Chapter 8 Improving Supply Chains and Strengthening Customer

Chapter 8
Improving Supply Chains and Strengthening Customer
Relationships Using Enterprise Information Systems
8-1
When disruptions in the supply
chain occur because of weather,
labor issues, or natural disasters,
the operations of the business
can be devastated and have
ripple effects throughout the
world.
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What Is a Supply Chain?
8-2
 A supply chain is a collection of companies and
processes moving a product:




suppliers of raw materials
suppliers of intermediate components
final production
to the customer
 Upstream—flow from sources of raw materials and
components.
 Downstream—flow to customers.
 Suppliers have their own supply chain.
 A better name: supply network.
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Supply Network
8-3
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Supply Chain for Apple’s iPhone
8-4
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Benefits and Problems with Supply Chains
8-5
 Potential benefits
 Process innovations
 Just-In-time Production (JIT)
 Vendor-Managed Inventory (VMI)
 Potential problems
 Distorted information
 Excessive inventories
 Inaccurate capacity plans
 Missed product schedules
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Just-in-Time Production (JIT)
8-6
 Keeping inventory is costly (storage, capital, missed
production schedules).
 JIT optimizes ordering quantities.


Parts and raw materials arrive when needed for production.
As orders arriver in smaller quantities, but at higher frequency) investment
in storage space and inventory is minimized.
 The approach was pioneered by Toyota.
 It is used extensively by computer manufacturers to avoid
component obsolescence (Moore’s law).

Example: Dell keeps only two hours of inventory in stock
 JIT requires tight cooperation between all partners in the
supply network.
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The Bullwhip Effect
8-7
 Ripple effects in which forecast errors and safety



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stocks multiply when moving up the supply chain
Happens when businesses include safety buffer to
prevent stock-outs
Small end-product demand fluctuations cause large
fluctuations further up the supply chain.
Small forecasting errors at end of supply chain cause
large errors further up the supply chain.
Integrated business processes help mitigate the
bullwhip effect.
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Corporate Social Responsibility
8-8
 Transparency and accountability within the supply
chain helps save costs and create a good image.
 Product Recalls


Shortcuts on quality standards
Examples from 2010:
Cadmium in McDonald’s Shrek-themed glasses
 Johnson & Johnson children’s medicines


It is, therefore, very important to have complete information
throughout the supply chain.
 Sustainable Business Practices


Ethical treatment of workers
Green image
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Supply Chain Planning (SCP)
8-9

Four types of plans are developed:
1.
Demand planning and forecasting
o
2.
Distribution planning
o
o
3.
Delivering products to consumers
Warehousing, delivering, invoicing, and payment collection
Production scheduling
o
o
4.
Examination of historic data
Coordination of activities needed to create the
product/service
Optimization of the use of materials, equipment, and labor
Inventory and safety stock planning
o
Development of inventory estimates
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Supply Chain Visibility and Analytics
8-10
 Supply chain visibility—the ability to track
products as they move through the supply chain but
also to foresee external events.
 Supply chain analytics—the use of key
performance indicators to monitor performance of
the entire supply chain, including sourcing,
planning, production, and distribution.
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Developing an SCM Strategy
8-11
 SCM efficiency and effectiveness need to be balanced.
Efficiency—cost minimization.
 Effectiveness—customer service maximization.
 Tradeoffs—Supply chain strategy should match overall
competitive strategy.

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Emerging SCM Trends
8-12
 Key trends
 Supplier portals
 Customer portals
 Business-to-business (B2B) marketplaces
 All of these provide an alternative to proprietary supply
linkages (see Chapter 4).
 Key enabling technologies
 Extensible Markup Language (XML)
 Radio Frequency Identification (RFID)
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Radio Frequency Identification (RFID)
8-13
 RFID tags will soon replace standard bar
codes.

RFID is the use of electromagnetic energy to
transit energy between a reader (transceiver)
and the tag (antenna).

Line-of-sight reading is not necessary.

RFID tags can contain more information than
bar codes.
 Tags are programmable, so there is a vast
array of potential uses.
 Scanning can be done from greater distance.

Passive tags—inexpensive, range of few feet.

Active tags—more expensive, range of
hundreds of feet.
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Source: METRO AG.
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Customer Relationship Management (CRM)
8-14
 Organizations
must work harder
than ever to
attract and retain
customers where
comparison
shopping is the
norm and
competitors are
just a click away.
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Customer Relationship Management(CRM) (cont’d)
8-15
 The Web has changed business.



Customers have the power.
Economic transformation is taking place; i.e., from transactions to
relationships.
Keeping customers satisfied is key.
 CRM


Organization-wide strategy
Concentrates on the downstream information flow




Attract potential customers
Create customer loyalty
Portray a positive corporate image
Managers need to be able to monitor and analyze factors driving
customer satisfaction.
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Customer Relationship Management(CRM) (cont’d)
8-16
 Companies search for ways to widen, lengthen, and
deepen customer relationships.
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Key Benefits of CRM
8-17
1.
2.
3.
4.
5.
6.
7.
8.
Enables 24/7/365 operation
Individualized service
Improved information
Speeds problem identification/resolution
Speeds processes
Improved integration
Improved product development
Improved planning
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Architecture of a CRM Environment
8-18
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Operational CRM
8-19
 Systems for customer
interaction and service



