level of qualification. Saab modified the pre-qualifying characteristics in the CRM system and sent dealers leads from e-mails where the customer chose to opt-in when asked to take a test drive and be contacted by a dealer. To ensure that dealers were using the new leads, Saab included several dummy leads that, when called, rewarded the dealer with gifts such as a PDA. The leads provided by the new Saab CRM program are always the first ones taken by sales representatives at the dealerships. Quantifiable evidence confirms that the new CRM system is working. When the parent company contacted the newly qualified prospects from the CRM system, it found that those reached by dealers bought new Saabs 40% of the time.
  • 1. Explain how implementing a CRM system enabled Saab to gain a competitive advantage The CRM system allowed Saab to gain a consolidated view of its customers through its three primary channels (1) dealer networks, (2) customer assistance centers, (3) lead management centers. The “TouchPoint” system provides Saab dealers with a powerful Web-based solution for coordinating sales and marketing activities. Saab can now measure the sales results of specific leads, recommend more efficient selling techniques, and target its leads more precisely moving forward. Read the Additional Case Material below for a few insights into Saab’s CRM system. 2. Estimate the potential impact to Saab’s business if it had not implemented a CRM system The potential impact is devastating. Without the ability to create a consolidated customer view, Saab would be unable to coordinate sales and marketing efforts, improve selling techniques, or even understand basic questions such as who are its customers and what are their needs. 3. What additional benefits could Saab receive from implementing a supply chain management system? If Saab implemented a successful SCM system, it would drive down production costs and could increase revenues. Saab could use an SCM system to change to a just-in-time manufacturing strategy and only order parts when they are actually required and based on actual orders. This would cut down on Saab’s inventory expenses, and Saab could pass all of these savings onto the customer by lowering the prices of its cars, which would potentially attract even more customers.
  • 4. Create a model of Saab’s potential supply chain. Student answers to this question will vary. The goal is to ensure that students have all participants in the supply chain represented and a few examples of processes. Supplier – raw materials such as steel, rubber, and plastic Manufacturer – Tires, Sony stereos and DVD players, GPS systems, XM radio Distributor – Saab’s transportation company Retailer – Saab dealerships around the country Customer – Joe Smith 5. How is Saab’s CRM implementation going to influence its SCM practices? If Saab has a better idea of who its customers are and their purchasing habits they can better understand demand, create products driven to their customer needs, and offer customer products that are currently in their supply chain. For example, if they know that Joe Smith typically leases a new Saab every 3 years they can ensure they have Joe’s type of car on the lot. The dealership can quickly send Joe a personalized e-mail letting him know that his lease is about to expire and they have the perfect car for him waiting on their lot and they can even send him a video of the new car.
  • Transcript

    • 1. Chapter 3 Strategic Initiatives for Implementing Competitive AdvantagesMcGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, All Rights Reserved
    • 2. Learning Outcomes3.1 List and describe the four basic components of supply chain management3.2 Explain customer relationship management systems and how they can help organizations understand their customers 3-2
    • 3. Learning Outcomes3.3 Summarize the importance of enterprise resource planning systems3.4 Identify how an organization can use business process reengineering to improve its business 3-3
    • 4. Strategic Initiatives• Organizations can undertake high-profile strategic initiatives including: – Supply chain management (SCM) – Customer relationship management (CRM) – Business process reengineering (BPR) – Enterprise resource planning (ERP) 3-4
    • 5. Supply Chain Management• Supply Chain Management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability 3-5
    • 6. Supply Chain Management• Four basic components of supply chain management include: 1. Supply chain strategy – strategy for managing all resources to meet customer demand 2. Supply chain partner – partners throughout the supply chain that deliver finished products, raw materials, and services. 3. Supply chain operation – schedule for production activities 4. Supply chain logistics – product delivery process 3-6
    • 7. Supply Chain Management• Wal-Mart and Procter & Gamble (P&G) SCM 3-7
    • 8. Supply Chain Management• Effective and efficient SCM systems can enable an organization to: – Decrease the power of its buyers – Increase its own supplier power – Increase switching costs to reduce the threat of substitute products or services – Create entry barriers thereby reducing the threat of new entrants – Increase efficiencies while seeking a competitive advantage through cost leadership 3-8
    • 9. Supply Chain Management• Effective and efficient SCM systems effect on Porter’s Five Forces 3-9
    • 10. Customer Relationship Management• Customer relationship management (CRM) – involves managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organizations profitability• Many organizations, such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems 3-10
    • 11. Customer Relationship Management• CRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprisewide 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 3-11
    • 12. Customer Relationship Management• CRM overview 3-12
    • 13. Business Process Reengineering • Business process – a standardized set of activities that accomplish a specific task, such as processing a customer’s order • Business process reengineering (BPR) – the analysis and redesign of workflow within and between enterprises – The purpose of BPR is to make all business processes best-in-class 3-13
    • 14. Business Process Reengineering • Reengineering the Corporation – book written by Michael Hammer and James Champy that recommends seven principles for BPR 3-14
    • 15. Finding Opportunity Using BPR• A company can improve the way it travels the road by moving from foot to horse and then horse to car• BPR looks at taking a different path, such as an airplane which ignore the road completely 3-15
    • 16. Finding Opportunity Using BPR• Progressive Insurance Mobile Claims Process 3-16
    • 17. Finding Opportunity Using BPR• Types of change an organization can achieve, along with the magnitudes of change and the potential business benefit 3-17
    • 18. Enterprise Resource Planning• Enterprise resource planning (ERP) – integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprisewide information on all business operations• Keyword in ERP is “enterprise” 3-18
    • 19. Enterprise Resource Planning• Sample data from a sales database 3-19
    • 20. Enterprise Resource Planning• Sample data from an accounting database 3-20
    • 21. Enterprise Resource Planning• ERP systems collect data from across an organization and correlates the data generating an enterprisewide view 3-21
    • 22. OPENING CASE STUDY QUESTIONSApple – Merging Technology, Business, and Entertainment 1. Evaluate how Apple can gain business intelligence through the implementation of a customer relationship management system 2. Create an argument against the following statement: “Apple should not invest any resources to build a supply chain management system 3. Why would a company like Apple invest in BPR? 3-22
    • 23. CHAPTER THREE CASEConsolidating Touchpoints for Saab • Saab required a consolidated customer view among its three primary channels: – Dealer network – Customer assistance center – Lead management center 3-23
    • 24. Chapter Three Case Questions 1. Explain how implementing a CRM system enabled Saab to gain a competitive advantage 2. Estimate the potential impact to Saab’s business if it had not implemented a CRM system 3. What additional benefits could Saab receive from implementing a supply chain management system? 3-24
    • 25. Chapter Three Case Questions 4. Create a model of Saab’s potential supply chain 5. How is Saab’s CRM implementation going to influence its SCM practices? 3-25

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