Chapter 12

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  • CLASSROOM OPENER GREAT BUSINESS DECISIONS – Warren Buffet Decides to Invest in Berkshire Hathaway In 1962, Warren Buffett decided to invest in an ailing textile company called Berkshire Hathaway. Today, the company has a market capitalization of $60 billion, and Buffett is recognized as one of the greatest investors of all time. Buffett believes in focused investing and believes that all investors should look at five features: The certainty with which the long-term economic characteristics of the business can be evaluated The certainty with which management can be evaluated, both as to its ability to realize the full potential of the business and to wisely employ its cash flows The certainty with which management can be counted on to channel the reward from the business to the shareholders rather than to itself The purchase price of the business The levels of taxation and inflation that will be experienced and that will determine the degree by which an investor’s purchasing-power return is reduced from his gross return Overall, Buffett uses information from every source to analyze and evaluate an investment. Without looking at a business from every angle, internally and externally, including customers, partners, and suppliers, it is impossible to gain an accurate assessment of the business. If a person could capture Warren Buffett’s “know how” and put it in a data warehouse, they could make a small fortune. One of the greatest benefits of an ERP system is helping people understand how the organization is performing from an enterprise perspective. ERP systems provide organizations with information that was previously difficult if not impossible to obtain allowing the organization to perform more efficiently and effectively. Better performance usually means higher profits, which pleases stakeholders and investors.
  • 12.1 Describe the role information plays in enterprise resource planning systems The primary purpose of an ERP is to collect, update, and maintain enterprisewide information All of the functional departments access the same information when making decisions and solving problems 12.2 Identify the primary forces driving the explosive growth of enterprise resource planning systems ERP is a logical solution to the mess of incompatible applications that had sprung up in most businesses ERP addresses the need for global information sharing and reporting ERP is used to avoid the pain and expense of fixing legacy systems 12.3 Explain the business value of integrating supply chain management, customer relationship management, and enterprise resource planning systems Most organizations piecemeal their applications together since no one vendor can respond to every organization’s needs; hence, customers purchase multiple applications from multiple vendors. For example, a single organization might choose its CRM components from Siebel, SCM from i2, financial from Oracle, and human resources from PeopleSoft. These applications must be integrated in order to gain an enterprisewide view of the information.
  • Why do organizations need integrations, if an ERP system contains one database that connects all applications together? Most organizations operate functional “silos”, and each department typically has its own systems A company might purchase an ERP and then all of the functional silos would be on one system, however, this doesn’t happen very often in the real world Most organizations require anywhere from 10 to 100 to 1,000 different systems to run their business Finding one system that could meet all the needs of an entire organization from billing to sales is almost impossible, “sort of a utopia” An organization can purchase an ERP and still have other applications running parts of its business (for example, taxation packages) that are not supported, or not supported well, by the ERP system
  • ERP systems automate business processes, for example, order fulfillment When a CSR takes an order from a customer, he or she has all the information necessary to complete the order (the customer’s credit rating and order history, the company’s inventory levels, and the delivery schedule) Since the company is using an ERP, everyone else in the company will automatically see the information that the CSR types into the ERP system When one department finishes with the order, it is automatically routed via the ERP system to the next department To determine where an order is at any point in time, a user only needs to login to the ERP system and track it down
  • In most organizations, information has traditionally been isolated within specific departments, whether on an individual database, in a file cabinet, or on an employee’s PC. ERP enables employees across the organization to share information across a single, centralized database. With extended portal capabilities, an organization can also involve its suppliers and customers to participate in the workflow process, allowing ERP to penetrate the entire value chain, and help the organization achieve greater operational efficiency When reviewing this diagram demonstrate to the students how each department has its own database separate from all other organizational departments Ask your student what types of problems could occur if all departments maintain their own database and systems? Update issues Redundancy Inaccurate information across databases Different formats of information in the different databases Inability to access other department information and not being provided with a 360 degree view of the organization Different customer information in different databases Customer contact from multiple departments with different messages
