Management Information Systems: Managing The Digital Firm: Fifteenth Edition

Management Information Systems:
Managing the Digital Firm

Fifteenth edition
Chapter 9
Achieving Operational
Excellence and Customer
Intimacy: Enterprise
Applications
Copyright © 2018 Pearson Education Ltd.

Learning Objectives
•
9-1 How do enterprise systems help businesses achieve operational excellence?
•
9-2 How do supply chain management systems coordinate planning, production, and
logistics with suppliers?
•
9-3 How do customer relationship management systems help firms achieve customer
intimacy?
•
9-4 What are the challenges that enterprise applications pose, and how are enterprise
applications taking advantage of new technologies?

Video Cases
• Case 1: Life Time Fitness Gets in Shape with
Salesforce CRM
• Case 2: Lyft Turns to Oracle Cloud to Lift Growth
• Case 3: Evolution Homecare Manages Patients
with Microsoft Dynamics CRM
• Instructional Video: GSMS Protects Patients by
Serializing Every Bottle of Drugs

Alimentation Couche-Tard Competes Using
Enterprise Systems
• Problem
– Antiquated IT infrastructure and ERP system
– disparate processes for each country and market
– massive operational inefficiencies
• Solutions
– Numerous separate legacy systems replaced with Oracle’s JD
Edwards EnterpriseOne ERP system
• Demonstrates use of technology to maximize

supply chain efficiency, integrate data into a
common source
•
9-1 How do enterprise systems help businesses achieve operational excellence?
•
This chapter looks at enterprise systems, which collect and integrate data from many
different departments and systems throughout the business. Ask students to review what
operational excellence is. What is customer intimacy and why does this help the
business? Have they ever heard of “supply chains” before?

Figure 2.6: Enterprise Application
Architecture
Enterprise systems are very

large and diverse databases
pull information from many

May extend outside parts of the firm
the organization
enable processes across the
firm at different organizational
levels, as well as with
suppliers and customers.
automate cross-functional
business processes
supply accurate information

to aid decision making
All levels of
management
Figure 2.6, Page 54.
Enterprise applications automate processes that span multiple business
functions and organizational levels and may extend outside the
organization.
The purpose of this graphic is simply to illustrate that enterprise systems

are very large and diverse databases that pull information from many
parts of the firm and enable processes across the firm at different
organizational levels, as well as with suppliers and customers.
The triangle represents the organization, with different colors for the four
main business functions. The ovals show that an enterprise application
architecture incorporates systems used in sales and marketing, enabling
these to communicate with each other and externally, with suppliers and
customers. It also incorporates information supplied by knowledge
management systems, manufacturing and finance systems, and other
enterprise systems. The purpose of incorporating data and information
from all of these sources is to enable and automate cross-functional
business processes and supply accurate information to aid decision
making.

Enterprise Systems
• Enterprise resource planning (ERP) systems
• Suite of integrated software modules and a
common central database
• Collects data from many divisions of firm for use in
nearly all of firm’s internal business activities
• Information entered in one process is immediately
available for other processes

This slide describes the main purpose of enterprise systems. Ask students
for examples of why it might be valuable to have information from one
process instantly available to another process.
The text cites the example of Alcoa, which implemented enterprise

software to eliminate redundant processes and systems, reduce
requisition-pay-to-cycle time, reduce 20 percent of worldwide costs. This
illustrates the tremendous value that an effective implementation of
enterprise software can have.

Figure 9.1: How Enterprise Systems Work
“one company, one database”
Case: If sales person places an order?

What's happening in the ERP?

Enterprise systems feature a set of integrated software modules and a
central database by which business processes and functional areas
throughout the enterprise can share data.
This graphic illustrates the function of enterprise software to integrate and

share data between the different business functions. One of the key ideas
of enterprise solutions is that there’s “one company, one database” and
not a collection of disconnected databases.

Enterprise Software
• Built around thousands of predefined business
processes that reflect best practices
– Finance and accounting
– Human resources
– Manufacturing and production
– Sales and marketing
• To implement, firms:
– Select functions of system they wish to use
– Map business processes to software processes
 Use software’s configuration tables for customizing ( enterprise software are complex;
its best to perform only minimal changes to gain maximum benefits from the enterprise software i.e.
oracle, SAP, IBM, Microsoft )

This slide describes the functions in an enterprise software package and
how it would be implemented by a firm. Ask students why it is typically
best to perform only minimal changes to enterprise software, and instead,
change the way the firm works in order to conform to the software’s
business processes.

