IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/ Chapter 8 Improving Supply Chains and Strengthening Customer Relationships Using Enterprise Information Systems When disruptions in the supply chain occur because of weather, labor issues, or natural disasters, the operations of the business can be devastated and have ripple effects throughout the world.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 What Is a Supply Chain? A supply chain is a collection of companies and processes moving a product:  suppliers of raw materials  suppliers of intermediate components  final production  to the customer Upstream—flow from sources of raw materials and components. Downstream—flow to customers. Suppliers have their own supply chain. A better name: supply network. 8-2

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Supply Network 8-3

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Supply Chain for Apple’s iPhone 8-4

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Benefits and Problems with Supply Chains Potential benefits  Process innovations  Just-In-time Production (JIT)  Vendor-Managed Inventory (VMI) Potential problems  Distorted information  Excessive inventories  Inaccurate capacity plans  Missed product schedules 8-5

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Just-in-Time Production (JIT) Keeping inventory is costly (storage, capital, missed production schedules). JIT optimizes ordering quantities.  Parts and raw materials arrive when needed for production.  As orders arriver in smaller quantities, but at higher frequency) investment in storage space and inventory is minimized. The approach was pioneered by Toyota. It is used extensively by computer manufacturers to avoid component obsolescence (Moore’s law).  Example: Dell keeps only two hours of inventory in stock JIT requires tight cooperation between all partners in the supply network. 8-6

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 The Bullwhip Effect Ripple effects in which forecast errors and safety stocks multiply when moving up the supply chain Happens when businesses include safety buffer to prevent stock-outs Small end-product demand fluctuations cause large fluctuations further up the supply chain. Small forecasting errors at end of supply chain cause large errors further up the supply chain. Integrated business processes help mitigate the bullwhip effect. 8-7

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Corporate Social Responsibility Transparency and accountability within the supply chain helps save costs and create a good image. Product Recalls  Shortcuts on quality standards  Examples from 2010:  Cadmium in McDonald’s Shrek-themed glasses  Johnson & Johnson children’s medicines  It is, therefore, very important to have complete information throughout the supply chain. Sustainable Business Practices  Ethical treatment of workers  Green image 8-8

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Supply Chain Planning (SCP) 8-9 Four types of plans are developed: 1. Demand planning and forecasting o Examination of historic data 2. Distribution planning o Delivering products to consumers o Warehousing, delivering, invoicing, and payment collection 3. Production scheduling o Coordination of activities needed to create the product/service o Optimization of the use of materials, equipment, and labor 4. Inventory and safety stock planning o Development of inventory estimates

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Supply Chain Visibility and Analytics Supply chain visibility—the ability to track products as they move through the supply chain but also to foresee external events. Supply chain analytics—the use of key performance indicators to monitor performance of the entire supply chain, including sourcing, planning, production, and distribution. 8-10

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Developing an SCM Strategy 8-11 SCM efficiency and effectiveness need to be balanced.  Efficiency— cost minimization.  Effectiveness— customer service maximization.  Tradeoffs—Supply chain strategy should match overall competitive strategy.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Emerging SCM Trends 8-12 Key trends  Supplier portals  Customer portals  Business-to-business (B2B) marketplaces  All of these provide an alternative to proprietary supply linkages (see Chapter 4). Key enabling technologies  Extensible Markup Language (XML)  Radio Frequency Identification (RFID)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Radio Frequency Identification (RFID) 8-13 RFID tags will soon replace standard bar codes.  RFID is the use of electromagnetic energy to transit energy between a reader (transceiver) and the tag (antenna).  Line-of-sight reading is not necessary.  RFID tags can contain more information than bar codes. Tags are programmable, so there is a vast array of potential uses. Scanning can be done from greater distance.  Passive tags—inexpensive, range of few feet.  Active tags—more expensive, range of hundreds of feet. Source: METRO AG.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Customer Relationship Management (CRM) Organizations must work harder than ever to attract and retain customers where comparison shopping is the norm and competitors are just a click away. 8-14

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Customer Relationship Management(CRM) (cont’d) 8-15 The Web has changed business.  Customers have the power.  Economic transformation is taking place; i.e., from transactions to relationships.  Keeping customers satisfied is key. CRM  Organization-wide strategy  Concentrates on the downstream information flow  Attract potential customers  Create customer loyalty  Portray a positive corporate image  Managers need to be able to monitor and analyze factors driving customer satisfaction.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Customer Relationship Management(CRM) (cont’d) 8-16 Companies search for ways to widen, lengthen, and deepen customer relationships.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Key Benefits of CRM Enables 24/7/365 operation 2.Individualized service 3.Improved information 4.Speeds problem identification/resolution 5.Speeds processes 6.Improved integration 7.Improved product development 8.Improved planning

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Architecture of a CRM Environment 8-18

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Operational CRM 8-19 Systems for customer interaction and service  Enables direct interaction with customers  Personalized and efficient customer service  Access to complete information about customer

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Sales Force Automation 8-20 Component of operational CRM Supports day-to-day sales activities:  Order processing and tracking  Account and contact management  Opportunity management  Sales management  Territory management  Customer history preferences, (product and communication) management  Sales forecasting and performance analysis

