Chap. 11: Customer Relationship Management (CRM) and Supply Chain Management

Customer relationship management (CRM)
is an organizational strategy that is customer-focused and customer-driven.

Tenets of CRM:
* One-to-one relationship between a customer and a seller.
* "Treat different customers differently."
* Keep profitable customers and maximize lifetime revenue from them.
* 20-80 Rule (Pareto's Principle)
Why have Pareto's Principle in mind in CRM...
It costs six times more to sell to a new customer than to sell to an existing one.

A typical dissatisfied customer will tell 8-10 people.

By increasing the customer retention rate by 5%, profits could increase by 85%.

Odds of selling to new customers = 15%, compared to the odds of selling to existing customers (50%)

70% of complaining customers will remain loyal if their problem is solved
3 Dimensions of a Customer's Value
The value of a customer to a company depends on three dimensions:
*the duration of the relationship,
*the number of relationships
(e.g., the number of products from a company that a customer purchases), and
*the profitability of the relationship.
A form of cross selling where an enterprise sells a group of products or services together at a lower price than the combined individual price of the products.
Customer Churn
The percentage of customers that the organization will lose.
Customer Touch Point
Any interaction btw a customer and an organization.
The practice of marketing additional related products to costumers based on a previous purchase.
Loyalty Program
Programs that offer the rewards to costumers to influence future behavior.
Up Selling
A sales strategy where the organizational representative provides to customers the opportunity to purchase higher-value related products or services in place of, or along with the consumer's initial product or service selection.
360 Degree view of a Customer
All the information and data of a customer. EVERYTHING.

The complete data set on each customer.
Customer Touching Applications
customers interact directly with online technologies and applications
rather than interact with a company representative.

Search and comparison capabilities
Technical and other information services
Customized products and services
Personalized web pages
E-mail and automated response
Loyalty programs
Data Consolidation
No functional silos:
If data is in functional silos, no one an get a full picture of the customer. It is only when all data is in one place and accessible to everyone in the organization, that you can have a full pictureof the customer.
Operational CRM
is the component of CRM that supports the front-office business processes. That is, those processes that directly interact with customers; i.e., sales, marketing, and service.
Customer-facing CRM Applications
Areas where customers directly interact with the organization , including customer service and support, sales force automation, marketing, campaign management.
is an online product-building feature.

EX. Nike's has a running shoe configurator.
Cross selling
is the practice of marketing additional, related products to customers based on their previous purchases.
Refining the Call Center
Call center software that matches personality types, pairs customer with alike associate:

Similar - 5 minutes; 92% resolved
Dissimilar - 10 minutes; 47% resolved
Analytical CRM
systems that analyze customer behavior and perceptions to provide actionable business intelligence.

Data mining; decision support; business intelligence; online analytical processing (OLAP).
Data Mining
The process of searching for valuable business info in a large database, data warehouse, or data mart.
Decision Support
Business intelligence systems that combine models and data in an attempt to solve semistructured and some unstructured problems with extensive user involvement.
Business Intelligence (BI)
A broad category of applications, technologies, and processes for gathering, storing, accessing, and analyzing data to help business users make better decisions.
Online Analytical Processing (OLAP)
A set capabilities for "slicing and dicing" data using dimensions and measures associated with the data.
On-demand CRM
is a CRM system that is hosted by an external vendor in the vendor's data center.
Mobile CRM
is an interactive CRM system that enables an organization to conduct communications related to sales, marketing, and customer service activities through a mobile medium for the purpose of building and maintaining relationships with its customers.
Open-source CRM
is CRM software whose source code is available to developers and users.
Supply chain
refers to the flow of materials, information, money, and services from raw material suppliers, through factories and warehouses, to the end consumers.

Involves a PRODUCT LIFE CYCLE approach, from "dirt to dust".
Supply chain management (SCM)
the function of planning, organizing and optimizing the supply chain's activities.
Interorganizational information system (IOS)
Involves information flows among two or more organizations.
Upstream (Supply Chain)
Orders, information, payments, returns. Sourcing or procurement takes place.
Downstream (Supply Chain)
Products, services, information.
Distribution takes place.
Internal (Supply Chain)
Packaging, assembly, or manufacturing takes place.
Material flows
are the physical products, raw materials, supplies and so forth that flow along the chain.
Information flows
are all data related to demand, shipments, orders, returns and schedules as well as changes in any of these data.
Financial flows
are all transfers of money, payments and credit-related data.
Push Model
Production process begins with a forecast. The company will produce the amount of product in the forecast and "sell" the product to customers.
Pull Model
starts with a customer order. The company makes its products to the customers' needs.
EX. Dell Computers
Bullwhip effect
erratic shifts in orders up and down the supply chain.
Just-in-time inventory
a system in which a supplier delivers the precise number of parts to be assembled into a finished product at precisely the right time.
Vendor-managed inventory
an inventory strategy where the supplier monitors a vendor's inventory for a product or group of products and replenishes products when needed.
EX. Coca-Cola, Pepsi.
Virtual private network (VPN)
is a network that uses a public telecommunication infrastructure, such as the Internet, to provide remote offices or individual users with secure access to their organization's network.
It aims to avoid an expensive system of owned or leased lines that can only be used by one organization.
It's goal is to provide the organization with the same, secure capabilities, but at a much lower cost.
Problems Along the Supply Chain
Poor customer service
Poor quality product
High inventory costs (bullwhip effect)
Loss of revenues
New technologies
Solutions to Supply Chain Problems
Using inventories:
-How much inventory to keep on hand?
-Just-in-time inventory

Information sharing:
-Facilitated by EDI and extranets
-Vendor-managed inventory (VMI)
-Virtual private network (VPN)
Link business partners to one another over the Internet by providing access to certain areas of each other's corporate intranets.

Their main goal is to foster collaboration between business partners.
It is open to selected B2B suppliers, customers and other business partners.
A company and its dealers, customers or suppliers (Extranet Type)
Extranet that centers around one company.
An industry's extranet (Extranet Type)
major players in an industry team up to create an extranet.
Joint ventures and other business partnerships (Extranet Type)
partners in a joint venture use extranet as a vehicle for communications and collaboration.
Electronic data interchange (EDI)
is a communication standard that enables business partners to exchange routine documents, such as purchase orders, electronically. Can be a crucial component of just-in-time production systems.

I.e. from one trading partner to another trading partner without human intervention.
EDI Benefits
Minimize data entry errors.
Length of messages are shorter.
Messages are secured.
Reduces cycle time.
Increases productivity.
Enhances customer service.
Minimizes paper usage and storage.
EDI Limitations
-Significant initial investment to implement.

-Ongoing operating costs are high due to the use of expensive, private VANs.

-Traditional EDI system is inflexible.

-Long startup period.

-Multiple EDI standards exist.