Business Value of Enterprise Systems
• Increase operational efficiency
• Provide firm-wide information to support decision
making
• Enable rapid responses to customer requests for
information or products
• Include analytical tools to evaluate overall
organizational performance (Dashboards)
• This slide discusses the business values of enterprise systems. What does it
mean for the firm that enterprise systems enforce the use of common
standardized definitions and formats for data by the entire organization?
•
9-2 How do supply chain management systems coordinate planning, production, and
logistics with suppliers?

This chapter looks at enterprise systems, which collect and integrate data
from many different departments and systems throughout the business.
Ask students to review what operational excellence is. What is customer
intimacy and why does this help the business? Have they ever heard of
“supply chains” before?

The Supply Chain
• Network of organizations and processes for:
– Procuring materials, transforming them into products, and
distributing the products
• Upstream supply chain

– Firm’s suppliers, suppliers’ suppliers, processes for managing
relationships with them
• Downstream supply chain

– Organizations and processes responsible for delivering products
to customers
• Internal supply chain

This slide introduces the concept of the supply chain. Supply chain
management software is a type of enterprise software for managing
complicated supply chains that may include thousands of suppliers.
The text gives the example of Nike’s sneakers’ supply chain. What types of
firms are in the upstream supply chain? In the downstream supply chain?

Figure 9.2: Nike’s Supply Chain
In real life, Nike has HUNDREDS of contract suppliers as well as many distributors…the same for Tier2, Tier 3
and retailers …… Figure 9.2 has been simplified instead to illustrate the relationships in the supply chain

This figure illustrates the major entities in Nike’s supply chain and the flow
of information upstream and downstream to coordinate the activities
involved in buying, making, and moving a product. Shown here is a
simplified supply chain, with the upstream portion focusing only on the
suppliers for sneakers and sneaker soles.
This graphic illustrates the major entities in Nike’s supply chain. Ask
students what the difference is between tier 1, 2, and 3 suppliers.

Supply Chain Management
• Inefficiencies cut into a company’s operating costs (caused by
inaccurate or untimely inventory) i.e. parts shortages, underutilized plant capacity, excessive finished goods
inventory, high transportation costs
– Can waste up to 25 percent of operating expenses
• Just-in-time strategy (based on perfect information)

– Components arrive as they are needed
– Finished goods shipped after leaving assembly line
• Safety stock: Buffer for lack of flexibility in supply chain

(Because of uncertainties, manufacturers keep a safety stock… this is costly indeed)
• Bullwhip effect
– Information about product demand gets distorted as it passes
from one entity to next across supply chain

This slide discusses the effects of timely and untimely information on a
supply chain. Ask students what causes inefficiencies in a supply chain
(parts shortages, underutilized plant capacity, excessive finished goods
inventory, high transportation costs). These are caused by untimely
information. Perfect information can result in a just-in-time strategy.
Because of uncertainties, manufacturers keep a safety stock. Why is this

an inefficient result? Another effect of uncertainties is the bullwhip effect.

Figure 9.3: The Bullwhip Effect
A slight rise in demand for an item might cause all parties to stockpile inventory…. a slight rise in demand by
customers for an item will cause successive participants to slightly overstock related inventory “just in case”
Inaccurate information can cause minor fluctuations in demand for a
product to be amplified as one moves further back in the supply chain.
Minor fluctuations in retail sales for a product can create excess inventory
for distributors, manufacturers, and suppliers.
This graphic illustrates how a slight rise in demand by customers for an

item will cause successive participants to slightly overstock related
inventory “just in case”. These changes are amplified as one moves back
further in the system.

Supply Chain Management Software types
1. Supply chain planning systems
– Model existing supply chain
– Enable demand planning (how much product a business needs to make to satisfy customer demand)
– Optimize sourcing, manufacturing plans
– Establish inventory levels
– Identify transportation modes
2. Supply chain execution systems

– Manage flow of products through distribution centers and
warehouses (to ensure products are delivered to the right locations in the most efficient manner)

This slide discusses the two main types of supply chain management
systems. Ask students to explain and describe the concept of “demand
planning.” It determines how much product a business needs to make to
satisfy customer demand.

Global Supply Chains and the Internet
• Global supply chain issues
– Greater geographical distances, time differences
– Participants from different countries
 Different performance standards
 Different legal requirements
• Internet helps manage global complexities

– Warehouse management
– Transportation management
– Logistics
– Outsourcing

This slide discusses the additional complexities experienced by global
supply chains. Today’s apparel industry relies heavily on outsourcing to
contract manufacturers in China and other low-wage countries. Apparel
companies are starting to use the web to manage their global supply chain
and production issues.