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Examples of Sales Measures Tracked by SFA 8-21 Sales pipeline for each salesperson, including rating and probability Revenue per sales person, per territory, or as a percentage of sales quota Margins by product category, customer segment, or customer Number of calls per day, time spent per contract, revenue per call, cost per call, ratio of orders to calls Number of lost customers per period or cost of customer acquisition Percentage of goods returned, number of customer complaints, or number of overdue accounts

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Customer Service and Support (CSS) 8-22 Second component of operational CRM Automation of traditional “help desk” services Customer interaction center (CIC)  Multiple communication channels (blogs, Facebook, phone, face-to-face, , and so on)  Customer service anytime, anywhere through any channel  Low support cost

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Analytical CRM 8-23 Analysis of customer behavior and perceptions Customized marketing  Up-selling, cross-selling  Retaining customers Key technologies used to create predictive models  Data mining  Decision support systems Continuous data collection and analysis is necessary.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Customer Focused Business Processes Addressed by Analytical CRM Marketing campaign management and analysis 2. Customer campaign customization 3. Customer communication optimization 4. Customer segmentation and sales coverage optimization 5. Pricing optimization and risk assessment and management

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Customer Focused Business Processes Addressed by Analytical CRM (cont’d) Price, quality, and satisfaction analysis of competitors 7. Customer acquisition and retention analysis 8. Customer satisfaction and complaint management 9. Product usage, life-cycle analysis, and product development 10. Product and service quality tracking and management

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Digital Dashboards for CRM Digital dashboards help to visualize key CRM performance metrics. 8-26

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Ethical Concerns with CRM 8-27 Can personalization get too personal? When customers feel that the system knows too much about them, personalization could backfire on a company. Nevertheless, as competition continues to increase in the digital world, CRM will be a key technology for attracting and retaining customers.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 End of Chapter Content 8-28

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Managing in the Digital World: Supply Chain Havoc 8-29 The eruption of the Eyjafjallajokull volcano in Iceland forced the shut down of flights in northern Europe for days. Supply chains in numerous companies were disrupted. Examples: Kenya: flowers and vegetables Netherlands: tulips and peonies Italy: cheeses These contingencies require fine-tuned supply chains.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 POWERFUL PARTNERSHIPS Flickr’s Caterina Fake and Stewart Butterfield 8-30 Flickr’s Caterina Fake and Stewart Butterfield  Caterina was a marketing expert and art director; Stewart was a Web designer  They were first business partners, and then got married.  They started with gaming; then moved onto photograph distribution.  Web-based businesses are inexpensive.  Fake and Butterfield started with no venture capital.  Yahoo! bought the business for $30 million in  Now Fake and Butterfield are split up, pursuing their own ventures.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 Outsourcing Your McDonald’s Order 8-31 McDonald’s—One of America’s success stories  Founded in 1948 in San Bernardino, California  Multi-billion business  Strives for uniformity in thousands of locations globally Outsourcing the drive-through  All stores already had an Internet connection  Orders processed overseas  Entered into the queuing system  Food quality remains the same

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 COMING ATTRACTIONS Simplifying the Recharging of Gadgets Simplifying the Recharging of Gadgets  Battery chargers are needed for each different type of device (cell phone, MP3, player, digital camera, laptop).  Starting from 2011, cell phones sold in the European Union come with a standardized charging port.  Qualcomm’s eZone wireless charting technology has two parts:  charging pad that houses the main transmitting power technology, and  tiny receiver coil fitted inside portable gadgets.  Toshiba’s direct-methanol fuel cell charger has potential to charge gadgets without electrical outlet.  Nokia’s bicycle charger kit charges cell phones through cycling. 8-32

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 NET STATS RFID on the Rise 8-33 RFID on the Rise  Expected growth of 28 percent between 2010 and 2013 ($11 billion revenue)  Software and services play an increasingly larger role to help companies utilize RFID-generated data.  Adoption in health care, retail, automotive, packaged goods, government, transportation  Requires large start-up investment, but provides strong long-term ROI

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 WHEN THINGS GO WRONG Apple’s “Antenna Gate” — Mismanaging Customer Relationships Apple’s “Antenna Gate” —Mismanaging Customer Relationships  Release of the iPhone 4 in mid-2010 had much fanfare.  Soon customers started complaining of dropped calls.  This was caused by the way customers held the phone (“death grip”).  Apple issued a statement to stop holding the phone in lower left corner.  Class action lawsuits ensued.  Consumer Reports recommended against the phone.  Steve Jobs admitted the problem.  Poor customer relations management 8-34

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 ETHICAL DILEMMA CRM: TARGETING OR DISCRIMINATING CRM: Targeting or Discriminating  Advantage: customers receive only ads of interest.  But what if a company uses its CRM software in a more discriminating way?  Example: banks may target customers with low credit ratings  “Octopus Card”: Hong Kong RFID-based card  Offers a reward program where users have to provide various personal details  In 2010, it was revealed that data was sold to CIGNA  Legal…but is it ethical? 8-35

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 9/20/2015 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall