Chapter 8: Enterprise Systems: From Supply Chain to ERP to CRM



CHAPTER 11: Customer Relationship Management and Supply Chain Management

|Chapter Overview |

11.1 Defining Customer Relationship Management

11.2 Operational Customer Relationship Management Systems

11.3 Analytical Customer Relationship Management Systems

11.4 Other Types of Customer Relationship Management Systems

11.5 Supply Chains

11.6 Supply Chain Management

11.7 Information Technology Support for Supply Chain Management

|Learning Objectives |

1. Define customer relationship management and collaborative CRM, and identify the primary functions of both processes.

2. Describe the two major components of operational CRM systems, list three applications used in each component, and provide at least one example of how businesses use each application.

3. Define analytical CRM systems, and describe four purposes for which businesses use these systems.

4. Define mobile CRM systems, on-demand CRM systems, and open-source CRM systems, and identify one main advantage and one main drawback of each one.

5. Define the term supply chain, and describe the three components and the three flows of a supply chain.

6. Identify two major challenges in setting accurate inventory levels throughout the supply chain, and describe three popular strategies to solve supply chain problems.

7. Define the terms electronic data interchange (EDI), extranet, and portal, and explain how each of these applications helps support supply chain management.

|Teaching Tips and Strategies |

This chapter covers Customer Resource Management (CRM) and Supply-Chain Management, topics that should be at least indirectly familiar to most students as consumers or customers in their real lives, even though they may not know of the formal terms and system names.

CUSTOMER RESOURCE MANAGEMENT

The CRM section of the chapter presents how it is used to build long-term customer relationships. It first defines the CRM concept and then turns our attention to the two major aspects of CRM, operational CRM and analytical CRM. The chapter concludes with a look at additional types of CRM, which include mobile CRM, on-demand CRM, and open-source CRM. Most students will not be familiar with these types of systems, so focus on concepts of data needed for supporting effective customer service. Students will be familiar with the how Internet transactions are used to order their textbooks or other items. As operations become more and more streamlined and firms move away from personalized customer service through humans, computers or CRM are/is replacing the void created.

CRM is critical to the success of modern businesses as customers are supremely important to all organizations. Regardless of the particular job students perform after they graduate, they will more than likely have either a direct or an indirect impact on the firm’s customers where they work. Therefore, it is important that all students possess a working knowledge of CRM.

SUPPLY CHAIN MANAGEMENT

Present your students the example of a company such as Proctor & Gamble (P&G). Discuss how they are a consumer products company but sell all of their products through retailers. They package items such as Crest and sell truckloads to different retailers. The retailers then distribute the items to their stores.

With the advent of Ecommerce, online etailers are in the costly business of sending one or two items to millions of different households. To illustrate the point of how this changes the supply chain use the eToy as an example. Ask the students to consider eToys and processing orders for Barbie dolls.

Use the example eToys getting a thousand orders for Barbies in one day. Ask the class (or groups of students in the class) what they think would be involved in delivering those Barbies. The students will usually answer that someone will have to go pick the Barbies in the warehouse, create an address label for each customer and then box up the order and ship it.

Next, remind students that it is even more intricate than that. For example:

• The payment process will need to be run (hopefully that system is automated).

• After the workers pick 1,000 Barbies (and in this example we are assuming that all the Barbies ordered are the same) and labels/invoices are printed automatically, Barbie is boxed up, then the package is weighed and postage affixed.

• Finally the coordination with UPS or FedEx to pick up the package.

The above scenario assumes that eToys has 1,000 Barbies in stock. What if they only had 500? Now they have to deal with a backorder problem. Ask students “If 1,000 Barbies were available to you right now with invoices/labels, how long would it take to box those Barbies up and mail them?” The answers again vary, but students start to realize that the fulfillment process/supply chain is not as easy as it would seem. So, is it any wonder that eToys couldn’t fulfill all their orders? What happens in the above example, when we get another 500 orders the next day for Barbie? What if Mattel suddenly doesn’t ship more Barbies to us on time? It changes everything. This is one of the reasons that companies like Circuit City have created relationships with to handle their online store and the delivery process.

By going over this example (or one like it) helps students to see how important the supply chain is in the business environment. The example demonstrates how one company’s supply chain can disturb another company’s supply chain. Students tend to walk away from this chapter with a better understanding of how much companies rely on each other to do business.

Many companies have lost business or gone out of business due to supply chain issues. The supply chain is one of the most important variables in a company’s success or failure. Auto dealers have been aware of this type of problem for decades. An example is a car dealer who had five green Camrys on his lot. The customers wanted blue, turquoise and red. So, those customers went to a competing dealer and bought their car that day instead of ordering it from the dealer I knew. The dealer had the right car, but not the right color car. In this instance, because he did not have the desired color, it cost him three sales. We might not think that is a very big deal, but a $20,000 car * 3 = $60,000 in lost sales! Mismanagement of a supply chain can cost companies ten times that number. The dealer realized he shouldn’t have ordered so many of the same color of the same model.