  • In most organizations, information has traditionally been isolated within specific departments, whether on an individual database, in a file cabinet, or on an employee’s PC. ERP enables employees across the organization to share information across a single, centralized database. With extended portal capabilities, an organization can also involve its suppliers and customers to participate in the workflow process, allowing ERP to penetrate the entire value chain, and help the organization achieve greater operational efficiency When discussing this slide be sure to explain to your students how one database that supports the entire organization could eliminate many of the issues discussed on the previous slide Ask your students what issues could be caused by having one database that supports the entire organization? Not as flexible and far more difficult to change Might not meet all department needs as well as an individual specific system Multiple access levels increases security issues Ethical dilemmas from accessing different department information – such as payroll
  • This is an excellent diagram that displays where ERP started and where it is headed Ask your students what components might be included in an ERP system in the future Second Life component Wiki component Collaboration component (IM)
  • It might be a bit confusing to your student that many ERP vendors offer SCM and CRM components Explain to your students that these modules are typically not as functional or flexible as the modules offered by industry leaders who specialize in SCM and CRM A good analogy is to brand-name foods at a grocery store A grocery store, such as Safeway, maintains all types of products Safeway offers its own products, such as Safeway’s spaghetti sauce and Safeway’s paper towels, (these are known as name brand products and usually offer a cost advantage) The store also carries products that are specific to a manufacturer, such as Ragu’s spaghetti sauce and Bounty’s paper towels Customers can choose to buy Safeway’s product (this is similar to product supplied by the ERP), or customers can choose to buy a specialty product that is usually more expensive but offers better quality, additional features, and better taste (such as Ragu) Explain to your students that ERP vendors carry SCM and CRM components, but they are usually not as good as the vendors that specialize in SCM and CRM components (Siebel CRM, i2 SCM)
  • The leaders and their respective market share are displayed in the above figures
  • This figure displays the primary users of each application along with the primary business benefit gained
  • One of the big selling points of an ERP or SCM system can be the EAI that is offered to easily integrate with other vendors’ modules For example, if a company is looking at purchasing Siebel CRM and they find out the Siebel has already built many integrations to PeopleSoft financials, it would be more inclined to purchase the product
  • Companies run on interdependent applications If one application of the company does not function well, the entire customer value delivery system is affected The world-class enterprises of tomorrow must be built on the function of world-class applications implemented today
  • Flexible – must be able to quickly respond to the changing needs of the organization Modular and open – must have an open system architecture, meaning that any module can be interface, with or detached whenever required without affecting the other modules. Some organizations will begin with buying two modules, such as accounting and sales, and then will add modules, such as CRM and SCM, as they gain confidence in their current modules. (Implementing in small pieces or phases – companies do not want to buy the entire ERP and spend years implementing twenty different modules to find that it doesn’t meet their need) Comprehensive – must be able to support a variety of organizational functions for a wide range of businesses Beyond the company – must support external partnerships and collaboration efforts
  • There are an estimated 70,000 ERP installations worldwide with over 35 million users Organizations must have a finely tuned integration of business, technology, and process, such as Amazon, Dell, and Cisco, to compete: Streamlining supply chain operations (SCM) Improve customer loyalty (CRM) Gain visibility into enterprisewide information (ERP) CLASSROOM EXERCISE Designing a Digital Dashboard for an ERP System Digital dashboards offer an effective and efficient way to view enterprisewide information at near real-time. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a company’s’ return on investment (ROI), hence all executives should be using or pushing the development of digital dashboards to monitor and analyze organizational operations. Break your students into groups and ask them to develop a digital dashboard for an ERP system. Review the digital dashboards on page 98. Be sure your students have addressed all of the following in their digital dashboard: Accounting Finance Logistics Production Distribution Manufacturing Human resources SCM CRM
  • 1. If you operated a business entirely on Second Life would you require an ERP system? Why or why not? Answers to this question will vary depending on the type of business you are operating in Second Life. If you have a business that spans multiple industries in many different countries you might require an ERP system in Second Life. If you are running a small business independently you might not require an ERP system. This question would be the same if you were in the real world or in a virtual world. 2. How would an ERP system be used in Second Life to support a global organization? The exact same way it would support a company in the real world. It would help to gather and aggregate diverse amounts of information to support a global virtual conglomerate.  
