18. Applications of CRM and SCMRev: Feb, 2013
Euiho (David) Suh, Ph.D.
POSTECH Strategic Management of Information and Technology Laboratory(POSMIT: http://posmit.postech.ac.kr)
Dept. of Industrial & Management EngineeringPOSTECH
1 CRM in Financial Services
1) Economics of Information
2) ECRM
3) Conclusion
2 The Bullwhip Effect
3 RFID in SCM
4 Case Study
Contents
3
Economics of Information
■ The traditional economics of information– Reach• Access, connection
– Richness• Depth, detail
■ The new economics of information– Connectivity• Relative easy and cheap to connect to global networks, resulting in the PC and mobile phone
emerging as ubiquitous devices– Convergence• Digital technology are converging : wireless application protocol
– Interactivity• Human and technical communication• Data gathering• Collaborative problem-solving• Negotiation
1. CRM in Financial Services1) Economics of Information
4
ECRM
■ E-business– The integration of e-business activities within the framework of all existing and future
commercial activities
■ Channel management– The channel of greatest impact or economy anytime, anywhere, and anyone– Integrated and interactive channels of access and distribution
■ Relationships– Real commercial relationships built on service excellence, value and convenience
■ Management of the total enterprise– Total back-office/front-office process integration
1. CRM in Financial Services2) ECRM
5
E-business
■ E-business– Internal• Use technology to reengineer business processes
– External• Use technology in how the organization interfaces with business partners whether they are
customers or suppliers
■ New business models – innovative products and services– Establishing e-banks with no presence in the physical world– E-billing or electronics bill presentation– Banks establishing online purchasing sites– Issuing e-bonds– Virtual wallets
1. CRM in Financial Services2) ECRM
6
Channel Management (1/3)
■ Channel management
– It is a term that refers to the way that a business or supplier of products uses various marketing techniques and sales strategies to reach the widest possible customer base
– The channels are all of the various outlets by which the product is marketed and sold to
customers
– When done properly, channel management motivates those channels to sell the prod-uct and
ultimately develops a better relationship between customer and product
– This is achieved by identifying the goals for each distinctive channel and then imple-menting
various marketing strategies to make sure that those goals are attained, all while stay-ing consistent to the overall brand of the business
7
E-business - Internet banking
■ Electronic banking – Security First Network bank(1995,10)
■ UK’s Barclays Bank, Germany’s Commerzbank, Bayerische banks, Norway’s Christiana bank, Credit suisse
■ MeritaNordbanken– Finland’s largest bank– Telephone banking (1982)– PC banking (1984)– Mobile payment service (1992)– E business network (1996)– Internet banking, e-billing, internet TV (1998)– Basic banking, stock trading, investment fund transactions, purchase and sales bonds,
account opening, credit cards ordering…….– ATM, telephone, GSM mobile, PC, internet TV, WAP
1. CRM in Financial Services2) ECRM
8
E-business - The new business Ecosystem
■ Reduce cost of business– Transaction cost –In-branch teller (1.20) > ATM (0.40) > telephone (0.20) >
PC banking (0.20) > internet banking (0.01) [source data monitor 1999]
■ Increase service levels– Reposition existing products and services, devise new offerings, increasing the quality
of service: PC, mobile phone, pay bills, loan
■ Reduce entry barriers– ‘pirates’ can infiltrate the value chain of traditional players
■ Extend global reach– A financial institution with a presence on the internet is a global player
■ Challenge brands– Strong brands instantly convey solid trust and trust is integral to effective customer
relationships– Confidentiality and security
■ Bundling and unbundling products and services– Cross-subsidization of products and services – unbundled, competitive necessity,
customer power■ Dislocation of location
– The concept of location is irrelevant■ Returns power and control back to the customer
– Rise in customer power
1. CRM in Financial Services2) ECRM
9
Channel Management (2/3) 1. CRM in Financial Services2) ECRM
10
Channel Management (3/3) 1. CRM in Financial Services2) ECRM
■ Channels and customer contact points
11
Relationship management
■ High levels of customer satisfaction are associated with increased retention of customers
■ Relationships builds more easily when there is two-way communication■ By engaging in an interactive dialogue customer preferences can be deter-
mined■ Retained customers are inevitably more profitable■ The challenge for an organization in to move to a situation where the cus-
tomer starts buying from you rather than being sold to ■ Financial services organizations