With the advancement of technology, companies now have more tools then ever before to successfully manage their supply chain. How do companies manage their supply chains better?

▪ By integrating their systems so that all of the departments can talk to each other (including outside vendors).

▪ By being able to track inventory and sales in real-time. This will help management to make crucial decisions regarding resources

|Review Questions |

Section 11.1 - Before You Go On…

1. What is the definition of customer relationship management?

Customer relationship management (CRM) is an organizational strategy that is customer-focused and customer-driven. That is, organizations concentrate on satisfying customers by assessing their requirements for products and services, and then providing high-quality, responsive service. CRM is not a process or a technology per-se; rather, it is a way of thinking and acting in a customer-centric fashion.

2. Why is CRM so important to any organization?

CRM builds sustainable long-term customer relationships that create value for the company as well as for the customer. That is, CRM helps companies acquire new customers, retain existing profitable customers, and grow the relationships with existing customers. The customers are the core of a successful enterprise, and the success of the enterprise depends on effectively managing relationships with them, which CRM allows them to perform.

3. Define and give examples of customer touch points.

Customer touch points include telephone calls, email, chat sessions, promotions, and the company web site. Anywhere a customer comes in contact with the organization is a touch point.

Section 11.2 … Before You Go On….

1. Differentiate between customer-facing applications and customer-touching applications.

Customer-facing CRM applications are those applications where an organization’s sales, field service, and customer interaction center representatives interact directly with customers. These applications include customer service and support, sales force automation, marketing, and campaign management.

Customers interact directly with customer-touching CRM applications or electronic CRM (e-CRM) applications. Customer-touching applications replace technologies or applications that allow the customer to directly interact with a company representative as is the case with customer-facing applications. Using these applications, customers typically are able to help themselves.

2. Other than the examples in the book, provide an example of cross selling, up selling, and bundling.

Cross selling is the practice of marketing additional related products to customers based on a previous purchase.

Up selling is a sales strategy in which the business person will provide to customers the opportunity to purchase higher-value related products or services as opposed to or along with the consumer’s initial product or service selection.

Bundling is a form of cross selling in which a business sells a group of products or services together at a price that is lower than the combined individual prices of the products.

STUDENTS WILL SUGGEST EXAMPLES OF EACH OF THE ABOVE.

Section 11.3 - Before You Go On…

1. What is the relationship between operational CRM and analytical CRM?

Operational CRM is the component of CRM that supports the front-office business processes. These processes are those that directly interact with customers; that is, sales, marketing, and service. Whereas operational CRM supports front-office business processes, analytical CRM systems analyze customer behavior and perceptions in order to provide actionable business intelligence.

2. What are some of the functions of analytical CRM?

Analytical CRM systems typically provide information on customer requests and transactions, as well as on customer responses to an organization’s marketing, sales, and service initiatives. These systems also create statistical models of customer behavior and the value of customer relationships over time, as well as forecasts of customer acquisition, retention, and loss. Some functions might include:

• Designing and executing targeted marketing campaigns;

• Increasing customer acquisition, cross selling, and up-selling;

• Providing input into decisions relating to products and services;

• Providing financial forecasting and customer profitability analysis.

Section 11.4 Before You Go On….

1. Define on-demand CRM.

An on-demand CRM system is a CRM system that is hosted by an external vendor in the vendor’s data center. This arrangement spares the organization the costs associated with purchasing the system. In addition, because the vendor creates and maintains the system, the organization’s employees need to know only how to access and utilize it. The concept of on-demand is also known as utility computing or software-as-a-service.

2. Define mobile CRM.

A mobile CRM system is an interactive CRM system that enables an organization to conduct communications related to sales, marketing, and customer service activities through a mobile medium for the purpose of building and maintaining relationships with its customers.

3. Define open-source CRM.

Open-source CRM systems are CRM systems whose source code is available to developers and users. They do not provide more or fewer features or functions than other CRM software, and they may be implemented either on-premise or on-demand.

Section 11.5 … Before you go on…

1. What is a supply chain?

Supply Chain refers to the flow of materials, information, payments and services; from raw material suppliers, through factories and warehouses to the end customers. It includes the organizations and processes involved. Supply chain management is the planning, organizing, and coordinating of all the supply chain’s activities.

