Integrating ERP, CRM, Supply Chain Mgt., and Smart Materials 6

79 Chapter 5 The Market Demand for Enterprise Resource Planning Software and Customer Relationship Management In the late 1990s, the market for enterprise resource planning (ERP) software grew by more than 30 percent a year. Experts, however, expect the ERP market growth to fall to about 15 percent as its upper end becomes saturated. The slack will be taken by other products, such as customer relationship management (CRM) software (see Chapter 5.2), which is expected to boom over the coming years to $35 billion, representing about 30 percent of the total world market for programming products. CRM programming products are part of what has become known as the Customer Service Level Requirements (CSLR) model, which is being refined for assemble-to-order manufacturing systems. This model interfaces to ERP, although it primarily addresses inventory policy in assemble-to-order environ- ments. Analysts expect that CSLR will assist the functionality already established by other programming products such as ERP, helping to simplify more complex approaches to inventory control currently in use (see Chapter 5.4). The fact that enterprise resource management systems extend their reach in two ways — toward a cost-efficient handling of inventories and an able management of the customer base — should be welcome from a functional angle. Both issues — customer handling and inventory control — are in the front-line, but the capable use of more sophisticated software demands inte- gration over a broader range of technologies in addition to links to ERP systems. AU1076/frame/ch05 Page 79 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC 80 Integrating ERP, CRM, Supply Chain Management, and Smart Materials The synergy between the more classical ERP, CRM, and inventory planning and control may not seem evident until one puts the entire issue into perspective. CRM deals with more issues in the front office than ERP. ERP, to a considerable extent, has targeted back-office chores, hence the need to scale up resources to handle a much larger user community by means of off-the- shelf programming products and to provide a central focus for the entire business that is integrated with the Internet-oriented supply chain and the use of smart materials. A valid approach is to account now for new technical requirements expected in the near future. A case in point is mobile access to ERP systems such as the me-commerce chores examined in Chapter 4. If individual cus- tomers and the company’s sales force can input an order straight into a mobile phone or other portable device, there is no re-keying to be done, and the error rate will be lower than current averages. Also, the order can activate other parts of the CRM/ERP/CSLR system, such as better-tuned inventory planning and supply chain management. An evolving issue that the reader should take note of is the pluses and minuses associated with the use of the Wireless Application Protocol (WAP). WAP can check inventories and sales for a particular office or region by units or value, or it can compare historical data to current orders. WAP can help the sales force identify the most profitable customers, but thus far it has received mixed reactions. Therefore, both the business opportunity and the technical infrastructure must be studied. In principle, mobile access can see to it that the benefits of a company’s enterprise resource management software need not be restricted merely to people inside the office. Mobile executives can be given the opportunity to reach online decision support data; they can mine databases while in the field and also add to database content in a two-way communication. This exten- sibility of ERP functionality is the broader message this chapter brings to the reader. 5.1 New Facilities and Constraints Connected with Enterprise Resource Planning To better appreciate the evolution of ERP software toward a more complex structure, one should return to the fundamentals. In theory — but only in theory — everything from customer orders to manufacturing schedules and inventory levels reside inside the ERP system and its databases. This is what user organizations hear from many vendors who present ERP as a state-of- the-art product with plenty to offer all its business customers, and as a way to make a quantum leap in the organization’s internal information using nothing more than browser-based workstations. In practice, however, things are a little different. True enough, salespeople can datamine to check production status or inventory level, inquire about deliveries, and handle orders directly. However, innovative companies have AU1076/frame/ch05 Page 80 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC The Market Demand for Enterprise Resource Planning Software 81 found that they need to extend their ERP applications to the Internet by means of Web-based enterprise management (see Chapter 3), making even small suppliers on the other side of the world their supply chain partners. As noted in the introductory part of this chapter, these innovative companies also need to add CRM functionality, inventory planning chores, and other routines promoting proactive participation on behalf of business partners. This has many analytical aspects, including: � As global transactions get increasingly competitive, suppliers become responsible for monitoring their clients’ inventory levels. � When the client is running low on a given product, the supplier must be able to find it immediately and replenish the stock. This type of application offers competitive advantages to business partners up and down the supply chain; it also poses important technical demands on ERP programming products. Greater security (see Chapter 4) and robustness are two examples of what ERP clients demand. Robustness requires that the system’s architecture supports applications with potentially thousands of users and is able to process heavy transaction loads at any time, from any place. Users also promote the choice of methods and tools that can easily integrate heterogeneous platforms while providing enough power and the appropriate enterprise services for the application environment of their firm. This is an important message for the developers of ERP software, if one keeps in mind that client demand accounts for 35 percent of the origin of new products and, as Exhibit 5.1 shows, this is by far the most critical factor in new software development. Exhibit 5.1 Origin of New