– Who best customers are– How to keep them– How to increase ‘share of wallet’ by knowing what other service or product they can
sell to them– Have a customer-centric or one-to-one relationship – Increase shareholder value
■ Require information that can help make the best decisions to create and man-age the right relationships, risks, costs, markets
■ Redesign core product offerings ■ Devise appropriate channel strategies
1. CRM in Financial Services2) ECRM
12
Management of the Total enterprise
■ Imperative to have total-office/back-office integration
■ Customer-facing functions – Sales, marketing, call centers and other on-line support– Become organizationally integrated with back-office processes– Run on separate mainframes and must be accessed through widely varying interfaces– Move from data centric point solutions to customer-centric enterprise solutions
1. CRM in Financial Services2) ECRM
13
Conclusion 1. CRM in Financial Services3) Conclusion
14
What is the Bullwhip Effect? (1/2)
■ Definition– Phenomenon in which the demand order variability in the supply chain are amplified as
they moved up the supply chain from end-consumers through distribution and manu-facturing to raw material suppliers
2. The Bullwhip Effect
15
What is the Bullwhip Effect? (2/2) 2. The Bullwhip Effect
16
Example (1/5)
■ Procter & Gamble – Product: Pampers• Brand of baby products
– Bullwhip Effect in this case• Smooth consumer demand
• Fluctuating sales at retail stores
• Highly variable demand on distributors
• Wild swings in demand on manufacturing
• Greatest swings in demand on suppliers
2. The Bullwhip Effect
17
Example (2/5)
■ Procter & Gamble: Pampers
Consumer Sales at Retailer
0
100
200
300
400
500
600
700
800
900
1000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Con
su
mer
dem
an
d
Retailer's Orders to Distributor
0
100
200
300
400
500
600
700
800
900
1000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Reta
iler
Ord
er
2. The Bullwhip Effect
18
Example (3/5)
■ Procter & Gamble: Pampers
Retailer's Orders to Distributor
0
100
200
300
400
500
600
700
800
900
1000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Reta
iler
Ord
er
Distributor's Orders to P&G
0
100
200
300
400
500
600
700
800
900
1000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Dis
trib
uto
r O
rder
2. The Bullwhip Effect
19
Example (4/5)
■ Procter & Gamble: Pampers
Distributor’s Orders to P&G
0
100
200
300
400
500
600
700
800
900
1000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Dis
trib
uto
r O
rder
P&G's Orders with 3M
0
100
200
300
400
500
600
700
800
900
1000
1 4 7 10 13 16 19 22 25 28 31 34 37 40
P&
G O
rder
2. The Bullwhip Effect
20
Example (5/5)
■ Procter & Gamble: Pampers
Consumer Sales at Retailer
0
100
200
300
400
500
600
700
800
900
1000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
Con
su
mer
dem
an
d
P&G's Orders with 3M
0
100
200
300
400
500
600
700
800
900
1000
1 4 7 10 13 16 19 22 25 28 31 34 37 40
P&
G O
rder
Bullwhip Ef-fect
2. The Bullwhip Effect
21
Causes of Poor Compensation & Remedies (1/4)
■ Cause 1: Demand forecast updating– Every manager will project demand based on what he/she sees.
Managers at different levels project demand differently– Safety stock complicates matters
■ Remedies for Demand forecast updating– Making point-of-sale (POS) data available up supply chain• Point-of-sale data
Information on retailer order passed upstream (Sharing information)
• Using EDI (Electronic data interchange) Structured transmission of data between organizations by electronic means
• Using Internet
– Vendor managed inventory (VMI)• Business models in which the buyer provides certain information to a supplier
– Shorten lead-times– Sell directly to consumer
2. The Bullwhip Effect
22
Causes of Poor Compensation & Remedies (2/4)
■ Cause 2: Order batching– Periodic ordering (once a month, once a week, etc.)• Cannot handle frequent order processing• Transportation costs – full-truckload cheaper than less-than-truckload rates
– Push ordering– Periodic execution of MRP(Material Requirements Planning) or DRP(Distribution Resource
Planning)• Sometimes order cycles overlap
■ Remedies for Order Batching– Reduce ordering cost• EDI (Electronic data interchange)• Making ‘blanket orders’ → Using ‘Pull ordering’• VMI (Vendor-Managed Inventory)
2. The Bullwhip Effect
23
Causes of Poor Compensation & Remedies (3/4)
■ Cause 3: Price fluctuation– Forward buying (from Special promotions, discounts)• Consumers buy in larger quantities and don’t buy again until their stocks are depleted
– Surges in shipments causes premium shipping costs– Larger inventories to handle surges result in damage, deterioration, obsolescence
■ Remedies for Price Fluctuation– Stabilize prices• Reduce wholesale price discounting• Uniform pricing policies
– Activity-Based Costing• Conventional accounting practices may not show hidden costs of inventory, storage, special
handling, premium transportation, etc.