2. Describe the three segments of a supply chain.

The supply chain consists of three parts: (1) Upstream supply chain, where sourcing or procurement from external suppliers occurs; (2) Internal supply chain, where packaging, assembly or manufacturing takes place; and (3) Downstream supply chains, where distribution or dispersal takes place, frequently be external distributors.

3. Describe the flows in a supply chain.

There are typically three flows in the supply chain: materials, information, and financial. Material flows are the physical products, raw materials, supplies, and so forth that flow along the chain. Material flows also include reverse flows (or reverse logistics) – returned products, recycled products, and disposal of materials or products. Information flows consist of data that are related to demand, shipments, orders, returns, and schedules, as well as changes in any of these data. Finally, financial flows involve money transfers, payments, credit card information and authorization, payment schedules, e-payments, and credit-related data.

Section 11.6 … Before You Go On…

1. Differentiate between the push model and the pull model.

In the push model (also known as make-to-stock), the production process begins with a forecast, which is simply an educated guess as to customer demand. The forecast must predict which products customers will want as well as the quantity of each product. The company then produces the amount of products in the forecast, typically by using mass production, and sells, or “pushes,” those products to consumers. Unfortunately, these forecasts are often incorrect. To avoid these inaccuracies, companies can use the pull model. In the pull model – also known as make-to-order – the production process begins with a customer order. Therefore, companies make only what customers want, a process closely aligned with mass customization. A prominent example of a company that uses the pull model is Dell Computer. Dell’s production process begins with a customer order.

2. Describe various problems that can occur along the supply chain.

The problems along the supply chain stem primarily from two sources: (1) uncertainties, and (2) the need to coordinate several activities, internal units, and business partners. A major source of supply chain uncertainties is the demand forecast. Demand for a product can be influenced by numerous factors such as competition, prices, weather conditions, technological developments, economic conditions, and customers’ general confidence. Another uncertainty is delivery times, which depend on factors ranging from production machine failures to road construction and traffic jams. In addition, quality problems in materials and parts can create production delays, which also lead to supply chain problems.

3. Discuss possible solutions to problems along the supply chain.

Various solutions can be used to address supply chain problems. Vertical integration is a business strategy in which a company buys its upstream suppliers to ensure that its essential supplies are available as soon as they are needed. Building up inventories is another way of solving supply chain problems. Another common way to solve supply chain problems, and especially to improve demand forecasts, is sharing information along the supply chain. Information sharing can be facilitated by electronic data interchange and extranets, topics we discuss in the next section. One of the most notable examples of information sharing occurs between large manufacturers and retailers. For example, Wal-Mart provides Procter & Gamble with access to daily sales information from every store for every item P&G makes for Wal-Mart. This access enables P&G to manage the inventory replenishment for Wal-Mart’s stores. By monitoring inventory levels, P&G knows when inventories fall below the threshold for each product at any Wal-Mart store. These data trigger an immediate shipment.

Section 11.7 … Before you go on…

1. Define EDI, and list its major benefits and limitations.

EDI is the communication standard that enables business partners to exchange routine documents using agreed-upon formats. Its major benefits are:

• It minimizes data entry errors

• The length of the message can be shorted

• Messages are secured

• It reduces cycle time

• Increases productivity

• Enhances customer service

• Minimizes paper usage and storage

Major limitations are:

• It requires a significant initial investment

• Ongoing costs are high due to the use of private VANs

• The traditional system is inflexible

• Often requires a long startup period

• Business process may have to be restructured to fit EDI requirements

• Multiple standards exist.

2. Define an extranet, and explain its infrastructure.

An extranet is a series of interconnected intranets for which business partners have given access to certain parts to each other to enable collaborative operations. They use an Internet based communication channel called a virtual private network (VPN).

3. List and briefly define the major types of extranets.

There are three major types of extranets.

• A Company and Its Dealers, Customers, or Suppliers. This type of extranet is centered around a single company. An example is the FedEx extranet that allows customers to track the status of a delivery.

• An Industry’s Extranet. Just as a single company can set up an extranet. The major players in an industry can team up to create an extranet that will benefit all of them. For example, ANXeBusiness () enables companies to collaborate effectively through a network that provides a secure global medium for B2B information exchange.

• Joint Ventures and Other Business Partnerships. In this type of extranet, the partners in a joint venture use the extranet as a vehicle for communications and collaboration. An example is Bank of America’s extranet for commercial loans. The partners involved in making these loans include a lender, a loan broker, an escrow company, and a title company. The extranet connects lenders, loan applicants, and the loan organizer, Bank of America. A similar case is Lending Tree (), a company that provides mortgage quotes for your home and also sells mortgages online. Lending Tree uses an extranet for its business partners (for example, the lenders).

