Growing competitive pressures and escalating customer demands have led businesses to sophisticated information technology to manage costs and enhance revenues. Two popular initiatives are supply chain management (SCM) and customer relationship management (CRM). SCM focuses on optimizing the materials, information, services, and financial flows through a supply network. CRM focuses on marketing, sales, and customer service, and aims to maximize the value of customer relationships. Furthermore, the real potential lies in the integration of SCM and CRM. Disconnected implementations can result in IT “silos” with redundancies in hardware, software and staff, breaks in the information chain, and disappointing performance. There are different paths to integration. The right path depends on the organization’s relative maturity on 6 key factors: 1) interconnectivity, 2) interoperability of systems’ functionality, 3) information integrity, 4) interorganizational competence, 5) intellectual capital, and 6) innovative capability.
Since the early 1990s, the number and varieties of software categories available to firms have skyrocketed. Due to advances in other information, process, and communication technologies (IPCT), and especially those related to the Internet, managers have far greater choices and expanded functionality for running their businesses than ever before. Of these, software for coordinating enterprise-wide supply and demand is among the most prominent. On the supply side, Supply Chain Management (SCM) systems may employ enterprise resource planning (ERP) software to boost enterprise efficiency, improve decision-making by providing greater visibility into operations, and promote collaboration via information sharing. On the demand side, Customer Relationship Management (CRM) offers the opportunity to gain more information in real time about current and prospective customers, providing functionality for contact management, sales force automation, and customer service. A recent survey by the Yankee Group reveals that external applications – those aimed at enhancing customer and supplier relationships – are growing at a much faster rate than internally focused applications (Westervelt, 2004). Furthermore, companies are increasingly focused on integrating technologies.
For some firms, the SCM and CRM software solutions delivered at least partially on their promises, whereas for others the results were less than anticipated. Despite significant investments in resources, most companies were not prepared for the implementation hurdles. During the first wave of their infusion into businesses, in which individual SCM and/or CRM software modules were generally treated as separate installations, the integration with existing legacy systems proved most troublesome. The Standish Group (1995) reported that the average cost overrun was 178 percent of budget; and the implementation schedules exceed 230 percent of plan. Estimates of implementation failures of CRM ranged from 55 - 75 percent according to the Meta Group (Johnson, 2004). From a survey of 162 senior managers conducted by Bain and Co. (Cook and Hagey, 2003), researchers concluded that SCM– which was long touted as an avenue to control costs, reduce risks, and increase service performance– was mismanaged by most companies. While executives in charge of supply-chain management recognized the importance of the supply chain, many had yet to realize its potential. Interestingly, 86 percent said supply-chain performance was a priority, but two-thirds said their companies failed to track the performance of their internal supply chains outside their corporations.
Recent evidence is more encouraging. In a survey of primarily large, established, business-to-business U.S. firms, Ramaswami, Bhargava, and Srivastava (2004) found that both CRM and SCM processes have positive and significant associations with the financial performance of firms. Rosenzweig, Roth, and Dean (2003) reported that the intensity of supply chain integration led to improved capabilities. Roth, Cattani, and Froehle (2008) empirically showed that the fundamentals of supply chain management were prerequisites to global competence; and Stratman and Roth (2008) linked ERP competence to business performance. However, many companies found that the payoff from implementing only one side of the equation was not enough (Koudal and Lavieri, 2003). In response, some are calling for a “consumer driven supply chain” (IBM, 2004) that represents a shift from traditional supply chains that focus on maximizing internal systems to end-to-end systems. These systems are highly collaborative, integrated throughout the enterprise, and emphasize more focus on the ultimate impact on the consumer. Similarly, Deloitte Consulting refers to firms who have effectively linked SCM with CRM as having a ‘digital loyalty network.’
Key Terms in this Chapter
Sales Force Automation (SFA): Software that automates an organization’s sales activities such as lead distribution and tracking, contact management, sales process management pipeline management, sales forecasting tools, and automated generation of quotes and orders.
Enterprise Resource Planning (ERP): An integrated information system that serves all departments and functions within an enterprise
360° View of the Customer: Having all customer related data consolidated into one location, in order to provide the most complete and thorough view of the customer’s information and preferences.
Customer Relationship Management (CRM): The strategic process of selecting and managing interactions with customers to optimize the value of the customer to the organization as well as satisfaction for the customer.
Supply Chain Management (SCM): The planning, scheduling and control of the supply chain.
Materials Requirement Planning (MRP): Computerized ordering and scheduling system for manufacturing or production process
Supply Chain: The sequence of organizations and functions that mine, make, or assemble materials and products from suppliers to manufacturers to distributors to customers.
Marketing Automation: The use of software to automate marketing processes such as customer segmentation, customer data integration, and campaign management.