Demand-Driven Supply Chains: From Push
to Pull Manufacturing and Efficient
Customer Response
• Push-based model (build-to-stock)
– Earlier SCM systems
– Schedules based on best guesses of demand
• Pull-based model (demand-driven/build-to-order)

– Web-based
– Customer orders trigger events in supply chain
• Internet enables move from sequential supply

chains to concurrent supply chains
– Complex networks of suppliers can adjust immediately
This slide discusses the fact that SCM systems facilitate efficient customer
response, allowing the workings of the business to be driven more by
customer demand, moving from push-based, sequential models to pull-
based, concurrent models of production. Ask students for examples from
the text of the pull-based model (Walmart, Dell).

Figure 9.4: Push- Versus Pull-Based Supply
Chain Models
The difference between push- and pull-based models is

summarized by the slogan “Make what we sell, not sell what we
make.”
The difference between push- and pull-based models is summarized by
the slogan “Make what we sell, not sell what we make.”
This graphic illustrates the difference between the earlier, push-based

model of supply chains to the pull-based model. Ask students if there are
some industries uniquely suited to the pull-based model. How about
automobiles, appliances, and consumer durables? What are the
drawbacks of a pull-based model?

Figure 9.5: The Emerging Internet-Driven
Supply Chain
The entire networks of supply chain
partners can immediately adjust
inventories, orders, and capacities
Net
marketplaces
are digital
marketplaces
based on
Internet
technology
for many
different
buyers and
sellers
Amazon,
Alibaba,
eBay
Private industrial
networks are typically
a large firm using an
extranet to link to its
suppliers and other key
business partners Wal-
Mart
The emerging Internet-driven supply chain operates like a digital logistics
nervous system. It provides multidirectional communication among firms,
networks of firms, and e-marketplaces so that entire networks of supply
chain partners can immediately adjust inventories, orders, and capacities.
This graphic illustrates the multidirectional communications within a

future supply chain driven by the Internet. Private industrial networks and
net marketplaces are discussed in Chapter 10. Private industrial networks
are typically a large firm using an extranet to link to its suppliers and other
key business partners. Net marketplaces are digital marketplaces based on
Internet technology for many different buyers and sellers.

Business Value of Supply Chain
Management Systems
• Match supply to demand
• Reduce inventory levels
• Improve delivery service
• Speed product time to market
• Use assets more effectively
– Total supply chain costs can be 75 percent of operating budget
• Increase sales

This slide examines the value of using SCM systems to businesses. Ask
students how increased sales can result from a more efficient supply
chain.

Interactive Session: Management: Unilever
Unifies Globally with Enhanced ERP
• Class discussion
– Identify the problem facing Unilever in this case. What
management, organization, and technology factors were
responsible for this problem?
– How is enterprise resource planning related to Unilever’s business
strategy? How did consolidating ERP systems support Unilever’s
business strategy?
– How effective was the solution the company chose?
– How did Unilever’s new systems improve operations and
management decision making? Give two examples.

•
9-3 How do customer relationship management systems help firms achieve customer
intimacy?


What is Customer Relationship
Management?
• Customer relationship management (CRM)
– Knowing the customer
– In large businesses, too many customers and too many ways
customers interact with firm
• CRM systems
– Capture and integrate customer data from all over the
organization
– Consolidate and analyze customer data
– Distribute customer information to various systems and customer
touch points across enterprise (contact point i.e. phone, social media, email, call center…
etc)
– Provide single enterprise view of customers

This slide introduces the concept of customer relationship management as
a key function of the business and the use of CRM systems to provide a
single place to consolidate and analyze data about the customer. Ask
students to provide examples of the different types of customer data that
would be captured by a firm. What types of valuable information does the
firm need to know about its customers (most profitable, loyal customers).
Have students directly interacted with a CRM? They probably do not know
it, but anytime they call into a call center for help they are dealing with
some kind of CRM that tracks some or all of their interactions with a firm.

Figure 9.6: Customer Relationship
Management (CRM)
CRM address all

aspects of the
customer
relationship,
including customer
service, sales, and
marketing.
Provide single
enterprise view of
customers

CRM systems examine customers from a multifaceted perspective. These
systems use a set of integrated applications to address all aspects of the
customer relationship, including customer service, sales, and marketing.
This graphic illustrates the functions found in the integrated applications

of a CRM system.