4. Differentiate between procurement portals and distribution portals.

There are two basic types of corporate portals: procurement (sourcing) portals for a company’s suppliers (upstream in the supply chain), and distribution portals for a company’s customers (downstream in the supply chain). Procurement portals automate the business processes involved in purchasing or procuring products between a single buyer and multiple suppliers. For example, Boeing has deployed a procurement portal called the Boeing Supplier Portal through which it conducts business with its suppliers. Distribution portals automate the business processes involved in selling or distributing products from a single supplier to multiple buyers.

|“IT’s About Business” Questions |

IT’s About Business 11.1

VIP Auto Appearance Center

1. Why did the Macks purchase a software package instead of hiring another person?

They realized they needed to place more emphasis on relationships and less on paperwork and possibly realized they did not need loose the personal nature of the business.

2. Describe the advantages that the Macks gained from their new software package.

They purchased software that could help them manage their customers throughout the initial contact, sale, service, payment, and continued-relationship cycle.

IT’s About Business 11.2

An Instantaneous CRM Effort

1. Provide two examples of specific actions a company could take to utilize social media in its CRM efforts.

Students may have different opinions based on their use of social media, however possible examples might include distribution of discount coupons to their Facebook followers or announcing “unadvertised” specials.

2. Should all organizations include a social media component in their CRM strategy? Why or why not? Support your answer.

Students will have different responses based on their personal use of social media.

IT’s About Business 11.3

Refining the Call Center

1. Review the six categories of customers. Which kind of customer are you? Do you think it would be advantageous to you if you could speak with a customer service representative who had a similar personality? Why or why not?

The six personality types identified by ELoyalty software are:

• Emotions-driven (30 percent of the population): These customers forge relationships with agents before getting into the problem.

• Thoughts-driven (25 percent of the population): These customers want facts and analysis and do not waste time on pleasantries.

• Reactions-driven (20 percent of the population): These customers either love something or hate it. “This product is so cool,” they might say.

• Opinions-driven (10 percent of the population): These customers’ language is full of imperatives, and their minds are made up.

• Reflections-driven (10 percent of the population): These customers are introverts who live in their own worlds, prefer silence to banter, and often skip personal pronouns in their speech.

• Actions-driven (5 percent of the population): These customers want movement and progress. Think Donald Trump.

Students’ answers will vary, and will be based on their personal experiences.

2. Should companies inform customers about the use of ELoyalty software in their call centers? Why or why not? Support your answer.

Students will have different opinions based on their personal experiences.

IT’s About Business 11.4

Mobile CRM on a Smart Phone

1. What are the disadvantages of the Kickback mobile CRM application?

Because of the way it application is designed, some customers might object the hotel being able to track their location.

Students will report other possible disadvantages.

2. Identify two additional advantages of the Kickback mobile CRM application.

Students will have other possible disadvantages.

IT’s About Business 11.5

Supply Chain Management Helps Imperial Sugar after Disaster

1. Why is demand management such an essential component of supply chain management?

Demand management essentially calculates how demand ebbs and flows over time. This enables a company to determine the impact of a wide range of factors on the demand for their product(s), to react quickly to changes in demand, and to track the company’s overall performance.

2. Go to , and learn about the company. Use your knowledge to describe other measures the company could have taken in its production/operations to recover from the disaster.

Based their research of the company, students will present their findings.

|Discussion Questions |

1. How do customer relationship management systems help organizations achieve customer intimacy?

With this customer intimacy, businesses can use information about each customer (for example, previous purchases, needs, and wants) to create offers that customers are more likely to accept. That is, the CRM approach is designed to achieve customer intimacy. This CRM approach is enabled by information technology.

2. What is the relationship between data consolidation and CRM systems?

Data consolidation and the 360-degree view of the customer enable the organization’s functional areas to readily share information about customers. This sharing of customer information leads to collaborative CRM.

3. Discuss the relationship between CRM and customer privacy.

CRM collects and uses a lot of data. Without adequate safeguards, this strategy may not have worked. If the data is not secured then security problems can result.

4. Distinguish between operational CRM systems and analytical CRM systems.

Operational CRM is the component of CRM that supports the front-office business processes. These processes are those that directly interact with customers; that is, sales, marketing, and service. Whereas operational CRM supports front-office business processes, analytical CRM systems analyze customer behavior and perceptions in order to provide actionable business intelligence.

5. Differentiate between customer-facing CRM applications and customer-touching CRM applications.

The two major components of operational CRM are customer-facing applications and customer-touching applications. Customer-facing CRM applications are the areas where customers directly interact with the enterprise. These areas include customer service and support, sales force automation, marketing, and campaign management.

Customer-touching applications (also called electronic CRM applications) include those technologies with which customers interact and typically help themselves. These applications include search and comparison capabilities, technical and other information and services, customized products and services, personalized Web pages, FAQs, e-mail and automated response, and loyalty programs.

