Turban and Volonino Chapter 10 Enterprise Systems Supply

Turban and Volonino Chapter 10 Enterprise Systems: Supply Chains, ERP, CRM & KM Information Technology for Management Improving Performance in the Digital Economy 7 th edition John Wiley & Sons, Inc. Slides contributed by Dr. Sandra Reid Chair, Graduate School of Business & Professor, Technology Dallas Baptist University Copyright 2010 John Wiley & Sons, Inc. 10 -1

Chapter Outline • Essentials of Enterprise Systems and Supply Chains • Supply Chain Management and Its Business Value • Enterprise Resource Planning (ERP) Systems • Customer Relationship Management (CRM) • Knowledge Management and IT Copyright 2010 John Wiley & Sons, Inc. 10 -2

Learning Objectives 1. Understand the essentials of enterprise systems and computerized supply chain management. 2. Describe some major problems of implementing supply chains and some innovative solutions. 3. Describe the need for integrated software and how ERP does it. 4. Describe CRM and its support by IT. 5. Describe KM and its relationship to IT. Copyright 2010 John Wiley & Sons, Inc. 10 -3

10. 1 Essentials of Enterprise Systems and Supply Chains Copyright 2010 John Wiley &

Enterprise systems • • Enterprise Resource Planning (ERP) systems Customer Relationship Management (CRM) systems Knowledge Management (KM) systems Business Process Management (BPM) systems Materials Requirement Planning (MRP) systems Product Lifecycle Management (PLM) systems …

Overview of enterprise system. (Source: Prepared by E. Turban and D. Amoroso. ) Copyright

The structure of a typical supply chain. (Source: Drawn by E. Turban. ) Copyright

Supply Chain Problems Adding value along the chain is essential for competitiveness, however, problems exist especially in complex or long chains and in cases where many business partners are involved. These problems are due to uncertainties and the need to coordinate several activities, internal units, and business partners. • • • Demand forecasts are a major source of uncertainties – Competition – Prices – Weather conditions – Technological development – Customer confidence Uncertainties exist in delivery times – Machine failures – Road conditions – Shipments Quality problems may also create production delays

Supply Chain Problems (Continued) • The bullwhip effect refers to erratic shifts in orders up and down the supply chain because of poor demand forecasting, price fluctuation, order batching, and rationing within the chain. • Even slight demand uncertainties and variability become magnified if each distinct entity, on the chain, makes ordering and inventory decisions with respect to its own interest above those of the chain. • Distorted information can lead to tremendous inefficiencies, excessive inventories, poor customer service, lost revenues, ineffective shipments, and missed production schedules. • A common way to solve the bullwhip problem is by sharing information along the supply chain through EDI, extranets, and groupware technologies. For example employing a vendor-managed inventory (VMI) strategy, the vendor monitors inventory levels and when it falls below the threshold for each product this automatically triggers an immediate shipment.

Supply Chain Solutions Information sharing among supply chain partners (c-commerce) sometimes referred to as the collaboration supply chain is one method to overcome problems in the flow. Others are: • Optimal Inventory Levels • Supply Chain Coordination and Collaboration • Supply Chain Teams • Performance Measurement and Metrics • Various IT-Assisted Solutions – wireless technology – optimal shipping plans – strategic partnerships with suppliers – just-in-time

Digital supply chains. (Source: Intel, “Building the Digital Supply Chain: An Intel Perspective, ” Intel Solutions White Paper, January 2005, Figure 5, p. 9. ) Copyright 2010 John Wiley & Sons, Inc. 10 -11

E-Business Systems & Supply Chains Better cost performance from improved productivity & lower costs. Enhanced customer service from improved quality of service. Improved process capabilities from online business quality consistency. Higher productivity & dependability from increased control of material flows along the supply chain. Shortened cycle times due to fewer delays & higher speed. Greater flexibility in planning & replanning. Shorten the supply chain itself. Smooth the related production processes. • Collaborative Planning, Forecasting and Replenishment (CPFR) • Vendor-managed Inventory (VMI) • Internal or External Integration Copyright 2010 John Wiley & Sons, Inc. 10 -12

E-Business and Supply Chains (Continued) A major role of EC is to facilitate buying and selling along all segments of the supply chain. • Upstream Activities improve the upstream supply chain through eprocurement • Internal Supply Activities from entering purchase orders, to recording sales, to order fulfillment, to tracking shipments, are usually conducted over a corporate intranet • Downstream Activities enhance the activity downstream activities by providing online ordering • Vertical exchanges combine upstream and downstream EC supply chain activities. These B 2 B exchanges, provide a medium where buyers and sellers can meet.

Business Value of SCM • Effective transformation of raw materials into goods and/or services. • Reduce uncertainty & risk. • Improved collaboration to decrease inventory levels & cycle time. • Improved processes & customer service. • Increased profitability & competitiveness. Copyright 2010 John Wiley & Sons, Inc. 10 -14

10. 3 Enterprise Resource Planning (ERP) Systems Copyright 2010 John Wiley & Sons, Inc.

