The growing trend in businesses is to integrate business functions to ensure seamless transfer of information between functions which will improve both the efficiency of the organisation and its ability to respond to change. Businesses are also integrated with other companies such as suppliers, customers and partners. Enterprise systems can enable this integration.
The objectives of this chapter are to:
- Describe Enterprise Resource Planning (ERP) Systems)
- Describe Customer Relationship Management (CRM) Systems
- Describe Supply Chain Management (SCM) Systems
- Comment on enterprise integration trends
ENTERPRISE RESOURCES PLANNING (ERP) SYSTEMS
Enterprise resource planning (ERP) systems (sometimes referred to as Enterprise systems) are large complex systems that integrate the planning, management and use of all resources within an organisation. These systems are typically based on a suite of integrated application modules linked to a common central database and are accessible through a single user interface. The suite of application modules support all the main business activities of the organisation. There are a broad range of application modules that support the main functional areas of Sales and Marketing, HR, Finance & Accounting and Manufacturing & Production. For example there are modules for sales ordering, payroll, inventory management, purchasing, accounts payable and receivable, etc. The database collects data from and feeds it into the various application modules to support the organisation’s business processes and activities. A major advantage of ERP system is that they enable application modules to share data between functions and business processes for improved organisational coordination and control. Organisations implementing ERP systems will select the application modules they want to use and then they will need to change their business processes to align with the predefined business processes in the software. Table 9.1 lists the major business processes supported by ERP systems. The two leading ERP software vendors are SAP and Oracle.
Table 9.1: Examples of the business processes supported by ERP modules (adapted from Rainer, Turban et al., 2007)
|Functional Area||Business Process Module|
|Sales & Marketing||Order processing, pricing, billing, sales planning|
|Finance & Accounting||General ledger, accounts payable, account receivable, cost accounting, credit management, financial reporting|
|Manufacturing & Production||Production scheduling, inventory management, purchasing, production scheduling, material requirement planning,|
|Human Resources||Payroll, personnel admin, HR planning, performance management|
Business Value of ERP Systems
Organisations can gain substantial benefits from implementing ERP systems. These benefits include:
- Improved access to data for management reporting and decision making
- Helping to create a more disciplined organisational culture where decisions are based on accurate timely information
- Helping to provide management with a single organisational wide view
- Removal of inflexible legacy systems than can be expensive to change
- Improvement of work processes and making cross functional processes possible
- Enabling sharing of information across business functions
- Improvement of the technology infrastructure of the organisation
- The possibility to help an organisation become more customer focused
Challenges of ERP Systems
There are a number of challenges associated with implementing ERP systems for example:
- ERP systems are very expensive to purchase and implement
- Extensive change is required to existing process
- It can be difficult to integrate the ERP systems with existing legacy systems
- There is an inherent risk associated with having a single vendor for all information systems
- The risk and impact of implementation failure is increased
- The conversion of data to the ERP systems from legacy systems is a complex process
- The time and resources required to implement ERP systems are substantial
CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS
Introduction to Customer Relationship Management
Customer relationship management involves the use of information systems to coordinate all of the business processes surrounding the firm’s interaction with its customers in sales, marketing, service and finance.
Historically each of the business functions that interact with the customers such as sales, services, marketing and finance had their own information systems and as a result customer data was held in different systems in the various functions. CRM applications are designed to address this issue.
Customer Relationship Management Applications
Customer Relationship Management (CRM) systems integrate customer data from all over the organisation to provide a single enterprise view of the customer that can be used for improving both sales and customer service. CRM systems can also provide customers with a single view of the company.
CRM applications are designed to provide information and tools to deliver superior customer experience and to maximise customer lifetime value to the business.
CRM software can also be used to increase customer loyalty through customer service by identifying valued customers and providing them with enhanced services or offers.