6. Explain why Web-based customer interaction centers are critical for successful CRM systems.

Organizations have implemented customer interaction centers (CIC) thru multiple communication channels such as the Web, telephone, fax, and face-to-face interactions to support the communication preferences of customers. The CIC manages several different types of customer interaction. Web based CIC are low cost and provide the greatest automation for these customer interactions. Hence they are critical for successful CRM.

7. Why are companies so interested in e-CRM applications?

The term electronic CRM (or e-CRM) appeared in the mid-1990s, when organizations began using the Internet, the Web, and other electronic touch points (e.g., e-mail, point-of-sale terminals) to manage customer relationships. Customers interact directly with these technologies and applications rather than interact with a company representative as is the case with customer-facing applications. Such applications are called customer-touching CRM applications or electronic CRM (e-CRM) applications. Using these applications, customers typically are able to help themselves.

8. Discuss why it is difficult to justify CRM applications.

Many CRM applications do not make the company any money. They are important because they improve the customer experience markedly. Hence, these intangible benefits are difficult to quantify and justify for executives.

9. You are the CIO of a small company with a rapidly growing customer base. Which CRM system would you use: on-premise CRM system, on-demand CRM system, or open-source CRM system? Remember that open-source CRM systems may be implemented either on-premise or on-demand. Discuss the pros and cons of each type of CRM system for your business.

I will use on demand CRM as its demands on infrastructure is smaller. An on demand, a CRM system is hosted by an external vendor in the vendor’s data center. For a small company this is a cheaper and leaner solution.

10. Refer to the example concerning the CRM efforts of Caterpillar. Where on the CRM continuum (low-end to high-end) does the company’s CRM strategy fit? Explain your answer.

Caterpillar uses its CRM tools to accomplish the following objectives:

• Assist the organization in improving sales and account management by optimizing the information shared by multiple employees and by streamlining existing processes (for example, taking orders using mobile devices).

• Form individualized relationships with customers, with the aim of improving customer satisfaction and maximizing profits;

• Identify the most profitable customers, and provide them the highest level of service.

• Provide employees with the information and processes necessary to know their customers.

• Understand and identify customer needs, and effectively build relationships among the company, its customer base, and its distribution partners.

Based on the above, it appears Caterpillar is at or near the high-end of the CRM continuum.

11. List and explain the important components of a supply chain.

A supply chain refers to the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end customers. A supply chain involves three segments: upstream, where sourcing or procurement from external suppliers occurs; internal, where packaging, assembly, or manufacturing takes place; and downstream, where distribution takes place, frequently by external distributors.

12. Explain how a supply chain approach may be part of a company’s overall strategy.

The supply chain drives the business operations of the company. It has to be closely aligned with its overall strategy. As seen from the previous case studies, the overall business strategy is JIT or low cost. The mechanics of the supply chain needs to reflect the business strategy.

13. Explain the import role that information systems play in supporting a supply chain strategy.

Information systems are particularly important to ensure efficiency in the supply chain operations. By exchanging information coordination can be improved among the firms linked in the supply chain. This can solve a lot of potential problems in the supply chain. For example, information sharing between Wal-Mart and P&G is done automatically. It is part of a vendor-managed inventory strategy. Vendor-managed inventory (VMI) occurs when a retailer does not manage the inventory for a particular product or group of products. Instead, the supplier manages the entire inventory process. P&G has similar agreements with other major retailers. The benefit for P&G is accurate and timely information on consumer demand for its products. Thus, P&G can plan production more accurately, minimizing the bullwhip effect.

14. Would Rolls-Royce Motorcars (rolls-) use a push model or a pull model in its supply chain? Support your answer.

Given the limited number of cars that they produce and each one customized to the car’s ultimate customer – they should use a pull model for its supply chain.

15. Why is planning so important in supply chain management?

The planning of supply chain management is extremely important because supply and demand can change so fast. Moreover, supply chain problems can result in poor customer satisfaction, lost revenues and reduced profits. Therefore management plays a major role in the supply chain. In many organizations, the production/operations management staff may even lead the supply chain integration process because of their extensive knowledge of the manufacturing components of the organization.

|PROBLEM-SOLVING ACTIVITIES |

1. Access and . Examine some of the IT-supported customer services and tools provided by the two companies. Compare and contrast the customer support provided on the two companies’ Web sites.

Student will research, prepare and present a report.

2. Enter , , and . Compare and contrast the customer service activities offered by these companies on their Web sites. Do you see marked similarities? Differences?

Student will research, prepare and present a report.

3. Access your university’s Web site. Investigate how your university provides for customer relationship management. Hint: First decide who your university’s customers are.