Products in the Software Business AU1076/frame/ch05 Page 81 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC 82 Integrating ERP, CRM, Supply Chain Management, and Smart Materials Typically, vendors who do not show sensitivity to customer requests, at any time, in any place they sell, are falling out of the market. Another technical issue vendors should watch for is that organizations want the ERP software to be efficient in session management, transaction services, message queuing, the monitoring of performance, and logging of system events. Provision must also be made for a directory of users and their roles, while the ERP system must be capable of integrating its services to third-party development envi- ronments. This includes the ability to handle multiple browsers, support the most popular programming languages, and make it possible to adapt to problems as they develop. The deployment of an ERP technology that respects the outlined require- ments allows a company to automate and integrate important analytical business processes to produce internal intelligence. Analytical business pro- cesses that deal with ERP and CRM data help in understanding one’s own and one’s customers’ activity and behavior over time. As in Chapter 3, another piece of necessary software is one that can manage Web applications across multiple servers by simplifying the tasks involved in software scaling, deploy- ing and managing distributed applications, and adding new services and servers that are operationally needed. A distributed hardware/software environment has no single point of failure, and capacity can be added economically as needed. It also permits taking advantage of the Internet and using a Web-based business model. A job properly done would determine how our traditional business activity maps onto Internet commerce and would decide whether it makes sense to differ- entiate and customize to reach new customers and create new markets. ERP’s role in this is to make transparent issues of schedules and costs, providing information on accuracy and flexibility in managing them. Modeling alternative or emerging Web strategies is crucial in handling the company transition into Internet commerce. As the careful reader will recall, there is a distinction between the theoretical and practical services that ERP software offers. The reason for this distinction is that few companies have the technical expertise to face the list of require- ments referred to in the foregoing paragraphs and turn enterprise resource planning into a competitive advantage. Along with security, this fact explains why only one out of five companies currently uses the full potential of ERP by making its information available to business partners. Exhibit 5.2 presents a three-way classification of open-door policies followed by many firms. Some strategies, such as the open-door policy for ERP information followed by Cisco, proved to be shrewd and timely ones, but for various reasons it is not yet popular. While to the technologist an open-door ERP solution may sound wonderful, several constraints exist and, to a substantial extent, their origin is in management decisions. To be overcome, such constraints must be analyzed and addressed individually in an effective way. Senior management may understand that an open-door policy offers value differentiation, but is concerned about confidentiality or proprietary informa- tion. The fact that security of networks and databases is not perfect plays a AU1076/frame/ch05 Page 82 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC The Market Demand for Enterprise Resource Planning Software 83 role in this reaction. On the technical side is the issue of communications bandwidth and database bandwidth, which can be a severe bottleneck. Many companies do not have the network infrastructure to support the large number of customers and suppliers who can access their applications over the Web. Another part of the technological challenge involves connection capabilities, including native drivers; access to stored procedures and triggers; and the ability to create, modify, cancel, or maintain database tables, fields, and views. Still another reference is that of binding user interface(s) to dynamic applications requirements. Because in the coming years Internet software will be used extensively for the Web range of enterprise resource planning (see Chapter 3), the system must provide support for both advanced HTML (e.g., Cascading Style Sheets, Script) as well as dynamic HTML and XML. The solution must also incorporate the ability to create sophisticated views such as master/detail and table views with grouping, sorting, restricting, and multimedia controls. These technically oriented references also apply to CRM software and other programming products. 5.2 Customer Relationship Management Software and Its Benefits Internet commerce needs much more than internal data handling software that can be provided through the more classical ERP off-the-shelf packages. As explained in the introductory part of this chapter, an important add-on is the currently commercially available solutions for an effective CRM process. The sought-after goal is that of: Exhibit 5.2 Statistics on Direct In-House ERM Access by Supply Chain Partners, on Cross-Company Basis AU1076/frame/ch05 Page 83 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC 84 Integrating ERP, CRM, Supply Chain Management, and Smart Materials � Providing an effective front office like the customer � Understanding the customer better than ever before � Increasing the business the end user does with one’s company Chapter 3 provided plenty of evidence that to succeed in Internet com- merce, one must be able to implement an increasingly more efficient solution to the management of one’s customer base, integrating business processes and data streams, while improving the effectiveness with which one exploits such information. Like ERP, CRM is an off-the-shelf programming product. CRM procedures are inseparable from those targeted by ERP. In a credit institution, for example, CRM addresses itself to the task of efficiently managing the front desk and its client relationship, while linking it to the back office and its operational processes. However, not all CRM packages are necessarily easy to use and effective in the functions they set out to perform. A recent project rated five different packages in terms of cost versus what was perceived as basic functionality. The latter included ease of use, customer handling