e Business Complete 1 2 3 4

Lecture Notes e – Business A . Ganesh Kumar, Lecturer, Dept of CSE, SMVEC

SRI MANAKULA VINAYAGAR ENGINEERING

COLLEGE

MADAGADIPET, PUDUCHERRY - 605 107 (Accredited by NBA-AICTE, New Delhi & An ISO 9001:2000 certified Institution)

LECTURE NOTES

E-BUSINESS

Department of Computer Science and EngineeringSri Manakula Vinayagar Engineering College

Madagadipet, Pucherry - 605 107


UCS 704E10 / UIT 808E7 : E-BUSINESS

UNIT I

e-Commerce and e-Business, e-Business trends, e-Business design:– Construction, Self diagnosis,Reversing the value chain, Choosing a narrow focus. e-Business Architecture:- Importance ofApplication Integration, New era of Cross Functional Integrated Applications, IntegratingApplication Clusters into an e-Business Architecture, Aligning the e-Business Design withApplication Integration.

UNIT II

Customer Relationship Management:- Need for Customer Relationship Management, DefiningCRM, New CRM Architecture, Supporting Requirements of the Next-Generation CRMInfrastructure, Organizational Challenges in Implementing CRM, Next-Generation CRM Trends.Selling-Chain Management:- Definition, Business Forces & Technology forces driving the need forSelling-Chain Management, Order Acquisition Process Management, Elements of Selling-ChainInfrastructure.

UNIT III

Enterprise Resource Planning:- Definition, ERP Decision, ERP usage in the Real World, ERPImplementation, Future of ERP Application. Supply Chain management:- Definition, Basics ofInternet enabled SCM, e-Supply Chain Fusion, e-Supply Chain Fusion Management Issues, e-Supply Chains in 200X.

UNIT IV

e-Procurement:- Procurement as Top Management Issue, Operating Resource Procurement,Procurement Business Problem, Next Generation Integrated Procurement Applications, Elements ofBuy-Side e- Procurement Solutions, Buy-Side Applications for the Procurement Professional,Elements of Sell-Side e-Procurement Solutions.

UNIT V

Developing the e-Business Design:- Knowledge Building, Capability Evaluation, e-Business Design,e-Business Design in Action: The case of E*TRADE. Translating e-Business Strategy into Action.

TEXT BOOK1. Ravi Kalakota and Marcia Robinson, “e-Business: A Roadmap for Success”, Addison-Wesley, 2000.

REFERENCE BOOKS1. Amor, “E-Business (R)evolution”, Pearson Education, 2003.2. Shurtey, “ e-Business with Net Commerce”, Pearson Education, 2003.


UNIT-I

e-Commerce and e-Business, e-Business trends, e-Business design:– Construction, Self diagnosis,Reversing the value chain, Choosing a narrow focus. e-Business Architecture:- Importance ofApplication Integration, New era of Cross Functional Integrated Applications, IntegratingApplication Clusters into an e-Business Architecture, Aligning the e-Business Design withApplication Integration.

Electronic Business (e-business)Definition: Utilization of information and communication technology (ICT) in support of allactivities of business over the internet

Ø Conduction of business on the internetØ Buying and sellingØ Collaboration with business partnersØ Servicing the customers

Electronic Commerce (e-commerce)Definition: Known for buying and selling of products or service over the internet. It seeks to addrevenue streams using (www) internet to build and enhance relationship with client, often e-commerce involves the application of knowledge management system.

Linking today’s Business with Tomorrow’s TechnologyIt’s happening right before our eyes: a vast and quick reconfiguration of commerce on a evolving

e-business foundation. e-business is the overall strategy, and e-commerce is an extremely importantfacet of e-business. The rules of e-business are

Rule 1: Technology is no longer an afterthought in forming business strategy, but the actualcause and driver.

Rule 2: The ability to streamline the structure, influence, and control of the flow of informationis dramatically more powerful and cost-effective than moving and manufacturingphysical products.

Rule 3: Inability to overthrow the dominant, outdated business design often leads to businessfailure.

Rule 4: The goal of new business designs is to create flexible outsourcing alliances betweencompanies that not only off-load costs, but also make customers ecstatic.

Rule 5: e-commerce is enabling companies to listen to their customer and become either “ thecheapest,” “ the most familiar,” or “ the best.”

Rule 6 Don’t use technology just to create the product. Use technology to innovate, entertain,and enhance the entire experience surrounding the product, from selection and orderingto receiving and service.

Rule 7: The business design of the future increasingly uses reconfigurable e-businesscommunity models to best meet customer’s needs.

Rule 8: The tough task for management is to align business strategies, processes, andapplications fast, right, and all at once. Strong leadership is imperative.


e-Business Trend SpottingThe major trends that are driving organizations to become e-business enterprises is described here.As a manager, your ability to comprehend core trends will improve your chances of better graspingthe opportunities facing your company.

Ø Consumer Trends

1. Increase Speed of Service: For the Customer, Time is Money

2. Empower your Customer: Self-Service

3. Provide Integrated Solutions, Not a Piece Meal Products

Ø Consumer Trends

4. Integrate your Sales and Service: Customization and Integration

5. Ease of Use: Make Customer Service Consistent and Reliable

6. Provide Flexible Fulfillment and Convenient Service Delivery

Ø Organizational Trends

7. Contract Manufacturing: Become Brand Intensive, Not Capital Intensive

8. Learn to Outsource: You Cannot be Good at Everything

9. Increase Process Visibility: Destroy the Black Box.

10. Learn the Trends in Employee Retention

Ø Enterprise Technology Trends

11. Integrated Enterprise Applications: Connect the Corporation

12. Melt Voice, Data and Video

13. Multi-channel Integration: Look at the Big Picture

14. Wireless Applications: Enter the Mainstream

15. Middleware: Supporting the Integration Mandate

1. Increase Speed of Service: For the Customer, Time is Money

• Customers count speed of service as a key reason. Customers hate delays and, morespecifically, hate waiting for service.

• To succeed, companies must reduce the processing time between search, selection, orderentry, and order fulfillment.

• Accepting order, triggering receivables, sending orders to production, sending requisitionsto the warehouse, updating inventory, updating accounting and replenishing stock withsuppliers.

2. Empower your Customer: Self-Service

• Inconvenience and poor service make customers impatient, and they’re beginning to lookfor solutions that increase the value of their time. They are embracing 24-hours-a-day,seven-days-a-week self-service system in which they look for information andmerchandise without the aid of sales personnel.


• Before self-service can become a reality, a new infrastructure must be built, and newprotocols must be designed to streamline the process.

• Integration of processes will be essential for serving the customer well.

3. Provide Integrated Solutions, Not a Piece Meal Products

• There has been an interesting shift toward convenient integrated solutions in the lastdecade, the demand for integrated product will continue. In fact, a core design objective inmany of their products is seamless integration.

• Consumers don’t need another retailer or another electronic distribution channel. Theywant integrated-service-offering businesses that solve their one-stop shopping needs.

4. Integrate your Sales and Service: Customization and Integration

• The need to attract, acquire, leverage, and retain customers is still of primary concern tomost businesses. Revenue growth through customer acquisition and retention remains amajor competitive requirement.