This may lead to an interesting discussion. First, some students may not realize that they are their university’s customers. However, depending on the area of university discussed, each may have different customer groups. Discuss areas such as the library, athletic department, bus line (if you school runs one for the students), registrar, financial, etc.

4. Access and take the interactive tour. Prepare a report on SugarCRM’s functionality to the class.

Student will prepare and present a report.

5. Enter the Teradata Student Network () and find the First American Corporation case (by Watson, Wixom, and Goodhue), which focuses on CRM implementation. Answer the questions at the end of the case.

Student will prepare and present their answers to the case’s questions.

6. Enter Teradata Student Network and find the podcasts that deal with supply chains (by Jill Dyche). Identify the benefits cited in the podcasts.

Student will prepare and present a report.

7. Access and . Examine some of the IT-supported customer services and tools provided by the two companies. Write a report on how the two companies contribute to supply chain improvements.

Student will prepare and present a report.

8. Enter supply-, , , and and search for recent information on supply chain management.

Student will prepare and present a report.

9. Surf the Web to find a procurement (sourcing) portal, and distribution portal, and an exchange. (Other than the examples in this chapter.) List the features they have in common and those features that are unique.

Student will prepare and present a report.

|Web Activities |

1. Access and . Examine some of the IT-supported customer services and tools provided by the two companies. Compare and contrast the customer support provided on the two companies’ Web sites.

Student answers will vary. Have students make a list of the different CIC offered by these two sites as well.

2. Enter , , and . Compare and contrast the customer service activities offered by these companies on their Web sites. Do you see marked similarities? Differences?

Student answers will vary. Focus on the different CIC offered – email, live chat, 800 number, etc, on these sites. Point out how each site is engaging the customer long term – e.g. newsletters.

3. Access your university’s Web site. Investigate how your university provides for customer relationship management. Hint: First decide who your university’s customers are.

Student answers will vary. Generally the customers are current, prospective and past students.

4. Enter and and view their demos. Write a report about how live chat works. Be sure to discuss all the available features

Student answers will vary. Some organizations block chat sites, so that may pose problems with this activity.

5. Access and view the demo (registration required). Prepare a report on the demo to the class.

Student answers will vary. Beware that registration is required for this activity.

6. Access and take the interactive tour. Prepare a report on SugarCRM’s functionality to the class.

Sugar CRM is an open source CRM tool that allows the management of the interactions with customers in different domains – sales, support, reporting, administration, etc. SugarCRM can be deployed on-demand (on our servers) or on-site (inside your firewall). Customers receive both a license key to download the software and an On-Demand account when they become a customer of Sugar Enterprise and Sugar Professional. Regardless of deployment options, all Sugar information is accessible through a standard web browser. Moreover, it has an open programming interface so that other applications can be interfaced to this system.

7. Enter the Teradata Student Network () and find the First American Corporation case (by Watson, Wixom, and Goodhue), which focuses on CRM implementation. Answer the questions at the end of the case

Student answers will vary. Registration is required for this activity.

|Team Assignments |

Students will follow directions on these activities and submit a thoughtful report on each.

1. Each group will be assigned to an open-source CRM vendor. Each group should examine the vendor, its products, and the capabilities of those products. Each group will make a presentation to the class detailing how its vendor product is superior to the other open-source CRM products. See SugarCRM (), Concursive (), vtiger (), SplendidCRM Software (), Compiere (), Hipergate (), and openCRX ().

Students will research, prepare and present a report.

2. Each group will be assigned to an on-demand CRM vendor. Each group should examine each vendor, its products, and the capabilities of those products. Each group will make a presentation to the class detailing how its vendor product is superior to the other open-source CRM products. See Salesforce (), Oracle (), Aplicor (), NetSuite (), SalesNexus (), SageCRM (), Commence (), Saffront (), and eSalesTrack ().

Students will research, prepare and present a report.

3. Create groups to investigate the major CRM applications and their vendors.

• Sales force automation (Microsoft Dynamics, Oracle, FrontRange Solutions, RightNow Technologies, Maximizer Software)

• Call centers (LivePerson, Cisco, Oracle)

• Marketing automation (SalesNexus, Marketo, Chordiant, Infor, Consona, Pivotal, Oracle)

• Customer service (Oracle, Amazon, Dell)

Start with and (to ask questions about CRM solutions). Each group will present arguments to convince the class members to use the product(s) the group investigated.

Students will research, prepare and present a report.

4. Each group in the class will be assigned to a major supply chain management vendor, such as SAP, Oracle, i2, IBM, and so on. Each group will investigate topics such as: (a) the products; (b) major capabilities; (c) relationship to customer relationship management; and (d) customer success stories. Each group will prepare a presentation for the class, trying to convince the class why that group’s software product is best.

Students will research, prepare and present a report.

5. Have each team locate several organizations that use IOSs, including one with a global reach. Students should contact the companies to find what IOS technology support they use (for example, an EDI, extranet, etc.). Then find out what issues they faced in implementation. Prepare a report.

Students will research, prepare and present a report.

|Closing Case |

Tesco Returns to the Corner Shops of England's Past

The Problem

Tesco () was not always the U.K.’s largest grocer. In fact, at one time the grocer struggled to maintain its position as the number two grocery chain in England. Deteriorating same-store sales and poor customer retention had eroded the company’s market position and profitability. Tesco’s business problem was apparent. How could the grocery chain improve its sales, market share, and profitability? In an attempt to improve sagging sales in many of its stores, Tesco implemented a loyalty program, called the Tesco Club Card.

The Solution

Tesco’s information systems, like those of many other retailers, were designed around a product-based cost approach. Specifically, most stores maintain their profit margins through managing the cost of products sold and negotiating partnerships with suppliers. Tesco found that this cost-based type of system would not support the customer-centric approach that it felt was needed to rejuvenate its business.

Tesco addressed this issue by implementing an enterprise-wide CRM system called the Club Card program. The system enables Tesco to collect, store, and analyze the data generated by Tesco Club Card customers and other customers as well. Specifically, it places each customer into one of three categories: cost-conscious, mid-market, and up-market. These segments are further segmented into shopping tendencies such as healthy, gourmet, convenient, family living, and others. Tesco then targets communications to each customer segment. Tailoring communications according to customers’ individual behaviors, needs, and desires helps Tesco reach the right person in the right way with an appropriate message.

Tesco hired dunnhumby () to help it analyze these data. Dunnhumby is a British marketing research firm that mines data from credit card transactions and customer loyalty programs to uncover hidden and potentially lucrative facts about its clients’ current customers. For example, dunnhumby can identify customers who might be interested in a particular sale or who will not go back to a store if it does not offer a particular product.

Dunnhumby analyzes three types of data: customer data (e.g., from a loyalty card program), sales data (e.g., from electronic point-of-sale), and traditional market research data. These analyses provide company managers and analysts with valuable insights into customer behavior. Dunnhumby then uses these insights to create customer-driven action plans, which are strategies to build a client’s business by better matching all aspects of the client’s retail operations with the customers’ needs and aspirations. In this case, Tesco used the insights provided by dunnhumby to help shape its Club Card program.

The Results

Tesco’s Club Card program now boasts 10 million active households. Tesco’s CRM system provides multidimensional customer segmentation and tailored communications. Recently, Tesco printed and mailed 4 million unique quarterly club mailings with coupons targeted toward very specific customer segments. To Tesco customers this is proof that they can count on their “local grocer” to know what they want and need.

Impressively, Club Card coupon redemption is in the range of 20–40 percent, and cost per redemption has decreased since Tesco instituted the program. In the five-year period following the implementation of the program, Tesco sales increased by 52 percent, and they continue to grow at a higher rate than the industry average. In addition, store openings and expansions have increased Tesco’s floor space by 150 percent.

Tesco has experienced rapid growth in revenue, proof that the company truly accomplished its customer focus. Tesco’s customers began to feel appreciated and in return they developed a tremendous affinity for the company. Interestingly, the company’s success has extended to the web as well. Tesco’s website () boasts 500,000 transactions weekly, totaling nearly two billion pounds in sales each year.

The in-depth understanding of its customers changed the company’s way of thinking about both the customers and the business. The company moved away from thinking about an “average customer.” Tesco committed itself to a truly customer-based business; one that sees each customer as an individual. Therefore the Tesco motto became “changing the way they think about us.” Tesco’s Chairman Sir Terry Leahy placed this mission statement in the center of one of the company’s annual reports: “Continually increasing value for customers to earn their lifetime loyalty.”

Tesco’s new way of thinking about its customers caused the grocer to go back 40 years in time to England’s “corner grocers,” where the proprietors knew their customers’ preferences, wants, and needs, and customers remained loyal to the store.

Questions

1. Explain what a customer-driven action plan is. Are such plans designed to keep existing customers or to attract new customers? Support your answer.

The in-depth understanding of its customers changed the company’s way of thinking about both the customers and the business. The company moved away from thinking about an “average customer.” Tesco committed itself to a truly customer-based business; one that sees each customer as an individual. Therefore the Tesco motto became “changing the way they think about us.” Tesco’s Chairman, Sir Terry Leahy, placed this mission statement in the center of one of the company’s annual reports: “Continually increasing value for customers to earn their lifetime loyalty.”