What is ERP? • Software integrates planning, management & use of all resources in entire enterprise. • Comprises sets of applications that automate back-end operations (financial, inventory management & scheduling). • Modules for cost control, accounts payable/receivable, treasury management & fixed assets. • Benefits range from increased efficiency to improved quality, productivity & profitability. Copyright 2010 John Wiley & Sons, Inc. 10 -16

ERR application modules. (Source: Prepared by D. Amoroso. ) Copyright 2010 John Wiley &

ERP – Lease or Buy? • Self-develop an integrated system, either linking together existing functional packages or by programming a new custom-built system. • Purchase commercially available product (often quicker &/or less expensive). Leading vendor is SAP. Oracle & Computer Associates also make similar products. • Lease from application service providers (ASP) to get the best modules of different vendors. • Lease will typically be least expensive option making it more affordable by even small firms. Copyright 2010 John Wiley & Sons, Inc. 10 -18

ERP Implementation Issues • ERP vendor and product selection • Matching commercial software with organizational processes • Installing ERP modules • Software complexity • . .

10. 4 Customer Relationship Management (CRM) Copyright 2010 John Wiley & Sons, Inc. 10

CRM applications. (Source: Patricia Seybold Group, An Executive’s Guide to CRM, March 21, 2002.

CRM Business Strategy • Customers are the core of the business. • Success depends upon company effectively managing relationships with customers. • It is a business strategy to select & manage customers to optimize long-term value. • Requires a customer-centric business philosophy & culture to support effective marketing, sales & services processes. • Idea is simple – treat different customers differently as their needs are different & their value to the company may be different. Copyright 2010 John Wiley & Sons, Inc. 10 -22

Classification of CRM Applications • Customer-facing – include all areas where customers interact with company (call centers, help desks, sales force automation). • Customer-touching – customers interact with the applications (self-service, campaign management, general purpose ebusiness applications). • Customer-centric intelligence – analyze results of operational processing & use results to improve CRM applications. • Online networking – methods that provide the opportunity to build personal relationships (chat rooms & discussion lists). Copyright 2010 John Wiley & Sons, Inc. 10 -23

Customer Relationship Management (e. CRM) • CRM has been practiced manually by corporations for generations. However, Ecrm (electronic CRM) started in the mid-1990’s , when customers began using Web browsers, the Internet, and other electronic touch points. l We can differentiate three levels of e-CRM: l Foundational service. This includes the minimum necessary services such as Website responsiveness (e. g. , how quickly and accurately the service is provided), site effectiveness, and order fulfillment. l Customer-centered services. These services include order tracking, product configuration and customization, and security/trust. These are the services that matter the most to customers. l Value-added services. These are extra services such as online auctions and online training and education.

Customer Relationship Management CRM Activities • • Customer Service on the Web – Search and Comparison Capabilities – Free Products and Services – Technical and Other Information and Service – Allowing Customers to Order Products and Services Online – Letting Customers Track Accounts or Order Status – Loyalty Programs Tools for Customer Service – Personalized Web Pages – FAQs – Chat Rooms – E-Mail and Automated Response – Call Centers – Troubleshooting Tools – Wireless CRM

Issues Related to CRM Failures • Difficulty in measuring intangible benefits. • Failure to identify & focus on specific business problems that the CRM can solve. • Lack of active senior management sponsorship. • Poor user acceptance. • Trying to automate poorly defined business process. Copyright 2010 John Wiley & Sons, Inc. 10 -26

Business Value of CRM • • • Increase in staff productivity. Cost avoidance. Increased revenue. Margin increases. Reduced inventory costs. Increased customer satisfaction. Copyright 2010 John Wiley & Sons, Inc. 10 -27

Risks of e-CRM • • Taking on more than can be delivered. Getting over budget & behind schedule. Poor user adoption. Expensive maintenance & support. Isolation. Garbage in-garbage out. Failure to measure success. Copyright 2010 John Wiley & Sons, Inc. 10 -28

10. 5 Knowledge Management and IT Copyright 2010 John Wiley & Sons, Inc. 10

Data, information, and knowledge. Copyright 2010 John Wiley & Sons, Inc. 10 -30

Knowledge as Corporate Asset – Intellectual Capital Knowledge has the following characteristics that differentiates it from an organization’s other assets • Extraordinary leverage and increasing returns. Knowledge is not subject to diminishing returns. When it is used, it is not consumed. Its consumers can add to it, thus increasing its value. • Fragmentation, leakage, and the need to refresh. As knowledge grows, it branches and fragments. Knowledge is dynamic; it is information in action. Thus, an organization must continually refresh its knowledge base to maintain it as a source of competitive advantage. • Uncertain value. It is difficult to estimate the impact of an investment in knowledge. There are too many intangible aspects. • Uncertain value of sharing. Similarly, it is difficult to estimate the value of sharing the knowledge, or even who will benefit most. • Rooted in time. • Knowledge as a form of capital, must be exchangeable among persons, and it must be able to grow.