• To improve retention, companies are developing and managing customer relationships viabetter sales/service integration and new technology.

• Customer relationships are the key to business growth. Firms must take absoluteresponsibility for a customer’s satisfaction throughout the “want-it-buy-it-and-use-it”experience.

• This requires learning and tracking customer’s needs, behaviors, and lifestyles and usingthe information to create a specific value proposition. This strategy is the path to consumerloyalty and is called relationship.

5. Ease of Use: Make Customer Service Consistent and Reliable

• Manager must understand that as customers value their time more, they are less tolerant ofscrew-ups in customer service.

• Making customers service easy and solution oriented is probably one of the most importanttrends in business today.

• Companies must take a close look at their customer service processes. Are they easy touse?

• To achieve business objectives, companies need to adopt integrated applications thataddress the entire customer relationship, rather than focusing on departmental solutionsthat address only one part of the customer account relationship.

6. Provide Flexible Fulfillment and Convenient Service Delivery

• The hectic schedules and multiple responsibilities of today’s consumers are forcingretailers to produce innovative products and services. Home delivery and other uniquefulfillment services will continue to gain importance as consumer direct sales explode.

• To deliver the right product to the customer, companies must streamline their supplychain. The simple view of the integrated supply chain is as fallows:

Take an order,

Give an accurate promise date,


Manufacture the right goods,

Allocate properly, Ship efficiently, and Do all of this in a cost-efficient manner whilemaintaining a minimal finished goods inventory.

• Supply chain management is really a combination of inevitable and constant trends inmanufacturing and distribution: move closer to the consumer; reducing waste (time,inventory, etc) in the supply chain; ensuring technology-enabled, real-time informationaccess between customers and suppliers; and building closer partnerships with virtualcoordination.

7. Contract Manufacturing: Become Brand Intensive, Not Capital Intensive

• Are you an asset-intensive company? If yes, its likely that you are heading toward using e-commerce to become a virtual manufacturer. The objective: Achieve better quality,dependability, speed, flexibility, and cost advantage.

• The trend toward specialization (marketing versus manufacturing) means that companieshave to focus on what they do best.

• The goal: Move form a capital/asset (or manufacturing) intensive company to a knowledge(and Marketing) intensive firm.

• To achieve better asset utilization, technology is being used to enable organizations tosegregate marketing from manufacturing by quickly developing contract partnerships anddistributing manufacturing globally.

• The new trend is to be innovative through technology, change product offerings constantly,and keep overhead as low as possible.

8. Learn to Outsource: You Cannot be Good at Everything

• To survive, firms are turning toward business process outsourcing (BPO), which is definedas the delegation of one or more business processes to an external provider to improveoverall business performance in a particular area.

• Traditionally, outsourcing has been used as a cost-control technique to move cost centerssuch as data processing, payroll processing, and systems development to outside specialists.It is a way to change corporate culture, gain access to premium thinkers, and implementworld-class capabilities and technologies.

• Outsourcing lays the foundation for creating the virtual enterprise, the core of the e-businessconcept. The complexity of operations, the regulation and deregulation of markets, thesteady, rapid advance of technology, and the need for constant growth are conditions thatrequire core competency in too many functional areas.

9. Increase Process Visibility: Destroy the Black Box.

• Process visibility implies that business customers need to have access to order status,product information, pricing, and availability. Providing visibility to products and serviceshelps create additional demand.

• Process visibility is an essential business feature as package delivery companies competewith one another. What began with a promise to deliver “absolutely positively overnight”.

• Companies must strive to build internal applications and processes that open the black boxand make internal operations more transparent. Through close customer contact and high-


quality service, a company’s competitive edge and long-term relationships with itscustomers are maintained and strengthened.

10. Learn the Trends in Employee Retention

• To continually grow, deliver better service, or reduce prices, an enterprise must become alearning organization that can prosper in fast-paced, demanding business environment.

• The lesson to be learned to be learned is that, with changing technology and businesstrends, management needs to worry about employee retention, because it’s critical to long-term success. The trends in employee retention are:

Better incentives and Compensation.

Earned advancement.

Better motivation.

• Supporting and sustaining a culture that can succeed and innovate is not only a requirement,but also a prerequisite for doing e-business.

11. Integrated Enterprise Applications: Connect the Corporation

• Integration of the enterprise has emerged as a critical issue of organizations in all businesssectors striving to maintain competitive advantage. Integration is the key to success. It is thekey to unlocking information and making it available to any user, anywhere, and anytime.

• If managers let enterprise applications run the company rather than support the creation anddelivery of value to the customer, jobs can be lost.

• In recent years, business theorists have challenged that view, recognizing that if a chain ofprocesses is to run at a high-performance level, the individual functional application mustbe tightly linked with other processes around them.

• This thinking gives birth to the notion of a connected corporation built on a foundation ofwell-integrated enterprise application software. Enterprise applications help companiesconnect disparate systems, provide greater access to information and more closely linkemployees, partners and customers.

12. Melt Voice, Data and Video

• The major trend is the infrastructure for e-business is the convergence of various data andvoice transport networks. The powerful, unified convergence of network based on theinternet protocol(IP), the packet-switching network layer that has proven to be a versatileworkhorse that can transmit any kind of information quickly and cheaply.

• Infrastructure convergence encompasses man mini trends happening simultaneously:

The race to improve last mile bandwidth

The race to provide quality of service

The race to provide integrated service

The race to dominate the customer home contact point.

• Understanding how infrastructure convergence is playing out is quite important formanagers whose responsibility it is to make long-term strategic plans.


13. Multi-channel Integration: Look at the Big Picture

• Before it was telephone alone have been the service channels available to customers forconducting business. Today, there’s an explosion of access alternatives and capabilities theWeb, direct dialup, interactive voice response (IVR), and kiosks. With all these servicechannels proliferating, customers are demanding multi-channel service integration.

• Multi-channel integration is critical because customers expect consistent service no matterwhich channel they use, when they interact with a company.

• Multi-channel integration is not a technical issue; It’s a management issue.

• There are a lot of emerging technologies, such as middleware, that could make it lessexpensive, but many of them are untested and not ready for 24 X 7 mission-criticalapplications. Thus, multi-channel integration is a long-term trend that is going to take morework than most people realize.

14. Wireless Applications: Enter the Mainstream

• With the widespread rollout of a wireless infrastructure, a new wave of both consumer andbusiness applications will begin using airwaves for much more than phone calls.

• The power and convenience of these wireless applications, when combined with thedecreasing cost of wireless usage, will increase the efficiency with which consumersperform everyday tasks.

• The demand for being mobile and yet productive, combined with the build out of thewireless infrastructure as an alternative to wire-line technologies for basic telephoneservice, will create tremendous demand for e-commerce applications.

15. Middleware: Supporting the Integration Mandate

• Compelling business reasons to endure the cost, complexity, and risk of integratingstovepipe applications have been missing until recently. The heat of competition is forcingorganizations to rethink and broaden their views on application integration; just as manycustomer-care initiatives are forcing companies to present a single view of the customerrelationship.

• As corporations and vendors respond to seamless interoperability demands, they arediscovering that middleware provides the essential glue that enables large, complexbusiness software to run effectively and reliably. However, this is difficult to do, since theavailable technology is not yet mature.

• To meet business and technology integration needs, a new class of technology, calledmiddleware, is emerging. Integration based on middleware makes financial sense.

• The middleware problem is bound to get more management attention as spending ontechnology spirals out of control.

E-BUSINESS DESIGN:

It is becoming crystal clear that with e-commerce, we have entered a new phase: the age of e-business design. Competition is not so much product versus product, but traditional business designversus e-business design. The challenge confronting managers is in the creation and execution of thee-business design.

• How do you construct an E-business design?• How do you transform a traditional business design to an E-business design?


Demand on Managers: CEOs demands managers to come up with the next generation ofbreakthrough products,

• Innovative ways to cut cost.• New ways of managing channels• A strategy to get products to market faster• Way to achieve quality

Ø More than ever before strategists need to get it right the first time in cost, time to market, andquality.

Ø How do they achieve this three? They do three things (creating new business design)• Redefine value for their customers.• Build powerful E-Business designs that out perform the competition.• Understand customer priorities and consistently raise customer expectations to new

heights.

Ø The focus is no longer limited to process design; it’s shifted to business design. Success dependson how quickly companies can formulate new business design and adapt them to their market.

• Business designs are strategic weapons in the digital economy.• Business design dimension is no longer an optimal par of corporate strategy; rather it is the

very core.

Constructing an e-Business DesignTo create an innovative E-business design the following questions have to be answered.

• What business design do you need to make your customer’s experiences unique andmemorable?

• When accessing a business design’s value, ask yourself if it meets the customer’s priorities,not only today, but tomorrow as well.

• What capabilities and competencies do you need to create rich experiences?• How much does your company manufacture internally and how much does it outsource?• How do you structure your organization for efficiency?• Are you function or process oriented?• How do you sell to the customer through a sales force, reseller channels or cll centers?• How do you distribute your product?

These elements must align in order for your company to excel at providing exactly what customerswish to experience in doing business with you.

Once you make out these tough decisions then you must figure out how to change your company.• How can you move from where you are today to where you want to go?• How do you integrate and tailor legacy infrastructure to meet new requirements?

Although it’s risky, Time to formulate plans is running out. To preserve the entire business,executives must be vigilant and learn to priorities is a constantly changing environment.

Step 1: Self - DiagnosisØ Ask yourself these questions about the impact of customer, business and technology trends on

your company.

• Has the recent value of the technology innovation created a new way of doing business andrecognizing priorities?


• Is your company responding to changing customer expectations?• Is your company willing to question and change industry assumptions to take advantage of

the new opportunities, while pursuing existing investments in people, applications anddata?

• Is your company successful at lowering operation cost while making complex businessapplications adaptive and flexible to change under the relentless pressure of time tomarket?

Ø If it is yes to all then you are in the innovator or market leader category.Ø If most of the answers are yes then you are in the early adopter or visionary categoryØ Is most of your answers to the questions are no then your firm belongs in the silent majority

category. Again here there are threePragmatists: This firm sees the world changing around them, but they want proof that thechanges are long term before they commit to action.Old guard conservatives:

• Are in a state of denial.• Avoid growth prospects that do not align with their distinctive core competencies.• Remains pessimistic about the ability to gain any value from technology investments.

Die hard skeptic companies: They are destined to fade away. The see almost everything as media hype. Example: rail road and mainframe industries.

Ø These three categories of companies – Market Leaders, Early Adopters/Visionaries and theSilent Majority (Pragmatists, Old – Guard Conservatives, and Die-Hard Skeptics) comprisethe current business landscape. If you see where you are in the picture and don’t like it, then youmust make path to get to where you’d rather be.

Ø This requires understanding how customer needs are changing, Making customer priorities asyour priorities and Adopting an E-business design.

Step 2: Reversing the Value chain

Ø Greatest challenge in E-business is linking emerging technology to new business designs. If itwere just a matter of linking emerging technologies to existing markets or vice versa, themanagement challenge would be relatively easy.

Ø Bust when both are emerging, it’s a delicate process. As Technologies emerge, they affectcustomer needs; customer needs influence business designs. As business designs emerge, theyaffect processes; processes influence the next generation of technology.

Ø As new technology and customer needs emerge, manager finds creating new business designdifficult for two reasons.

• Most have been trained to concentrate on improving products, increasing market shareand growing revenues.

• In E-business world, the distinction between products and services often blurs.

Ø Successful companies no longer just add values, they invent it. To input, manager must reversethe traditional value chain thinking (inside-out models) by which businesses define themselves interms of the products they produce.

Ø In the traditional model, managers concentrate on being effective and competitive by puttingwell understood products on the market.

Ø In the outside-in approach, the strategy revolves around the customer. The need for an outside-inapproach becomes essential in times of great structural transition, when old categories suddenly


become obsolete. Business must redefine themselves in times of flux, a danger for companiesmarried to a business definition that’s fixed to specific products.

Ø How do you navigate these dangerous waters?. By defining new offerings born of customersneeds.

Ø How can one create the most effective experience for one’s customers?. Business designs are anoutcome of the reconfiguration and integration of one’s competencies, channels, applicationinfrastructure, and employee talent to answer this question.

Ø The creation of an E-business design is inextricably linked to the management of change.However, change is not an uncontrolled activity. It is possible to control the changes by settingboundaries- it is by choosing a narrow focus.

Step 3: Choosing a Narrow Focus While technology can be enabling, it can also be disabling if firms don’t concentrate. Marketleaders use three types of E-business design to narrow their focus and retain leadership.

In order to narrow their circle of competences, successful firms choose among the following:

• Service excellence: Delivering what customers want with hassle-free service and superiorvalue.

• Operational excellence: Delivering high-quality products quickly, error free, and for areasonable price.

• Continuous innovation excellence: Delivering products and service that push performanceboundaries and delight customers.

Service Excellence

Ø Delivering what the customer wants with hassle-free service and superior value.

Ø Service excellence involves selecting a few high-value customer needs, then snaking a concertedeffort to serve them well.

Ø This strategy requires customer relationship management: anticipating the target customer’sneeds and frequently sharing information to provide the expediency of self-service, if that’s whatthe customer wishes.

Ø The operating principle of service of excellence are as follows

In-house core competencies

Rigid infrastructure/ process

Products /services Channels Customers

Customer needs

Integrated channels

Products /services

Flexible infrastructure

process

Out sourced in house core

Traditional Business Design

e-Business Design

Fig: The Reversing of the Value Chain


• Prepare your company for the unforeseen.• Gather and maintain all the up-to-date, accurate information you need, where you need it,

and when you need it.• Employ customer contact management.• Develop a forward thinking corporate philosophy about customer service.

Operational Excellence

Ø Delivering high-quality products quickly, error free, and for a reasonable price. If you couldbreak down barriers between organizations so you could work better with your vendors andsuppliers. It would be simpler if you could let your vendors and suppliers to access theinformation they need to service your company.

Ø Operational excellence involves:

• Providing lowest cost goods and services.

• Minimizing problems for the customers.

• Self service• Relationship marketing• value

• Excellent support• Quality products• Service orientation

• Ease of use• Reliability• Basic functionalities

Fig: Shifting Customer Service Expectations

• Customized solutions• Out sourcing• End to end process

effectiveness

• Convenient interaction• High quality• Dynamic pricing

• Low cost• Function efficiency• Minimum quality

threshold

Fig: Shifting Operatinal Expectations


Ø The success of operational excellence depends on several key principles:

• Efficient leveraging of assets.

• Management of efficient transaction

• Management of sales intelligence

• Dedicating to measurement system: monitoring and measuring all processes.

• Management of customer expectations.

Continuous Innovation Excellence

Ø Delivering products and service that push performance boundaries and delight customers.Change, change, change – Create it or die from it.

Ø It demands not only to providing the best possible products, but also to offer the customermore exciting feature and benefits.

Ø Continuous innovation is based on the following principles:

• Risk oriented management style

• Growth by mergers and acquisition

• A market education style

• Encouraging innovation

E-BUSINESS ARCHITECTURE:

Ø Modern business design is constructed from well integrated building block called enterpriseapplications.

Ø Enterprise application includes

• Enterprise resource planning

• Customer relationship management

• Human resources management

• Culture of innovation• Market education• Constantly delight the

customer

• Acquisition of new ideas• Changing the rules of the game• Embracing risk

• In-house research• Steady improvement• Risk averse

Fig: Shifting Innovation Expectations


• Supply chain management

Ø So, in reality, e-business design is about how to integrate an intricate set of apps so they worktogether like a well-oiled machine to manage, organize, route, and transform information.

Ø The challenge facing management is evident: create and deliver customer value throughintegrated business application. That brings us to the questions managers must ask:

• What are the key trends and events that will drive new e-business application investmentsover the next five years?

• What is the role of packaged application software in creating the next generation e-businessarchitecture?

• How will technology advancements and business changes affect e-business applicationdeployment decisions?

• What is the ideal e-business application architecture needed to compete in the twenty-firstcentury?

Importance of application integrationHow should you integrate your back-end systems to provide accurate, real-time information to yourcustomer? With all the change happening in the marketplace, an organization is not safe with anoutdated, ineffective application infrastructure. To deploy a workable e-business design,management must be on top of which application infrastructure will best meet the company’s needs.This work and a lot of vision.

Whether you like it or not, your company may be forced to take the integration rout for a variety ofreasons which give below,

• New customer care objective: Needless to say, integrated application architecture is key toserving the customer seamlessly, especially in e-commerce. Managers everywhere mustunderstand that the web is a powerful tool for slicing margins and increasing interactivitywith customer and prospects. To survive, companies must refine their business process ifthey hope to win the hearts of fickle consumers and reap the benefits of integrated front-office and back-office application.

• New Competitive Conditions Require Integrated Application For Survival: The changingcompetitive environment is driving the need for integrated application. Deregulation and thegrowing demand for better customer service began to strain the limits of its existingapplication. Pending regulatory changes leading to a far more deregulated and competitiveenvironment forced the company to reevaluate its business processes, especially its customerservice functions. The challenge for manager is to make sense and good use of whatpackaged application offer. In the coming years, managers will need to figure out how tomake integrated application architecture a viable, productive part of the setting.

• Fast-Moving Competitors Force the Need for Better Application Integration: Establishedcompanies are forced to scrutinize their existing application architecture and determine ifthey are capable of competing with new entrants who enter their turf with new products andservices.

• Bad for Your Health: Problems Caused by Lack of Integration: The lack of integratedapplication architecture can bring companies down rather quickly. Getting the integrationright is even more important. A careful design of application architecture is essential forbusiness survival. However, there are many minefields. Some of them are system related (seeFig. 4.2), whereas others are related to the organization. The typical organizational barriers tobe dealt with as follows:


• Focusing too much on efficiency and cost-cutting. This often leads to myopia and theinability to take advantage of opportunities for revenue growth in new lines of business.

• Not listening to the customer’s perspective and using it as the best arbiter of success.• Rehashing competitors’ ideas (often positioned as “industry best practices”), resulting in

diminished returns. Businesses need fresh ideas.

# Pursuing drawn-out, enterprise wide projects in search of a “Perfect” answer, thus failingto address today’s need for faster response.

# Frequently reorganizing, which often leads to weak executive involvement and support.

# Placing too much emphasis on outside consultants for execution. Often, consulting firmsfocus their change efforts exclusively on bleeding-edge technology, which may achievenothing more than incremental benefits.

The new era of cross functional integrated applications:Ø We are entering an era of complex, cross-functional integrated applications, called application

clusters, which represent the foundation of e-business. To understand how we got here, however,it’s important to understand the evolution of business application. It has been a process of stages,as illustrated in Fig. 4.3. let’s look at each stage in more detail.

Stage 1: Simplification and segmentation. Historically, business application was narrow infocus and more task oriented, simplifying process such as order entry. While taskspecialization improved productivity dramatically, it also fragmented processes beyondrecognition. In a task-centric world, processes tend to fall between the cracks. They becomeslow, inflexible, error prone, and replete with the cost of the managerial overhead needed tohold them together.

Stage 2: Reintegration and transformation. In 1980’s, the task-oriented nature ofapplication evolved to become more functionally integrated. Fortunately, informationtechnology is allowing us to reintegrate tasks into connected processes. What is needed is theability to provide solutions, which requires that everyone comprehends the big picture andremains flexible in the face of new or complex situations. This requirement has created theneed for cross-functional application integration. Clearly, the trend in business is toward


software-enabled process support. This is accomplished by deploying business applicationthat fuse multiple functions into a collection of well-orchestrated clusters.

Stage 3: Cross functional integration and fluid adaptability. Applications clusters are ofdifferent types, each of which represents a related cluster of functionality. Theimplementation of application clusters represents a total overhaul of enterprise systems.These application cluster are designed to integrate an array of internal functions, including

• Customer relationship management (e.g. Siebel system)

• Enterprise resource planning (e.g. SAP)

• Supply chain management (e.g. I2 Technologies)

• Selling chain management (e.g. Trilogy)

• Operating resource management (e.g. Ariiba)

• Enterprise application integration (e.g. Cross worlds)

• Business analytics, knowledge management and decision support applications (e.g.SAP)

E-business architecture: Integrating application clusters into an E-businessarchitecture

Effectively managing the transformation to a process-centered organization will be critical tothe success of the twenty-first-century organization. Every aspect of the modern organization isbeing transformed by integration of disparate processes. First applied to manufacturing and orderfulfillment, the cutting edge of process integration is now found in sales, employee self-service, andcustomer service. An integrated process view infuses support areas, such as finance and humanresources, with a strong customer orientation.

In the past few years, application vendors introduced cross-functional apps such asEnterprise Resource Planning, Customer Relationship Management, and Supply ChainManagement that feature integrated process functionality. Tight integration, the smooth informationexchange between functions, is a factor for which firms adopt integrated application clusters. Cross-functional apps provide a new ways to compete, and their broad functionality makes it easy for firmsto focus on the automation of areas in which they can achieve a distinct advantage. The followingsections describe each of these applications cluster in detail.