Customer Relationship Management
Software (1 of 2)
• Packages range from niche tools to large-scale
enterprise applications
• More comprehensive packages have modules for:
– Partner relationship management (PRM)
 Integrating lead generation, pricing, promotions, order configurations, and
availability
 Tools to assess partners’ performances
– Employee relationship management (ERM)
 Setting objectives, employee performance management, performance-based
compensation, employee training
Integrating lead generation: campaign that uses two or more lead-generation tactics at once. i.e. social media marketing and
banner advertising
This slide discusses the types of CRM software available, which range from
niche tools to full-scale enterprise-wide applications. Ask students for
examples of PRM functions (integrating lead generation, pricing,
promotions, order configurations, and availability, tools to assess partners’
performances) and ERM functions (setting objectives, employee
performance management, performance-based compensation, employee
training).

Customer Relationship Management
Software (2 of 2)
• CRM packages typically include tools for:
– Sales force automation (SFA)
 Sales prospect and contact information
 Sales quote generation capabilities
– Customer service
 Assigning and managing customer service requests (i.e. call center)
 Web-based self-service capabilities (i.e. info on the website, live chat)
– Marketing
 Capturing prospect and customer data, scheduling and tracking direct-
marketing mailings or e-mail
 Tools for analyzing marketing and customer data, identifying profitable and not
profitable customers
 Cross-selling (marketing of complementary products to customers i.e. in a bank, customers maybe
offered a loan)

Figure 9.7: How CRM Systems Support
Marketing Provides a single point
for users to manage and
evaluate marketing
campaigns across
multiple channels,
including e-mail, direct
mail, telephone, the
web, and social media.

Customer relationship management software provides a single point for
users to manage and evaluate marketing campaigns across multiple
channels, including e-mail, direct mail, telephone, the web, and social
media.
This graphic gives an example of how CRM systems can support marketing
by analyzing and evaluating marketing campaigns.

Figure 9.8: CRM Software Capabilities
support
business
processes
in sales,
service,
and
marketing

The major CRM software products support business processes in sales,
service, and marketing, integrating customer information from many
sources. Included is support for both the operational and analytical
aspects of CRM.
This graphic illustrates the range of functions included in the sales,

marketing, and service modules in a CRM package. As noted in the text,
CRM software is business-process driven, incorporating hundreds of
business processes thought to represent best practices in each of these
areas. To achieve maximum benefit, companies need to revise and model
their business processes to conform to the best-practice business
processes in the CRM software.

Figure 9.9: Customer Loyalty Management
Process Map

This process map shows how a best practice for promoting customer
loyalty through customer service would be modeled by customer
relationship management software. The CRM software helps firms identify
high-value customers for preferential treatment.
This graphic illustrates how a best practice for increasing customer loyalty
through customer service might be modeled by CRM software. What
kinds of information might indicate that a customer is loyal or high value?

Operational and Analytical CRM two main types of CRM
software
• Operational CRM
– Customer-facing applications:
– Sales force automation
– Call center and customer service support
– Marketing automation
• Analytical CRM
– Based on data warehouses populated by operational CRM
systems and customer touch points
– Analyzes customer data (OLAP, data mining, etc.)
 Customer lifetime value (CLTV)
– Provide information for improving business performance

This slide discusses the two main types of CRM software—operational and
analytical. Ask students how the CLTV is calculated (it is based on the
relationship between the revenue produced by a specific customer, the
expenses incurred in acquiring and servicing that customer, and the
expected life of the relationship between the customer and the company.)

Figure 9.10: Analytical CRM Data
Warehouse CLTV is calculated (it is based on the
relationship between the revenue
produced by a specific customer, the
expenses incurred in acquiring and
servicing that customer, and the
expected life of the relationship between
the customer and the company.)
information for improving

business performance
Online Analytical Processing (PLAP)
Analytical Platform and Tools

Analytical CRM uses a customer data warehouse or analytic platform and
tools to analyze customer data collected from the firm’s customer touch
points and from other sources.
This graphic illustrates the main components of analytical CRM. Data is

captured from various channels and fed into a customer data warehouse,
where OLAP, data mining, and other analysis tools help identify profitable
customers, churn rates, and so on.