2. Describe how dunnhumby helps its client companies achieve greater customer intimacy. Is dunnhumby invading customers’ privacy? Support your answer.

Dunnhumby is a British marketing research firm that mines data from credit card transactions and customer loyalty programs to uncover hidden and potentially lucrative facts about its clients’ current customers. For example, dunnhumby can identify customers who might be interested in a particular sale or who will not go back to a store if it does not offer a particular product.

Dunnhumby analyzes three types of data: customer data (e.g., from a loyalty card program), sales data (e.g., from electronic point-of-sale), and traditional market research data. These analyses provide company managers and analysts with valuable insights into customer behavior. Dunnhumby then uses these insights to create customer-driven action plans, which are strategies to build a client’s business by better matching all aspects of the client’s retail operations with the customers’ needs and aspirations. In this case, Tesco used the insights provided by dunnhumby to help shape its Club Card program.

3. Will Tesco’s CRM strategy allow the grocer to achieve a sustainable competitive advantage? Why or why not?

Yes, they have achieved a sustainable competitive advantage.

They have successfully collected operational data and deployed information based on that data in an IT infrastructure that will be difficult to emulate by competitors.

|Chapter Glossary |

analytical CRM system: CRM systems that analyze customer behavior and perceptions in order to provide actionable business intelligence.

bullwhip effect: Erratic shifts in orders up and down the supply chain.

Bundling: A form of cross-selling where an enterprise sells a group of products or services together at a lower price than the combined individual price of the products.

campaign management applications: CRM applications that help organizations plan marketing campaigns so that the right messages are sent to the right people through the right channels.

collaborative CRM system: A CRM system where communications between the organization and its customers are integrated across all aspects of marketing, sales, and customer support processes.

cross selling: The practice of marketing additional related products to customers based on a previous purchase.

customer-facing CRM applications: Areas where customers directly interact with the organization, including customer service and support, sales force automation, marketing, and campaign management.

customer interaction center: A CRM operation where organizational representatives use multiple communication channels to interact with customers in functions such as inbound teleservice and outbound telesales.

customer relationship management: A customer-focused and customer-driven organizational strategy that concentrates on satisfying customers by addressing their requirements for products and services, and then by providing high-quality, responsive service.

customer-touching CRM applications (also called electronic CRM or e-CRM): Applications and technologies with which customers interact and typically help themselves.

customer touch point: Any interaction between a customer and an organization.

distribution portals: Corporate portals that automate the business processes involved in selling or distributing products from a single supplier to multiple buyers.

electronic CRM (e-CRM) (see customer-touching CRM applications)

electronic data interchange (EDI): A communication standard that enables the electronic transfer of routine documents between business partners.

interorganizational information system (IOS): An information system that supports information flow among two or more organizations.

just-in-time (JIT) inventory system: A system in which a supplier delivers the precise number of parts to be assembled into a finished product at precisely the right time.

loyalty program: Programs that offer rewards to customer to influence future behavior.

mobile CRM system: An interactive CRM system where communications related to sales, marketing, and customer service activities are conducted through a mobile medium for the purpose of building and maintaining customer relationships between an organization and its customers.

on-demand CRM system: A CRM system that is hosted by an external vendor in the vendor’s data center.

open-source CRM system: CRM software whose source code is available to developers and users.

operational CRM system: The component of CRM that supports the front-office business processes which directly interact with customers; i.e., sales, marketing, and service.

procurement portals: Corporate portals that automate the business processes involved in purchasing or procuring products between a single buyer and multiple suppliers.

pull model: A business model in which the production process begins with a customer order and companies make only what customers want, a process closely aligned with mass customization.

push model: A business model in which the production process begins with a forecast, which predicts the products that customers will want as well as the quantity of each product. The company then produces the amount of products in the forecast, typically by using mass production, and sells, or “pushes,” those products to consumers.

sales force automation: The component of an operational CRM system that automatically records all the aspects in a sales transaction process.

supply chain: The coordinated movement of resources from organizations through conversion to the end consumer.

supply chain management: An activity in which the leadership of an organization provide extensive oversight for the partnerships and processes that comprise the supply chain and leverage these relationships to provide an operational advantage.

supply chain visibility: The ability for all organizations in a supply chain to access or view relevant data on purchased materials as these materials move through their suppliers’ production processes.

up selling: A sales strategy where the organizational representative will provide to customers the opportunity to purchase higher-value related products or services as opposed to or along with the consumer’s initial product or service selection.

vendor-managed inventory (VMI): An inventory strategy where the supplier monitors a vendor’s inventory for a product or group of products and replenishes products when needed.

vertical integration: Strategy of integrating the upstream part of the supply chain with the internal part, typically by purchasing upstream suppliers, in order to ensure timely availability of supplies.

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