Enterprise Resource Planning (ERP) : Enterprise Resource Planning application a suite from SAPis used to run order entry, purchasing, invoicing, and inventory control. Fig. below captures thevarious functions that form the ERP integrated suite. The key benefits that materialized afterimplementing the ERP suite were optimized service, integration of worldwide logistics, an improvedability to meet deadlines, shorter turnaround times from customer inquiries to delivery, and a shiftaway from stock-oriented to demand-driven production.

Is your organization going through similar application integration issues? Is yourorganization attempting to integrate diverse functional areas in order to align your business andapplication strategies?

Customer Relationship Management Apps(CRM): Customer Relationship Management appscluster is to address the needs of its customers, this apps cluster links all the sales and customerservice organizations with one another and with all the customer-interfacing parts of the company.Key implementation of this initiative has been a new information infrastructure to captureinformation about customers and their behavior.

EnterpriseResourcePlanning

Forecasting and planning

Warehousing & InventoryManagement

Purchasing & MaterialManagement

Accounting/Finance

Finished Product Distribution

Fig: The trend toward integrated Enterprise Resource Planning Apps Cluster

CustomerRelationshipManagement

Service

Sales

Marketing

Fig: The trend toward integrated Customer-Centric Apps Cluster


Integrated CRM apps (see Fig. below) provide immediate value to the fortune 500. Even largeand resource-rich companies are resorting to purchasing and implementing packaged apps overcustom-built solutions. For most organizations, selecting a packaged CRM application is moreeconomical than building one with a set of low-level tools. No longer do they have to wait throughlong development cycles to realize the benefits of a CRM application.

Is your organization going through similar sales and service integration issues? Is your companyfacing a build vs. buy decision for integrated customer relationship management solutions?

Supply-Chain Management (SCM): Supply-Chain Management integrates production schedulingwith the company’s market demand database and legacy systems that stored resource and capacityconstraints. The integrated functionality enables planners to perform scheduling independently overten sequential production departments, standardize and link reports, and integrate scheduling withsupplier functions.

SCM apps are designed to help streamline production schedules, slash inventories, findbottlenecks, and respond quickly to orders (see Fig. below). Used properly, the software removeslogistical barriers by creating a seamless flow of supplies and finished products.

E-business designs must be based on an organization’s process capabilities, which in turn areembedded in the apps. Only by focusing on end-to-end processes and business apps canorganizations achieve the levels of performance that the global economy demands.

Fig. 4.11 shows how all the various application clusters are integrated to form the futuremodel of the twenty-first-century organization. This blueprint is useful because it assists managers inidentifying near-term and long-term integration opportunities, based on predefined strategies. Mostof all, it helps managers grasp the big picture, so they can set priorities.

Fig. 4.11 also illustrates the underlying premise of e-business design: Companies run oninterdependent application clusters. If one application cluster of the company does not function well,the entire customer value delivery system is affected. The world-class enterprise of tomorrow is builton the foundation of world-class application clusters implemented today.

Creating e-business applications is a journey, a continuous process of integrating,encompassing the enterprise’s entire operating base applications, information, communications andinfrastructure to support the business?

Supply ChainManagementResource & Capacity

Constraints

Market Demand

Real-Time Scheduling

Fig: The trend toward integrated Supply Chain Apps Cluster


Aligning the e-business design with application integration:


Ø Companies are expecting E-business to increase profitability, create competitive differentiationand support innovative business practices.

Ø To achieve these goals, companies must evaluate through distinct stages, from integratedprocesses to truly synchronize inter-enterprise communities.

Ø There are five general stages in developing e-business architecture, ranging from cross-functional process integration to multi company integration.

Ø At each one of these stages, it is very important to align the scope of e-business design with thenature of application integration. Application integration must be closely aligned with e-businessdesign strategy.


UNIT-II

CRM: Need for customer Relationship Management, Defining CRM, New CRM Architecture,Supporting Requirements of the Next – Generation CRM Infrastructure, Organizational challengesin Implementing CRM, Next –Generation CRM Trends.

SCM: Defining Selling Chain Management, Business Forces Driving the Need for Selling-ChainManagement, Technology Forces Driving the Need for Selling-Chain Management, Managing theOrder Acquisition Process, Cisco and Selling-Chain Management, Elements of Selling-ChainInfrastructure

CUSTOMER RELATIONSHIP MANAGEMENT (CRM)INTRODUCTION:

In this Chapter

Ø We focus on customer relation and a tool to build an excellent customer relationshipInfrastructure.

Some Facts

Ø It costs six times more to sell to a new customer than to sell to an existing one.

Ø A typical dissatisfied customer will tell light to ten people about his or her experience.

Ø A company can boast its profit 85 percent by increasing its annual customer retention by only5 percent.

Ø The ads of selling a product to a new customer on 15 percent, whereas the ads of selling aproduct to an existing customer are 50 percent.

Ø 70% of complaining customers will also business with the company again if it quickly takescare of a service snafu.

Ø More than 90 percent of existing companies don’t have the necessary sales and serviceintegration to support e-commerce.

Need For Customer Relationship ManagementAll Customers know is that they want excellent service and they want it now. This reflects as

customer relationship management (CRM). Increased competition, globalization, the growing cast ofcustomer acquisition, and high customer turn over are major issues of disparate Industries.

CRM is a combination of business process & technology that seeks to understand a company’scustomer frame a multifaceted perspective:

• Who are they, what do they do, and what do thy like?

CRM will remain one of the highest growth software markets well into the next century, growinginto a multibillion- dollar opportunity. This trend is driven by corporations: Focus of improvingcustomer satisfaction and loyalty, as well as increasing revenue from existing customers.

To keep the best customer, management must concentrate its energies.

• On quickly and efficiently creating new delivery channels,

• Capturing massive amounts of customer data, and trying it all together to create anunique experience.


Defining: Customer Relationship ManagementCRM is defined as an integrated sales, marketing and service strategy that precludes lone

showmanship and depends on coordinated actions. The goals of this business frame work are asfollows:

• Use existing relationship to grow revenue.

• Use integrated information for excellent service.

• Introduce more repeatable sales processes and procedures.

• Create new value and instill loyalty.

• Implement a more proactive solution strategy.

By investing in CRM applications, companies are hoping to build better customer retentionprograms that will maximize the lifetime revenue. In many industries, customer retention is a driverof profitability. Even a five percent increase profits by as much as 85 percent. Integrated applicationsthat provide complete views of customer information to such areas as sales, marketing, customerservice, and accounting are now within reach of organizations with fewer than 100 employees.

Managing the Customer Life Cycle: The Three Phases of CRMThere are three phases of CRM

1. Acquiring new customers.2. Enhancing the profitability of existing customer.3. Retaining profitable customer for life

Acquiring new customer: You acquire new customers by promoting product/service leadership thatpushes performance boundaries with respect to convenience and innovation. The value propositionto the customer is the offer of a superior product backed by excellent service.

Enhancing the profitability of existing customers: You enhance the relationship by encouragingexcellence in cross-selling and up-selling. This deepens the relationship. The value proposition to thecustomer is an offer of greater convenience at low cost.