  • 1. What business impact could REI gain by using a digital dashboard from its ERP system? An executive information system (EIS) is a specialized DSS that supports senior level executives within the organization. A digital dashboard integrates information from multiple components and presents it in a unified display. A digital dashboard is a form of EIS. REI could help its executives gain access to greater amounts and details of enterprisewide information through a digital dashboard. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a companies’ return on investment (ROI), hence REI could increase its ROI through a digital dashboard running on an EIS.   A digital dashboard would allow the company to keep a firm eye on operations and be informed in real-time as soon as any issues occur. Keeping a digital dashboard that monitors key metrics will ensure all upper management personnel have up-to-date information on all areas of the business and can react to any potential problems before they become significant business issues. 2. How can REI benefit from using artificial intelligence to support its business operations? Intelligent systems are various commercial applications of artificial intelligence. Artificial intelligence (AI) simulates human intelligence such as the ability to reason and learn and typically can learn or understand from experience, make sense of ambiguous or contradictory information, and use reasoning to solve problems and make decisions. REI could use AI to perform competitive scanning such as RivalWatch, to mimic human expertise such as diagnosing equipment malfunctions, and even to perform dangerous activities such as rock climbing and kayaking to ensure equipment is safe and performs as expected. 3. How does REI’s ERP system help employees improve their decision making capabilities and highlight potential business opportunities? The primary purpose of an ERP is to collect, update, and maintain enterprisewide information. All of the functional departments access the same information when making decisions and solving problems. An ERP system can help REI gain an enterprisewide view into all of its operational information from sales and marketing to billing and finance. This will assist employees in making decision with the most up-to-date and real time information available.
  • 4. How could an SCM system improve REI’s business operations? A supply chain management system can improve a business by giving them insight into their supply chain from suppliers to the end customer. REI could gain a detailed understanding of customer demand and pass this information along to its distributors, manufactures, and suppliers. This would allow REI to use just-in-time ordering keeping inventory amounts low. 5. Provide an illustration of REI’s SCM system including all upstream and downstream participants. Answers to this question will vary. Potential SCM system diagram in IM. 6. Determine two pieces of customer information that REI could extrapolate from its CRM system that would help it manage its business more effectively. REI’s CRM system consolidates its four disparate database systems integrating multiple sales channels to mange mail orders, in-store special orders, kiosk operations, and REI Adventures. This gives the company a complete view of all customers regardless of their shopping preference. REI’s employees can instantly view all items that a customer has purchased and immediately identify additional sale opportunities. The system also gives the employees the ability to help customers with their purchases regardless of where the purchase occurred. There are numerous pieces of information that REI could gain from a CRM system including Best customer, Worst customer, Average purchase by each order method (in-store, online), Cross-marketing plans (order an item online and receive a 10% store discount), Determine characteristics of customers who might purchase an adventure from the items they purchase 7. How can an ERP system help REI gain business intelligence in its operations? The primary purpose of an ERP is to collect, update, and maintain enterprisewide information. All of the functional departments access the same information when making decisions and solving problems. An ERP system can help REI gain an enterprisewide view into all of its operational information from sales and marketing to billing and finance. 8. What is the business benefit for REI in integrating its CRM, SCM, and ERP systems? Most organizations piecemeal their applications together since no one vendor can respond to every organization’s needs; hence, customers purchase multiple applications from multiple vendors. For example, a single organization might choose its CRM components from Siebel, SCM from i2, financial from Oracle, and human resources from PeopleSoft. These applications must be integrated in order to gain an enterprisewide view of the information. By integrating REI’s CRM, SCM, and ERP applications, the company could analyze all of its enterprisewide information, which could yield exciting insights into its current and future operations.  