Interactive Session: Organizations: DP
World Takes Port Management to the Next
Level with RFID
• Class discussion
– How did Identec Solutions’ RFID-based technology help DP World
increase the efficiency and effectiveness of its customers’ supply
chains?
– Describe two improvements that resulted from implementing the
Identec RFID-based solution.
– How does the concept of supply chain execution relate to this
interactive session?
– What managerial, organizational, and technological challenges
might DP World have faced in the early stages of the RFID
project’s deployment?

Business Value of Customer Relationship
Management Systems
• Business value of CRM systems
– Increased customer satisfaction
– Reduced direct-marketing costs
– More effective marketing
– Lower costs for customer acquisition/retention
– Increased sales revenue
• Churn rate
– Number of customers who stop using or purchasing products or
services from a company
– Indicator of growth or decline of firm’s customer base
This slide discusses the value to businesses of implementing a CRM system.
How would marketing be made more effective by using a CRM system?
•
9-4 What are the challenges that enterprise applications pose, and how are enterprise
applications taking advantage of new technologies?


Enterprise Application Challenges
• Highly expensive to purchase and implement
enterprise applications
– Average cost of ERP project in 2015—$6.1 million
• Technology changes
• Business process changes
• Organizational learning, changes
• Switching costs, dependence on software vendors
• Data standardization, management, cleansing

This slide looks at the challenges firms face when they implement
enterprise applications. Ask students to explain and apply with examples
the concept of “switching costs.” What problems could result from being
dependent on a single software vendor?

Next-Generation Enterprise Applications (1
of 2)
• Enterprise solutions/suites
– Make applications more flexible, web-enabled, integrated with
other systems
• SOA standards (Service Oriented Architecture: integrated applications developed by the same
vendor or other vendors ---.> lead to integrate information from multiple applications)
• Open-source applications (Open source software is software with source code that
anyone can inspect, modify, and enhance)
• On-demand solutions
• Cloud-based versions
• Functionality for mobile platform
This slide looks at the trends in enterprise software. The text cites the
example of enterprise solutions from SAP, which combines key
applications in finance, logistics, and procurement, and human resources
administration into a core ERP component. Businesses then extend these
applications by linking to function-specific web services such as employee
recruiting or collections management provided by SAP and other vendors.
SAP provides more than 500 web services through its website. Ask
students to define open-source and on-demand. What are the benefits of
service platforms?

Next-Generation Enterprise Applications (2
of 2)
• Social CRM
– Incorporating social networking technologies
– Company social networks
– Monitor social media activity; social media analytics
– Manage social and web-based campaigns
• Business intelligence
– Inclusion of BI with enterprise applications
– Flexible reporting, ad hoc analysis, “what-if” scenarios, digital
dashboards, data visualization

This slide looks at the trends in enterprise software. The text cites the
example of enterprise solutions from SAP, which combines key
applications in finance, logistics, procurement, and human resources
administration into a core ERP component. Businesses then extend these
applications by linking to function-specific web services such as employee
recruiting or collections management provided by SAP and other vendors.
SAP provides more than 500 web services through its website.
Ask students to define open-source and on-demand. What are the

benefits of service platforms?

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Management Information Systems:

Managing the Digital Firm

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

• Demonstrates use of technology to maximize

Copyright © 2018 Pearson Education Ltd.

Enterprise systems are very

pull information from many

supply accurate information

The purpose of this graphic is simply to illustrate that enterprise systems

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

The text cites the example of Alcoa, which implemented enterprise

Copyright © 2018 Pearson Education Ltd.

“one company, one database”

Case: If sales person places an order?

Copyright © 2018 Pearson Education Ltd.

This graphic illustrates the function of enterprise software to integrate and

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

• Upstream supply chain

• Downstream supply chain

• Internal supply chain

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

– Can waste up to 25 percent of operating expenses

• Just-in-time strategy (based on perfect information)

• Safety stock: Buffer for lack of flexibility in supply chain

Copyright © 2018 Pearson Education Ltd.

Because of uncertainties, manufacturers keep a safety stock. Why is this

Copyright © 2018 Pearson Education Ltd.

This graphic illustrates how a slight rise in demand by customers for an

Copyright © 2018 Pearson Education Ltd.

2. Supply chain execution systems

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

• Internet helps manage global complexities

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

• Pull-based model (demand-driven/build-to-order)

• Internet enables move from sequential supply

Copyright © 2018 Pearson Education Ltd.

The difference between push- and pull-based models is

This graphic illustrates the difference between the earlier, push-based

Copyright © 2018 Pearson Education Ltd.

This graphic illustrates the multidirectional communications within a

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

Copyright © 2018 Pearson Education Ltd.

– Provide single enterprise view of customers