Retaining profitable customers for life: Retention focuses on services adaptability delivering notwhat the market wants, but what customers want. The value proposition to the customer is an offerof a proactive relationship that works in his or her best interest. Today, leading companies focus onretention much more than on attracting new customers. The reasoning behind this strategy is simple:If you want to make money, hold onto your good customers.

Organizing around the Customer: The New CRM ArchitectureTake a moment to answer the following question about your company;

• Are most of the company’s applications designed simply to automate existing departmentalprocesses?

• Are these applications capable of identifying and targeting the best customers, those who arethe most profitable for the organization?

• Are these applications capable of real-time customization/personalization of products andservices based on detailed knowledge of customer’s wants, needs, and buying habits?

• Do these applications keep track of when the customer contacts the company, regardless ofthe contact point?

• Are these applications capable of a consistent user experience across all the contact points thecustomer choose?

If the answers to these questions are no, then you should seriously consider a new CRM architecturein the near future.

What s New about CRM Architecture?What’s new is the customer-centered nature of applications, Organizing CRM process around thecustomer, rather than marketing, Sales or any other internal function.

The customer’s viewpoint becomes an integral part of the process, allowing it to change with thecustomer’s needs. In other words, Companies based their Actions not on the priorities of functionalfiefdoms, but on the overall corporate objective of providing customer satisfaction.


However, before aggressively deploying CRM applications, Manger must restructure customer-interaction processes such that functional & organizational structures find to compartmentalize thevarious activities that go into serving the customer.

There’s a growing trend toward managing all the activities that identify, attract and retaincustomers in an integrated fashion that is managing them as a process that cut across functionaldepartments.

CRM Process CompetenciesThe core CRM process Competencies are cross-selling and up-selling, direct marketing &

fulfillment, customer service and support, store front & field service, & Retention Management.

Cross- Selling & Up-Selling

Cross-selling and up-sell software typically include the capabilities to

• Qualify prospects.

• Track contacts.

• Refer them to sales persons when appropriate.

By implementing a cross- sell strategy, complete with the applications necessary to track customercontacts, triggers can be established to identify prospects for additional sales.

Cross-selling and up-selling software may be used to

• Schedule sales calls

• Keep detailed records about sales activities


• Check on the status of customer orders.

This software may also be integrated with inventory software ( to see what products are in stock) orfield service/external customer support(to learn how the product is working for the customer)

Direct Marketing & Fulfillment

Direct marketing and fulfillment is like a one-two punch - sell will and delivers fast. This includespresales interaction.

“Presale”- is defined as the techniques such as direct marketing and other advertisement thateither influence are provide potential customer with the necessary information’s to make apurchase order.

Marketing Automation is critical as organization grows larger. Why? It become more difficult tomanage multiple, simultaneous programs and track costs across multiple channels. Another criticalcore competency if

Fulfillment- The goal is to provide information to customer and prospects quickly, easilyand efficiently-whether it is product or service inquiries, direct mail responses, pricing or billingissues or requests for literature, responding to requests in a timely manner is critical.

Customer Service Support

Customer support provides customer care & other services. Application includes support forservice request management, account management, contact & activity management, customersurveys, return material authorizations, and detailed service agreements. These discrete applicationswork together to ensure that customer service representatives can quickly assign, create & manageservice requests.

Customer support capabilities are used to manage customer who are having problems withproducts or services and to resolves those problems. Help-desk software automates the management& resolution of support calls and improves efficiency & effectiveness.

Field Service Operations

There is nothing like the hands – on approach to instill faith in your customers about company.Field service is the hands –on extension of external customer support, activated when a problemcannot be solved over the phone and requires sending a repair person to the customer site to performmaintenance or repair equipment.

Field service provides service organizations with features for scheduling & dispatching repaintpersonnel, managing inventory and logistics and handling contracts and accounting.

Retention Management

Effective decision support depends on the ability to gather customer information of great levelsof detail. Detailed knowledge about customers allows companies to treat all customers individuallyand in many cases, disengage from a “fire” customer who are high maintenance, low marginprospects.

Now that we have identified the core CRM competencies, let’s explore the integrationrequirements in the next generation of CRM infrastructure.


Supporting Requirements of the Next Generation CRM InfrastructureThe hot topic, the buzzword, the sweeping universal trend that we’ll ride into the next century isintegration, integration, integration. Next Generation CRM infrastructure is no reception; it hasfive types of integration.

• Customer content.

• Customer contact information

• End – to – end business process.

• The extended enterprise or partners.

• Front – office and back – office system.

Integration of Customer Content

Ø The ability to access, manage, express all relevant customer content, including the seamlessintegration of structured and unstructured customer date, has emerged as a key requirement forCRM applications today.

Ø In past companies realized has important customer data was and vigorously started collectinginformation. The problem is didn’t know what do with it.

Ø To create a clear picture of your customer and your relationships with them, all content aboutthem must be easily accessible.

Integration of Customer Contact Information

Ø Contact Management (CM) is defined as the electronic captive of customer information withthe capability to access & share information throughout the organization for sales and services.

Integration of End to End Business Process

Ø The keys are consistency and simplicity of sale – service to the customer.

Ø Customer need service, both before and after the sale –next traditional service.

eg: Loan options with an incompact loan app matching the company to contact the customer.

Ø Web (Marketing Channel)-Interactive customer-core & fulfillment centre.

Integration of the Extended Enterprise

To provide the kind of service that guarantees. Customer loyalty, companies must extendtheir partners & vendors CRM infrastructure via the internet & intranets. Through this infrastructure,partners can share information, communicate, and collaborate with the enterprise using Web – basedapplications, regardless of their internal network platform and without the complexity and cost.

Integration of Systems

Ø The demand for complete relationship management is during the need to integrate telephony,web, and database technologies to provide a 360 degree view of customer attributes andaccount history.

Ø This integration means a company can combine information on all products and services usedby a customer & share information across all delivery channels & points of contact.

Ø Execution this strategy requires fair enabling technology that must work together.


• Legacy Systems.

• Computer telephony integration (CTI)

• Data ware housing.

• Decision support technology.

Organizational challenges in Implementing CRMNothing is ever simple. CRM requires a high degree of political, cultural, and organizational change.

The organizational issues that companies must tackle to implement CRM include the following

• CRM may reduce an individual business unit’s contribution.

• CRM requires making a careful transition from an existing “silo-centric” infrastructure to anintegrated customer – centric infrastructure.

• Organizations with global operations must manage customer interactions in differentlanguages, time Zone, currencies.

CRM has a definite impact on the shape of the organization and the roles of employees. This impactis especially evident on the corporation’s front line, the critical point where the process and thecustomer make contact.

Next – Generation CRM TrendsIt’s important to note that a CRM infrastructure alone isn’t sufficient. The growth of the CRMmarket is also happening at customer contact points, such as call centers, and the web.

Management needs to re-evaluate customer contract points. This rises two questions:

• How will the emergence of Internet – delivered customer service affect traditionalcommunication channel support?

• Will online customer service really be cheaper than traditional support channels?