  • 1. Identify a few key metrics a Dell marketing executive might want to monitor on a digital dashboard. An executive information system (EIS) is a specialized DSS that supports senior level executives within the organization. A digital dashboard integrates information from multiple components and presents it in a unified display. A digital dashboard is a form of EIS. Key metrics for a marketing executive could include: Best selling product, Worst selling product, Date of highest sales per month, Date of worst sales per month, Correlation between product sales, Sales by region, Sales by season Overstocked products, Promotion success 2. Determine how Dell can benefit from using decision support systems and executive information systems in its business. An executive information system (EIS) is a specialized DSS that supports senior level executives within the organization. A digital dashboard integrates information from multiple components and presents it in a unified display. A digital dashboard is a form of EIS. Dell could help its executives gain access to greater amounts and details of enterprisewide information through a digital dashboard. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a companies’ return on investment (ROI), hence REI could increase its ROI through a digital dashboard running on an EIS. 3. Describe how Dell has influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain. Dell is one of the fasted companies on the planet due to information technology. Dell only holds 72 hours worth of inventory in its supply chain, hence it must have tremendous supply chain visibility. It must be able to anticipate consumer behavior to ensure its supply chain can meet forecasted demands. Dell’s competition is working hard to catch-up.
  • 4. Explain the seven principles of SCM in reference to Dell’s business model. Students should take the principles of how to build a Dell-like supply chain and compare them to the following: Segment customers by service needs, regardless of industry, and then tailor services to those particular segments. Customize the logistics network and focus intensively on the service requirements and on the profitability of the preidentified customer segments Listen to signals of market demand and plan accordingly. Differentiate products closer to the customer, since companies can no longer afford to hold inventory to compensate for poor demand forecasting. Strategically manage courses of supply, by working with key suppliers to reduce overall costs of owning materials and services. Develop a supply chain information technology strategy that supports different levels of decision making. Adopt performance evaluation measures that apply to every link in the supply chain and measure true profitability at every stage. 5. Identify how Dell can use CRM to improve its business operations. Dell can use a CRM system to build better relationships with its customers. The PC business is tough and Dell has a lot of competition. Building a reputation for outstanding customer relationships is one way that Dell could create a competitive advantage over its customers. Dell could also use CRM to build personalized Web sites for its customers. 6. Explain how an ERP system could help Dell gain business intelligence. The primary purpose of an ERP is to collect, update, and maintain enterprisewide information. All of the functional departments access the same information when making decisions and solving problems. An ERP system can help Dell gain an enterprisewide view into all of its operational information from sales and marketing to billing and finance.
  • 1. Explain how Talon helps Harley-Davidson employees improve their decision-making capabilities and highlights potential business opportunities. Talon is Harley-Davidson’s proprietary dealer management system. Talon handles inventory, vehicle registration, warranties, and point-of-sale transactions for all of Harley-Davidson’s dealerships. The system helps improve decision-making capabilities by offering an enterprisewide view of operations, sales, and expenses. The system automatically generates part orders, taking much of the guesswork out of replenishment. Most significantly, the system allows the company to review and analyze information across its global organization giving it a 360-degree view into enterprisewide information that supports strategic goal setting and decision making throughout all levels of the organization. 2. Identify a few key metrics a Harley-Davidson marketing executive might want to monitor on a digital dashboard. An executive information system (EIS) is a specialized DSS that supports senior level executives within the organization. A digital dashboard integrates information from multiple components and presents it in a unified display. A digital dashboard is a form of EIS. Harley-Davidson could help its executives gain access to greater amounts and details of enterprisewide information through a digital dashboard. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a companies’ return on investment (ROI), hence Harley-Davidson could increase its ROI through a digital dashboard running on an EIS. Key metrics could include: Best selling product, Worst selling product, Date of highest sales per month, Date of worst sales per month, Correlation between product sales, Online orders verses in-store purchases, Sales by region, Sales by season 3. Determine how Harley-Davidson can benefit from using decision support systems and executive information systems in its business. An executive information system (EIS) is a specialized DSS that supports senior level executives within the organization. A digital dashboard integrates information from multiple components and presents it in a unified display. A digital dashboard is a form of EIS. Dell could help its executives gain access to greater amounts and details of enterprisewide information through a digital dashboard. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a companies’ return on investment (ROI), hence REI could increase its ROI through a digital dashboard running on an EIS 4. How would Harley-Davidson’s business be affected if it decided to sell accessories directly to its online customers. Be sure to include a brief discussion of the ethics involved in this decision. Harley-Davidson sells over $500 million worth of parts and accessories yearly. The company was interested in offering these products online. The dilemma facing Harley-Davidson was that selling online would bypass Harley-Davidson’s 650 dealers, who depend on the high-margin accessories to fuel their businesses’ profits. If the company decided to sell directly to its customers, it would risk alienating its dealers and hurting dealer relationships, which could have devastating effects on its overall business. Selling to its dealers’ customer could be considered unethical since it would be competing with its own business partners.