Enables direct interaction
with customers
Personalized and efficient
customer service
Access to complete
information about
customer
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Sales Force Automation
8-20
 Component of operational CRM
 Supports day-to-day sales activities:
 Order processing and tracking
 Account and contact management
 Opportunity management
 Sales management
 Territory management
 Customer history preferences, (product and
communication) management
 Sales forecasting and performance analysis
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Examples of Sales Measures Tracked by SFA
8-21
 Sales pipeline for each salesperson, including rating and
probability
 Revenue per sales person, per territory, or as a percentage of
sales quota
 Margins by product category, customer segment, or customer
 Number of calls per day, time spent per contract, revenue per
call, cost per call, ratio of orders to calls
 Number of lost customers per period or cost of customer
acquisition
 Percentage of goods returned, number of customer
complaints, or number of overdue accounts
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Customer Service and Support (CSS)
8-22
 Second component of
operational CRM
 Automation of traditional
“help desk” services
 Customer interaction
center (CIC)
Multiple communication
channels (blogs, Facebook,
phone, face-to-face, e-mail,
and so on)
 Customer service anytime,
anywhere through any
channel
 Low support cost

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Analytical CRM
8-23
 Analysis of customer behavior and perceptions
 Customized marketing
 Up-selling, cross-selling
 Retaining customers
 Key technologies used to create predictive models
 Data mining
 Decision support systems
 Continuous data collection and analysis is
necessary.
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Customer Focused Business Processes
Addressed by Analytical CRM
8-24
1.
2.
3.
4.
Marketing campaign management and analysis
Customer campaign customization
Customer communication optimization
Customer segmentation and sales coverage
optimization
5. Pricing optimization and risk assessment and
management
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Customer Focused Business Processes Addressed by
Analytical CRM (cont’d)
8-25
6. Price, quality, and satisfaction analysis of
competitors
7. Customer acquisition and retention analysis
8. Customer satisfaction and complaint management
9. Product usage, life-cycle analysis, and product
development
10. Product and service quality tracking and
management
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Digital Dashboards for CRM
8-26
 Digital
dashboards
help to
visualize key
CRM
performance
metrics.
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Ethical Concerns with CRM
8-27
 Can personalization get too personal?
 When customers feel that the system knows too
much about them, personalization could backfire on
a company.
 Nevertheless, as competition continues to increase in
the digital world, CRM will be a key technology for
attracting and retaining customers.
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End of Chapter Content
8-28
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Managing in the Digital World:
Supply Chain Havoc
8-29
 The eruption of the Eyjafjallajokull volcano in Iceland forced
the shut down of flights in northern Europe for days.
 Supply chains in numerous companies were disrupted.
 Examples:
 Kenya: flowers and
vegetables
 Netherlands: tulips and
peonies
 Italy: cheeses
 These contingencies require
fine-tuned supply chains.
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POWERFUL PARTNERSHIPS
Flickr’s Caterina Fake and Stewart Butterfield
8-30
 Flickr’s Caterina Fake and Stewart Butterfield
 Caterina was a marketing expert and art director; Stewart was
a Web designer
 They were first business partners, and then got married.
 They started with gaming; then moved onto photograph
distribution.
 Web-based businesses are inexpensive.
 Fake and Butterfield started with no venture capital.
 Yahoo! bought the business for $30 million in 2005.
 Now Fake and Butterfield are split up, pursuing their own
ventures.
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Outsourcing Your McDonald’s Order
8-31
 McDonald’s—One of America’s success stories
 Founded in 1948 in San Bernardino, California
 Multi-billion business
 Strives for uniformity in thousands of locations globally
 Outsourcing the drive-through
 All stores already had an Internet connection
 Orders processed overseas
 Entered into the queuing system
 Food quality remains the same
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COMING ATTRACTIONS
Simplifying the Recharging of Gadgets
8-32
 Simplifying the Recharging of Gadgets



Battery chargers are needed for each different type of device (cell
phone, MP3, player, digital camera, laptop).
Starting from 2011, cell phones sold in the European Union come
with a standardized charging port.
Qualcomm’s eZone wireless charting technology has two parts:




charging pad that houses the main transmitting power technology, and
tiny receiver coil fitted inside portable gadgets.
Toshiba’s direct-methanol fuel cell charger has potential to charge
gadgets without electrical outlet.
Nokia’s bicycle charger kit charges cell phones through cycling.
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NET STATS
RFID on the Rise
8-33
 RFID on the Rise
 Expected growth of 28 percent between 2010 and
2013 ($11 billion revenue)
 Software and services play an increasingly larger role
to help companies utilize RFID-generated data.
 Adoption in health care, retail, automotive, packaged
goods, government, transportation
 Requires large start-up investment, but provides
strong long-term ROI
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WHEN THINGS GO WRONG
Apple’s “Antenna Gate” — Mismanaging Customer Relationships
8-34
 Apple’s “Antenna Gate” —Mismanaging Customer
Relationships








Release of the iPhone 4 in mid-2010 had much fanfare.
Soon customers started complaining of dropped calls.
This was caused by the way customers held the phone (“death
grip”).
Apple issued a statement to stop holding the phone in lower
left corner.
Class action lawsuits ensued.
Consumer Reports recommended against the phone.
Steve Jobs admitted the problem.
Poor customer relations management
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ETHICAL DILEMMA
CRM: TARGETING OR DISCRIMINATING
8-35
 CRM: Targeting or Discriminating
 Advantage: customers receive only ads of interest.
 But what if a company uses its CRM software in a more
discriminating way?
 Example: banks may target customers with low credit
ratings
 “Octopus Card”: Hong Kong RFID-based card
 Offers
a reward program where users have to provide various
personal details
 In 2010, it was revealed that data was sold to CIGNA
 Legal…but is it ethical?
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