The Rise of the Call Center as a Powerful Customer Contact Point

• The call centre is one of the main growth areas of customer contact, 70% of all customercontact occurs at the call center.

• A call centre is a group of agents and voice response units (VRUs) that assist customers withsupport, inquiry and transaction functions.

• As the call centre evolutes into a sales- and –service channel, understanding the dynamics ofthis channel will help us prepare far the future. For service companies, the call center’s focushas evolved from a customer service interaction center to a selling channel. Manager need tothink about how to transfer the high-touch capabilities of the call – center to the low – touchmedium of the web.

Listening to the Customer

• The call center and web channel must be transformed into listening outposts that keep trackof what customers are talking about. However, Careful to listen to the right set of customers.

• Asking the wrong customers for feedback should be negotiated. Ask yourself, how does mycompany listen to it customer? What systems are in place for doing this effectively?


Customer loyalty: Lute-warm or Fanatical

• In this changing and challenging environment, customers have more choices. Customers arebeginning to ask companies, “What have you done for me lately?” This may be the biggestchallenge corporations face as they move forward in the call center and web channels.

• Like it or not, the juggernaut of change driven by the internet has made people smarter, moreaware of the business landscape, and better able to find information about you and yourcompetitors – what you sell, what you don’t sell, and what people have to say about you.

• Take a moment to think about this, how can your call centre help you build customerloyalty? When your customer call you, do they get courteous services? Are they delightedwhen the call is over?

New Integrated Service Experience.

• You visit the web home page of a car manufacturer and browse the features and options oftheir latest model. You click a button and an agent from the manufacturer calls you within aminute. She answers your question and schedules a test drive at your home on next day.

• The very same technologies that are raising customer expectations can also be used to meetand exceed them through integrated solutions that offer superior customer service at everycontact point the internet, call centre, storefronts, ATMs, kiosks, and person to personselling.

Higher Service Expectations.

• Customer dissatisfaction with service is widespread, and expectations of customersinterfacing the call centers are higher than ever. Customers are beginning to take what usedto be exceptional service as the starting point.

• As competition intensifiers, they’re expectation more from the organizations with which theyhave ongoing relationships. For ongoing relationship with customers to be strong, companiesmust view the world through their customer’s eyes.

New competition Creates New Headaches.

• Are new startups creating new value propositions for your customers? Globalization andderegulation are opening up new markets, increasing the reach of competition. Whencompetition is fierce, go back to basics: create values for thy customer.

• Executives at many companies now find themselves contemplating new value creationissues. Today, any advantage based on product or service innovation is short-lived; instead,creating new value propositions for customers is key to survival in an increasingly dynamicmarket.


SELLING CHAIN MANAGEMENT

SCM - [Selling Chain Management]Problems with existing sales processes

Ø The business of business is selling. Companies implementing a strategy that aims to please thecustomer are facing a wide range of problems with existing sales processes.

• It’s difficult to find the right information because marketing information is not consistentand pricing information is out of date. This is the problem in self-service sellingenvironment.

• Sales people are inundated with non-value-added tasks, spending 30 to 50 % of their timeof administration

• Fragmented order support is a problem after the order is placed.

• Current sales applications are not responsive or flexible.

• Current systems are not integrated.

Selling Chain Management: DefinitionIt is defined as an integrated order acquisition strategy. The broader definition is “the application oftechnology to the activities in the whole life cycle of an order – from inquiry to order.”

The underlying premise for implementing selling chain application is simple: look at selling chainapplication as tools to streamline the integrated set of activities business perform to acquire andfulfill orders. To support this view, you need a new application framework to enable the integrationof information that’s fragmented across the organization.

Selling-Chain Application Framework Goals:Company have redefined order acquisition processes that in value direct interaction with thecustomer, such as Providing Product information, configuration, pricing, and order entry. (e.g.)Dell, Cisco and Amazon.com


(i.e.) Due to this the aim of the next generation of selling-chain solutions is to help companies

• Focus their direct sales force on the most appropriate and profitable business opportunity.

• Shorten sales cycles by keeping all members of a sales team up to speed on what action toperform and when

• Increase repeat sales by knowing more about customer and their interests.

• Improve visibility in order pipelines, leading to better sales forecasting accuracy.

• Deliver more timely market intelligence to decision makers.

• The basic change in business lies in the movement from functionally oriented salesautomation to process-oriented selling-chain management.

Ø The goals of this business strategy are as follows.

• Make it easier for the customer.

• Add value for the customer.

• Make it easy to order customer products.

• Increase sales force effectiveness.

• Co-ordinate team selling.

Ø Marketing the entire order process seamless

• Involving in a collaborative effort with the customer to meet their needs, and then deliver it

• Match what customers want and what companies sell.

• Is to improve the strategic effectiveness of sales people, or to increase sales volume, trimsales cycle times or lower casts per sale.

• Due to multinational organizations and service, there is a much greater need to storecustomer information in a central location and to co-ordinate sale activities.

Why an Integration Selling Infrastructure?Ø The selling environment is getting tougher and tougher. Shorter product life cycles, intensified

competition, and above all, more sophisticated and demanding customers are making thesalesperson’s life ever more difficult.

Ø These challenges are exacerbated by difficulties in the management of pricing, promotions, andcommissions, in additions to other sales parameters.

Ø Sales organizations must add more values for the customer, operate with greater speed andaccuracy, and cut their own cost – all at the same time.

Ø During a typical conversation with a customer, a salesperson may need to confer withmanufacturing to ensure that a product can be configured with certain features, contactengineering to verify that a solution meets the customer’s needs.

Ø Obtaining all this information can be an arduous, time-consuming task that slows down the salescycle. But without this information, the risk of order errors is huge.


Business Forces Driving the Need for Selling-Chain ManagementØ Several fundamental market issues are driving the interest in selling-chain applications;

1) The rise of the self-service order

2) The excessive cost of presales technical support

3) The increasing cost of order errors

4) The increasing channel proliferation problem

5) The increasing complexity of products

6) The rise of deregulation, merges, and acquisitions.

Companies can cope with these issues by implementing selling-chain management systems. Toachieve successful implementation, companies must integrate their sales systems with otherenterprise systems in order to bring enterprise information to bear at the point of sales

1) The rise of the self-service order:

• As the customer demand higher levels of service, faster turnaround times & morecustomization, the sales process is getting increasingly complex.

• Selection process-An aspect of selling that has been significantly influenced by self-service.

• “Selling” is done not by the sales people, but by the customer themselves.

2) The Excessive cost of presales technical support:

• Using technical support drives up the cost of selling and shifts the burden of expertise fromthe sales person to the technical sales specialist.

• The result is excessive time consumed preparing complex sales quotes and proposals.

• The cost of preparing high -quality, accurate quotes and proposals rises relative to the levelof complexity and customization per products.

3) The increasing cost of order errors:

Ø The increased sophistication of customer products, services, and systems has resulted in an overall increase in the cost and frequency of order errors, which occur throughout the sale anddelivery cycle.

Ø Human error often account for order mistakes;

• Insufficient access.

• Non-current, inaccurate back-office information.

• Misinterpretation of what’s valid.

• Misunderstanding the product line or how a product will perform.

• A simple hypo-graphic error when processing an order.