  • 5. Evaluate the HOG CRM strategy and recommend an additional benefit Harley-Davidson could provide to its HOG members to increase customer satisfaction. The development of the Harley Owners Group (HOG) is viewed by some as one of the greatest business decisions of all time. Harley-Davidson operates as a customer-centric business and has customers involved in all business operations and decisions. There are numerous benefits HOG could offer its members including additional discounts, special accessories only available to HOG members, a HOG calendar featuring HOG members and only available for sale to HOG members, and even a HOG dating service. 6. How could Harley-Davidson’s SCM system, Manugistics, improve its business operations. Harley-Davidson invests time, energy, and resources into continually improving its company-to-company strategic business initiatives such as supply chain management. The company deployed Manugistics, an SCM system, which allows it to do business with suppliers in a collaborative, Web-based environment. The SCM system will allow Harley-Davidson to build stronger relationships with the Web of participants in its supply chain, better manage its flow of materials, and improve collaboration activities with its key suppliers. 7. Provide a potential illustration of Harley-Davidson’s SCM system including all upstream and downstream participants. Answers to this question will vary. Potential SCM system diagram is displayed in IM. 8. Explain how an ERP system can help Harley-Davidson gain business intelligence in its operations. The primary purpose of an ERP is to collect, update, and maintain enterprisewide information. All of the functional departments access the same information when making decisions and solving problems. An ERP system can help Harley-Davidson gain an enterprisewide view into all of its operational information from sales and marketing to billing and finance.
  • Chapter 12

    1. 1. Chapter 12 Integrating the Organization from End to End – Enterprise Resource PlanningMcGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, All Rights Reserved
    2. 2. Learning Outcomes12.1 Describe the role information plays in enterprise resource planning systems12.2 Identify the primary forces driving the explosive growth of enterprise resource planning systems12.3 Explain the business value of integrating supply chain management, customer relationship management, and enterprise resource planning systems 12-2
    3. 3. Enterprise Resource Planning (ERP)• At the heart of all ERP systems is a database, when a user enters or updates information in one module, it is immediately and automatically updated throughout the entire system 12-3
    4. 4. Enterprise Resource Planning (ERP)• ERP systems automate business processes 12-4
    5. 5. Bringing the Organization Together ERP – The organization before ERP 12-5
    6. 6. Bringing the Organization Together • ERP – bringing the organization together 12-6
    7. 7. The Evolution of ERP 12-7
    8. 8. Integrating SCM, CRM, and ERP • SCM, CRM, and ERP are the backbone of e-business • Integration of these applications is the key to success for many companies • Integration allows the unlocking of information to make it available to any user, anywhere, anytime 12-8
    9. 9. Integrating SCM, CRM, and ERP • SCM and CRM market overviews 12-9
    10. 10. Integrating SCM, CRM, and ERP• General audience and purpose of SCM, CRM and ERP 12-10
    11. 11. Integration Tools• Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together – Middleware – several different types of software which sit in the middle of and provide connectivity between two or more software applications – Enterprise application integration (EAI) middleware – packages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors 12-11
    12. 12. Integration Tools• Data points where SCM, CRM, and ERP integrate 12-12
    13. 13. Enterprise Resource Planning (ERP)• ERP systems must integrate various organization processes and be: – Flexible – Modular and open – Comprehensive – Beyond the company 12-13