CRM systems normally provide software tools for sales, marketing and service:
Sales Force Automation (SFA) modules in CRM systems help sales staff increase their productivity by focusing sales efforts on the most profitable customers, those who are good candidates for sales. The SFA system provides information such as sales prospects, contact information and product related information. The SFA software brings together all the information the organisation has about a particular customer enabling the sales person to tailor their message to match the customer
CRM systems support direct-marketing campaigns by providing capabilities for capturing prospect and customer data, for providing product and service information, and sales leads for targeted marketing (to specific customers or prospects), and for scheduling and tracking direct-marketing mailings or e-mail. They also support initiatives for cross-selling and upselling to existing customers. Cross-selling involves the marketing of complementary products to existing customer. For example those customers who purchased a new laptop computer might be encouraged to purchase accidental damage insurance. Up-selling is the marketing of higher value products to customers. For example a mobile phone customer who already has a basic phone service may be targeted with marketing of a data contract and smartphone.
Customer service modules in CRM systems provide information and tools to make call centres and customer support staff more efficient. They could also include a Web-based selfservice option.
Operational and Analytical CRM
Laudon and Laudon, (2010) have divided the CRM application into two categories called Operational and Analytical CRM.
Operational CRM includes customer-facing applications such as tools for sales force automation, call centre and customer service support and marketing automation.
Analytical CRM includes applications that analyse customer data generated by operational CRM applications and provide information for improving business performance management. Analytical CRM applications analyse the data from data warehouses which contains data from the various operational CRM systems. Analytical CRM applications can identify customer buying patterns and create segments for target marketing and also generate individual customer profiles.
The focus of CRM systems is to retain customers and help the organisation sell more to customer as efficiently as possible. This is related to the concept of customer lifetime value.
Wireless Applications for Customer Relationship Management
Mobile CRM applications provide additional support for sales and service activities at the point of customer interaction. Wireless CRM enables sales and field service professionals to:
- Access customer account records and information at any time or location
- Update customer accounts and deal information to update customer database instantaneously
- Receive alerts to important events
- Enter, perform and update transactions and product information
Mobile CRM applications are increasingly utilising Smartphones to enable remote access to information and updating of transactions.
Business Value of Customer Relationship Management Systems
Companies with effective customer relationship management systems can realise many benefits, including increased customer satisfaction, reduced direct marketing costs, more effective marketing, and lower costs of customer acquisition and retention. Information from CRM systems can increase sales revenue by identifying the most profitable customers and segments for focused marketing, cross-selling, and up-selling. CRM systems can help reduce rates at which customers leave the company and go to a competitor.
SUPPLY CHAIN MANAGEMENT SYSTEMS
Introduction to Supply Chain Management
A supply chain is a network of organisations and business processes for procuring materials, transforming raw materials into products, and distributing the finished products to retailers and customers. The supply chain links suppliers to manufacturing plants to distribution centres and retail outlets and finally to customers for the purpose of creating and delivering products and services from source to point of consumption. The upstream section of the supply chain includes the suppliers, their suppliers and the related processes that deliver the raw materials and parts to the manufacturing plant. The downstream section is made up of the companies and processes that distribute the products and services to the customers (See Figure 9.2).
Main Supply Chain Processes
The five major supply chain processes are:
- Plan: This consists of processes that balance supply and demand with the objective of meeting sourcing, production and delivery requirements.
- Source: This consists of processes that procure goods and services needed to create the particular product or service.
- Make: This consists of processes that create the finished product in quantities sufficient to meet demand.
- Deliver: This consists of processes that distribute the finished goods and services to the point of consumption.
- Return: This consists of processes associated with handling returned products.
Supply Chain Management
The purpose of supply chain management is to plan, organise and optimise the supply chain activities to ensure the right amount of product arrives at the point of consumption in the least amount of time and at the lowest cost while minimising inventory levels along the supply chain. Supply chain management involves coordinating the flow of materials and information (orders, forecasts etc) within and between the companies that make up the supply chain.
Problems along the supply chain
Problems along the supply chain include; the product not being delivered when the customer needs it and high inventory costs. These problems can be as a result of poor coordination of activities along the supply chain and poor demand management. A particular problem relating to inventory levels is called the bullwhip effect.