routines specific to the organization that did the test, ability to link to existing ERP applications, and several other factors. The sum of this rating was expressed in points, 15 points being the highest grade. Because costs matter, each CRM package was priced according to purchase cost and estimated imple- mentation cost. As Exhibit 5.3 reveals, package II rated higher than its compet- itors, while its total cost was only a notch more than the lowest cost figure. In this and many other evaluation projects that I have been exposed to, the mining of the customer base has also been kept in perspective. Issues closely associated with the customer base include marketing, sales, after-sales service, and a myriad of other activities, which together ensure steady client handholding. Moreover, because so many companies seek these same goals, an added value would aim to produce customer intelligence that can be effectively used in targeted marketing, and improve the analytics and thereby the decisions made in investing the company’s resources in sales efforts. Exhibit 5.3 Rating of Five Different Off-the-Shelf Programming Products Versus Total Purchase and Implementation Costs AU1076/frame/ch05 Page 84 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC The Market Demand for Enterprise Resource Planning Software 85 Companies that have adopted and that use CRM software have made one of their targets better marketing campaign management across all channels. They do so by using customer intelligence to personalize the marketing effort. Another target is to efficiently disseminate valuable customer intelligence to all people and systems that need it. This assists in optimizing the supply chain based on demand uncovered by measuring penetration and sales and evalu- ating margins and other management-defined criteria of performance. CRM solutions, and therefore CRM software, should track both incoming and outgoing customer communications, flash-out types of customer-initiated events, and register direct and indirect responses to business. Communication must be managed in a way that can effectively exploit business opportunities and provide a selective approach to channel integration. Essentially what is sought after through a CRM solution is the ability to incrementally increase customer account visibility, linking front-desk transac- tions with back-office ERP information and its supporting software, as well as with legacy transaction processing. This must be done in a way that allows one to get the most out of the supply chain. Such approaches can be instrumental in closing the intelligence gap that exists today in most firms. One of the persistent remarks made in the course of my research has been that a valid solution will be one that can be effectively implemented in a polyvalent way, in the sense of person-to-person, system-to-system, person- to-system, and system-to-person communications. A flexible approach will also observe the requirements posed by evolving technologies, the manage- ment of Internet business operations, and the handling of personalized cus- tomer relationships. The reason for including analytical business processes, as suggested in Chapter 5.1, is found in the need for carefully evaluating messages snowed under heavy data streams. Analyses permit a better understanding of business partner activity and of behavior over time. They also make it possible to evaluate the effectiveness of operational processes such as marketing and service support, enabling a company to move toward personalizing products by promoting customer value and loyalty. There are, of course, obstacles to this type of sophisticated implementation, including the fact that CRM’s integration with ERP software presents problems of heterogeneity. More difficulties are present when integrating CRM software with legacy systems. The problems typically encountered include: � Complexities in achieving a single customer view � Issues of data quality and data format � Multiple incompatible sources for the same data and what to do about the differences � Often misaligned windows of timing and data availability � The lack of a methodology for a common approach to design for all data feeds One of the emerging solutions is that of an information portal making it feasible to subscribe, access, publish, and understand business information AU1076/frame/ch05 Page 85 Saturday, April 21, 2001 12:45 AM © 2001 by CRC Press LLC 86 Integrating ERP, CRM, Supply Chain Management, and Smart Materials that is, in principle, of heterogeneous background. This portal is supposed to act as a single user interface to all information and applications as well as to business intelligence tools and analytics. Undoubtedly, there is merit in this type of seamless access to incompatible data structures, and benefits can go beyond a company extending to its business partners. Allowing customers and suppliers to subscribe to information about products and services, and to make use of a collaborative approach to transact business, is a process that has both direct and indirect advantages. As discussed in Chapter 5.4, however, cultural issues sometimes work against such approaches. 5.3 Repairing the Damage of Disconnects by Paying Greater Attention to Detail Dr. Henry Kaufman aptly remarks that there are “a growing number of disconnects in our personal relationships, these feelings of disconnect and restlessness are driven to an important extent by the rapidity of change and by a kind of depersonalization that envelopes aspects of our lives.” 1 One example is the depersonalization of relations between lenders and borrowers through securitization. Another is the depersonalization of relations between portfolio managers and investors through mutual funds. Outsourcing, too, is a case of depersonalization of relationships, and the same is evidently true in connection with the Internet supply chain. It may sound ludicrous, but in reality the Internet supply line contributes to disconnects and their frequency. Even the different types of business alliances do not work as expected in terms of handholding. What has become apparent over the last two years is an increasing realization that the global alliances simply are not delivering what was initially expected from them. To start with, in some sectors of the economy, financial results have been disappointing: Profitability or even breakeven has been difficult (or impossible) to achieve in a number of business alliances, while information technology has presente