2. The Bullwhip Effect
24
Causes of Poor Compensation & Remedies (4/4)
■ Cause 4: Rationing and shortage gaming
– When demand exceeds supply, manufacturers ration products on the basis of amounts ordered
– Customers exaggerate needs to get more– When demand cools, customers cancel orders, manufacturers stuck with excess
■ Remedies for Rationing and Shortage Gaming– Allocate in proportion to past sales records– Plan ahead, share information– Penalize returns
2. The Bullwhip Effect
25
Results and Solutions
■ Results of the bullwhip effect
– Excess inventories– Problems with quality– Increased raw material costs– Overtime expenses– Increased shipping costs– Lost customer service– Lengthened lead time– Lost sales– Unnecessary adjusted capacity
■ Solutions to the bullwhip effect – Improved information flow between firms along the supply chain– Stable pricing– Small order increments– Focused demand on EDI or POS systems and removal of sales incentives
2. The Bullwhip Effect
26
Bullwhip Example: Beer Distribution Game’s Supply Chain
RetailerWholesalerDistributorManufacture
Downstream-Shipment
Upstream-Order Information
1 day 1 day
2 days
2 days
2 days
2 days
2 days
2 days
2. The Bullwhip Effect
27
RFID (Radio Frequency Identification) (1/3)
■ Definition– Radio Frequency Identification (RFID) is a means of identifying a person or object using
a radio frequency transmission
■ Key components of RFID– RFID Transponder (RFID tag)• Is the chip that transmit information about the specific unit
– RFID reader• Handles the communication between the Information System and RFID tag
– RFID antenna• Activates the RFID tag and transfers data by emitting wireless pulses.
RF Module
Reader
Tag
An-tenna
A simple RFID sys-tem
Host
3. RFID in SCM
28
RFID (Radio Frequency Identification) (2/3)
■ RFID Tag Types and frequency
3. RFID in SCM
29
RFID (Radio Frequency Identification) (3/3)
■ State of RFID technology deployment
3. RFID in SCM
30
Advantages Using RFID
■ Some benefits by embracing RFID– Enhanced visibility along the supply chain– Accurate and timely asset tracking– Smart product recycling– Streamlined or better managed business processes within the company– Improved productivity by generating the fastest and lowest cost method of acquiring
the data
Criteria Before RFID With RFID
Row-title 16% out of stocks in stores 10-20% increase revenue by 1-3% (at least $400m, 2003)
Supply chain cost is 10% of all costs Saving of 6-7%($14bn, 2003)
3. RFID in SCM
31
Concerns Surrounding RFID
■ Fundamental– Not arrived at business benefits (ROI)– Limited applications– Uncertainty around standards– High capital costs
■ Technical– Imperfect reader rates, unproven systems and conflicting problems with assembling
low-cost tags– Huge volumes of data that are difficult to manage
■ Organizational– An evolutionary change incorporating legacy systems • How to integrate RFID with existing SCM, CRM and ERP
3. RFID in SCM
32
Reference
■ O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 7, pp. 265~271
■ Euiho Suh, “Customer Relationship Management (CRM) in Financial Services”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)
■ Hau L Lee, V Padmanabhan, and Seungjin Whang, “bullwhip Effect (PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)
■ Jae Sang Moon, “Gaining Competitive Advantages Using RFID in Supply Chain Management (PPT Slide)”, POSMIT Lab.(POSTECH Strategic Management of Information and Technology Laboratory)