The bullwhip effect occurs when information about the demand for a product gets distorted and the distortion gets magnified as the information passes from one point to the next across the supply chain. It can also occur when a retailer present manufacturers or suppliers with an inaccurate forecast of consumer demand. The bullwhip effect can result in stockpiling at various points on the supply chain. This can be addressed by reducing doubts or inaccuracies about levels of demand and providing all of the supply chain participants with accurate and up-to-date information.
To improve supply chain management organisations utilise supply chain management systems.
Supply Chain Management Systems
There are two broad categories of supply chain management system; systems for planning the supply chain and systems that execute the supply chain activities.
Supply Chain Planning Systems
Supply chain planning systems enable the firm to generate demand forecasts for a product and to develop sourcing and manufacturing plans for that product. They help companies decide how much of a specific product to manufacture in a particular time period and the inventor levels (for raw materials, intermediate products, and finished goods) to hold. The functions involved include order planning, advanced scheduling, demand planning, distribution planning and transportation planning.
Supply Chain Execution Systems
Supply chain execution systems manage the flow of products through distribution centres to ensure that products are delivered to the right locations as efficiently as possible. These systems track the physical status of goods, the management of materials, warehouse and transportation operations. These functions are referred to as order commitments, production, and replenishment of stock and distribution management.
Supply Chain Management Using the Internet and Internet Technology
Firms use intranets to improve coordination among their internal supply chain processes, and they can use extranets to coordinate supply chain processes shared with their business partners. Intranet and extranet technology can enable all members of the supply chain to communicate with each other, use up-to-date information to adjust purchasing, logistics, manufacturing, packaging, and schedules. Using an extranet link a manager can connect to a supplier’s systems to determine whether inventory and production capabilities match demand for the products. Business partners can use Web-based supply chain management tools to collaborate on forecasts. Sales representatives can access suppliers’ production schedules and logistics information to check on a customer’s order status.
Wireless Technology and Supply Chain Management
Mobile wireless technology facilitates supply chain management by capturing data on the movement of goods as these events take place and by providing detailed, up-to-date information as goods move along the supply chain.
Warehouse managers can use mobile handheld devices to perform tasks such as picking, packing, freight loading and unloading checks, and inventory checks. Some of these activities are supported by radio frequency identification technology (RFID).
Push-Based and Pull-Based Supply Chain Models
The push-based model refers to a supply chain driven by production master schedules based on forecasts or best guesses of demand for products. Earlier supply chain management systems were driven by a push-based model (also known as build-to-stock).
The pull-based model refers to a supply chain driven by actual customer orders or purchases so that members of the supply chain produce and deliver only what customers have ordered.
The pull-based model is also known as a demand driven model or build to order model.
Benefits of Supply Chain Management Systems
Effective use supply chain management systems can enhance organisational performance in the following areas:
- More accurate management information for supply chain planning and execution
- Improved customer service and responsiveness through efficient supply chain and improved delivery speed
- Cost reduction through reduced inventory level
- Cash utilisation
- Reduced time to market for new products
- Improved supply chain control
- Increased sales through better product availability
ENTERPRISE INTEGRATION TRENDS
Businesses are now focusing on cross-functional process integration. This is difficult to achieve with traditional functional applications. They are using SCM, CRM and enterprise systems to integrate with the systems of their customers, suppliers and business partners.
Extending Enterprise Applications
The major enterprise software vendors have developed Web-enables applications for customer relationship management, supply chain management and their enterprise applications to create what are called “enterprise solutions” or enterprise suites. Examples of these systems are SAP’s “mySAP” and Oracle’s “e-Business Suite”
The latest trend in enterprise systems is the growth in cloud based CRM solutions. Salesforce.com is the leader in cloud based CRM but SAP and Oracle also have cloud based version of their ERP systems. Cloud-based software solutions are discussed in more detail Chapter 4.
Enterprise applications are very difficult to implement successfully. They require extensive organisational and process change, significant investments in software and related implementation activities and a careful evaluation of how these systems will enhance organisational performance.