Types of knowledge • Tacit: Knowlegde is rooted in actions, experience and involvement into a specific context – Cognitive tacit (mental models) – Technical tacit (e. g. surgery skills) • Explicit: Articulated, generalized knowledge

Explicit knowledge has been codified (documented) in a form that can be distributed to others or transformed into a process or strategy without requiring interpersonal interaction. • Explicit knowledge (or leaky knowledge) deals with objective, rational, and technical knowledge – – – – – Data Policies Procedures Software Documents Products Strategies Goals Mission Core competencies The more that knowledge is made explicit, the more economically it can be transferred.

Tacit knowledge is usually in the domain of subjective, cognitive, and experiential learning; it is highly personal and difficult to formalize. It is also referred to as embedded knowledge since it is usually either localized within the brain of an individual or embedded in the group interactions within a department or business unit. • Tacit knowledge is the cumulative store – – – – – of the corporate experiences Mental maps Insights Acumen Expertise Know-how Trade secrets Skill sets Learning of an organization The organizational culture Tacit knowledge is generally slow and costly to transfer and can be plagued by ambiguity. It is also called sticky knowledge.

How is tacit knowledge transferred? • Through associations, apprenticeships, conversations, social and interpersonal interactions or even through simulations.

Knowledge management • The goal of knowledge management is for an organization to be aware of individual and collective knowledge so that it may make the most effective use of the knowledge it has. • Firms recognize the need to integrate both explicit and tacit knowledge into a formal information systems - Knowledge Management System (KMS)

Why create a KMS? • “We have 80. 000 people scattered around the world that need information to do their job effectively” • Many companies suffer significant setback from loosing key staff. • “Most of the knowledge needed by organizations exists inside them”

The knowledge management system cycle. Copyright 2010 John Wiley & Sons, Inc. 10 -39

Knowledge Creation • Knowledge creation or knowledge acquisition is the generation of new insights, ideas, or routines. – – Combination mode refers to the creation of new explicit knowledge by merging, categorizing, reclassifying, and synthesizing existing explicit knowledge – Externalization refers to converting tacit knowledge to new explicit knowledge – • Socialization mode refers to the conversion of tacit knowledge to new tacit knowledge through social interactions and shared experience. Internalization refers to the creation of new tacit knowledge from explicit knowledge. Knowledge seeking is the search for and use of internal organizational knowledge.

Knowledge sharing • Knowledge sharing is the exchange of ideas, insights, solutions, experiences to another individuals via knowledge transfer computer systems or other non-IS methods. – Knowledge: organizational resource or individual competitive weapon?

Knowledge Management – Information Technology Knowledge management is more than a technology or product, it is a methodology applied to business practices. However, information technology is crucial to the success of knowledge management systems. • Components of Knowledge Management Systems: – Communication technologies allow users to access needed knowledge and to communicate with each other. – Collaboration technologies provide the means to perform group work. – Storage and retrieval technologies (database management systems) to store and manage knowledge.

Knowledge Management – Supporting Technologies enable advanced functionality in knowledge management systems and form the base for future innovations. • Artificial Intelligence (AI methods: expert systems, neural networks, fuzzy logic, genetic • Intelligent agents are software systems that learn how users work and provide assistance in • Knowledge Discovery in Databases (KDD) is a process used to search for and extract • Data mining the process of searching for previously unknown information or relationships in • • algorithms, etc. ) their daily tasks. useful information from volumes of documents and data. large databases, is ideal for extracting knowledge from databases, documents, e-mail, etc. Model warehouses & model marts extend the role of data mining and knowledge discovery by acting as repositories of knowledge created from prior knowledge-discovery operations Extensible Markup Language (XML) enables standardized representations of data structures, so that data can be processed appropriately by heterogeneous systems without case -by-case programming.

Knowledge Management – IT Products Technology tools that support knowledge management are called knowware. • Most knowledge management software packages include one or more of the following tools: – collaborative computing tools – knowledge servers – enterprise knowledge portals – electronic document management systems – knowledge harvesting tools – search engines – knowledge management suites.

Expert location system of Ask. Me Corp. (Source: Drawn by E. Turban. ) Copyright

Causes of KM failure • It is estimated that KM failure rates range from 50 to 70 percent. • Reasons: – Too much information, or not easily searchable information – Failure in capturing and categorizing knowledge – Over-management deprives Communities of practice of their creativity – Lack of incentives for users – Overemphasis on technology

Potential drawbacks • Reuse of existing knowledge may prohibit a company from adapting to changes in its environment.

Managerial issues • • • Personnel layoffs Degree of integration Role of IT Organizational adaptability Implementation choices in the face of quickly changing tecnology