    14. 14. Enterprise Resource Planning’s Explosive Growth • SAP boasts 20,000 installations and 10 million users worldwide • ERP solutions are growing because: – ERP is a logical solution to the mess of incompatible applications that had sprung up in most businesses – ERP addresses the need for global information sharing and reporting – ERP is used to avoid the pain and expense of fixing legacy systems 12-14
    15. 15. OPENING CASE STUDY QUESTIONS Second Life1. If you operated a business entirely on Second Life would you require an ERP system? Why or why not?2. How would an ERP system be used in Second Life to support a global organization? 12-15
    16. 16. CHAPTER TWELEVE CASE Gearing Up at REI• Recreational Equipment Inc. (REI) annual revenues between $500 million and $1 billion and more than 10,000 employees• REI is an industry leader for its “best practice” multichannel CRM strategy, which allows customers to seamlessly purchase products at the company’s 70 retail stores as well as by telephone, through mail order, and on the Internet 12-16
    17. 17. Chapter Twelve Case Questions1. What business impact could REI gain by using a digital dashboard from its ERP system?2. How can REI benefit from using artificial intelligence to support its business operations?3. How does REI’s ERP system help employees improve their decision making capabilities and highlight potential business opportunities? 12-17
    18. 18. Chapter Twelve Case Questions4. How could an SCM system improve REI’s business operations?5. Provide an illustration of REI’s SCM system including all upstream and downstream participants.6. Determine two pieces of customer information that REI could extrapolate from its CRM system that would help it manage its business more effectively.7. How can an ERP system help REI gain business intelligence in its operations?8. What is the business benefit for REI in integrating its CRM, SCM, and ERP systems? 12-18
    19. 19. BUSINESS DRIVEN TECHNOLOGY UNIT THREE CLOSINGMcGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, All Rights Reserved
    20. 20. UNIT CLOSING CASE ONEDell’s Famous Supply Chain1. Identify a few key metrics a Dell marketing executive might want to monitor on a digital dashboard2. Determine how Dell can benefit from using decision support systems and executive information systems in its business3. Describe how Dell has influenced visibility, consumer behavior, competition, and speed though the use of IT in its supply chain 12-20
    21. 21. UNIT CLOSING CASE ONEDell’s Famous Supply Chain4. Explain the seven principles of SCM in reference to Dell’s business model5. Identify how Dell can use CRM to improve its business operations6. Explain how an ERP system could help Dell gain business intelligence 12-21
    22. 22. UNIT CLOSING CASE TWORevving Up Sales at Harley Davidson1. Explain how Talon helps Harley-Davidson employees improve their decision-making capabilities2. Identify a few key metrics a Harley-Davidson marketing executive might want to monitor on a digital dashboard3. Determine how Harley-Davidson can benefit from using decision support systems and executive information systems in its business4. How would Harley-Davidson’s business be affected if it decided to sell accessories directly to its online customers? Include a brief discussion of the ethics involved with this decision 12-22
    23. 23. UNIT CLOSING CASE TWORevving Up Sales at Harley Davidson5. Evaluate the HOG CRM strategy and recommend an additional benefit Harley-Davidson could provide to its HOG members to increase customer satisfaction6. How could Harley-Davidson’s SCM system, Manugistics, improve its business operations?7. Provide a potential illustration of Harley-Davidson’s SCM system including all upstream and downstream participants8. Explain how an ERP system could help Harley-Davidson gain business intelligence in its operations 12-23

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