Ø Companies that do not automate these processes and integrate their selling functions with theirback-office systems will continue to be plagued with order errors. No matter what the cause orwhere errors occurs in the sales, increased costs will result.


4) The increasing channel proliferation problem:

Ø Selling is not as simple as it used to be, due to the rapid proliferation of channels. The channelapplications that serve the order acquisition side are manifold:

• Field sales and in-store/branch sales:

• Assisted in-person selling

• Telesales: assisted, call-center selling

• Self-service: unassisted selling

• Third partner re-sellers or channel selling.

Ø The relative success of direct-to-the-end-user and build-to-order models are beginning to putpressure an companies to improve various sales channels in order to improve time to market,reduced costs, & complete more effectively.

5) The increasing complexity of products:

Ø The increasing complexity of products and the rise in customers demands for time-efficientordering processes have put pressure on companies to increase the productivity and responsive oftheir sales force.

Ø Furthermore, the pace of introducing new products has accelerated dramatically, causing shorterproduct life cycles.

Ø Sales efficiency and productivity remain major issues. This difficulty under score the need fortools and a central repository of up-to date products information in order to increase theproductivity and accuracy.

6) The rise of deregulation, merges, and acquisitions:

Ø While some organizations may face new sales and marketing challenges due to new channels andproduct line expansions, others face dramatic changes within their industries, such as the impactof deregulation.

Ø In addition to deregulation, Mergers and acquisitions can create interesting problem for salespeople.

Ø If a company is changing the name, function, and physical attributes of its product lines withoutstrong justification, it lets the existing customer to confuse about the product. As a result,customers have had great difficulty in locating the product and the firm.

Ø Not paying attention to customer needs during mergers is often the primary cause of companyfailure.

Technology Forces Driving the Need for Selling-Chain ManagementØ Business drivers highlight the importance of watching customer preferences and trends in

selling-chain management. Just as important are the technology issues and trends that steer acompany in a direction that will either position it for the future or for failure.

Ø Managers should not make application investment decisions without a clear understanding oftechnology limitations. Many of the sales automation applications have mixed reputations incorporations due to vendors who made promises that didn’t come to fruition. The reasons forthese failures are varied:

1) The selling chain application continuum.


2) Problem with existing sales force automation.

3) Limited process functionality.

4) Limited sales effectiveness.

1) The Selling-Chain Application Continuum

Ø The driving business forces and limitations of existing applications, coupled with the emergenceof necessary enabling technologies, have companies scrambling to invest in sales automationsolutions so they aren’t left behind by more technically advanced competitors.

Ø In order to understand” Where we are going”, however, we have to understand the applicationcontinuum (see the below figure).

Ø The current business environment requires offering the right production on service to the rightcustomer for the right price via the right channel at the right time.

Ø This requires more customer-centric sale functionality. Yet effective sales require a broad rangeof capabilities for integration, automating, and managing sales interactions throughout onenterprise.

Ø This requires relationship-oriented order acquisition (see Figure 6.2), which leading companiesare implementing where is your organization in the selling-chain continuum?

Ø This continuum allows us to see where most companies are focusing their energies today.

2) Problems with Existing Sales Force Automation

Ø First generation of selling-chain solutions burst into the market in the form of sales forceautomation (SFA), which is used to manage the entire sales process.

Ø The first generation of SFA software includes stand-alone, task-oriented tools, such as personalorganizers.

Ø The second generation of SFA software focuses on Improving the administrative productivity ofsales people by automating functions such as contact management, opportunity management,sales forecasting, and commission tracking.


Ø Another aspect of second generation SFA is telesales. Telesales automation increases theproductivity and efficiency of call centers, with the goal of increasing sales closure rates. Manycompanies spend bushels of money implementing second generation, yet success has beenlimited.

Ø The reason for the lack of success in that SFA

• Limited, task-oriented functionality.

- Archaic interfaces that is inflexible

- have limited capabilities

- Require different sessions to access various core programs.

• Functional isolation:- Limited back office integration

• Organizational resistance

• Limited view of the customer- Sales people don’t sit at desk

- So, It’s difficult to them directly to the enterprise application.

Ø So, new sales applications need to be developed that closely mimic the sales and orderacquisition process.

3) Limited Process Functionality

Ø Many sales applications are built for some limited subset of product and functionality

Ø e.g. Bank sales application limitation.

Ø Selling-chain applications, by definition, must automate processes across multiple user types andfunctional areas. These issues add a significant of complexity to the selling-chain applications.

4) Limited Sales Effectiveness: The Need for More Integrated Applications

Ø The salespeople can be only as effective as the systems in which they work. Companies aredemanding more integrated applications to help improve sales efficiency.

Ø Why is sales effectiveness critical?

The challenge for companies today lies in gaining market leadership by helping their global salesforce effectively sell a variety of products.

Business that develop, manufacture, and Market customizable products, services, and systemsMust meet their customer’s unique needs, respond quickly, and offer high quality, competitive cost,excellent service, innovation, and flexibility, while ensuring that order are accurate.

Ø How does integration facilitate effective selling?

The sales people demanding the integration of sales applications into their enterprises backoffice systems. To facilitate effective selling, focus is placed on ease of use, which is also closelyrelated to staff retention and training.

Managing the Order Acquisition Process


Ø Clearly, great salespeople and great products are no longer enough. Increasingly, customizedproducts and services, new distribution channels, and multiple pricing options are making theorder acquisition process dramatically more complex and difficult to manage.

Ø In non automated situations

• Account manager often perform ad hoc need assessments that very according to selling skills,product knowledge, and experience.

• This process requires subsequent sales calls that involve technical sales specialists who, - Inorder to configure the most advantageous solution,

- Create alternative scenarios by extracting detailed needs from customers & - Mappingthem against the company’s abilities.

• The technical sales specialist then transfers his or her understanding of the solution intoproduction terms, such as price and delivery schedules, or passes the technical information tosomeone else who figures out the pricing and manufacturing schedule.


• The information is then either given back to the salesperson or to a proposal specialist, whocreates a complex document recapping the customer’s needs and proposing the manufacturer’sbest product configuration, price delivery date, and other relevant terms.

• This manual process leaves a great deal of information up to individual interpretation. Thelikelihood of human error in the process is high and the cycle time is long.

Ø What does my sales process look like?

• The first step toward creating applications that provide strategic differentiation is to map thecustomer’s entire experience with the sales order process.

• Corporations worldwide are turnings to selling-chain automation solutions as they look to gainand use more intimate knowledge about their customers in the order acquisition process.

• It’s simply easier for any company to sell when the sales team is equipped with comprehensiveinformation about customers and can demonstrate their ability to respond quickly to customer’spossible needs or concerns.

Cisco and Selling-Chain ManagementPlease refer book for this concept. Page # 153

Elements of Selling-Chain InfrastructureØ How did the selling-chain infrastructure evolve?

Ø First, Isolated applications were developed to automate key aspects of the order acquisitionprocess. These applications included

- Product catalog and marketing encyclopedias,- Sales configuration systems,- Pricing engines,- Proposal/quote generation systems,- Sales compensation systems, and- Order management systems (see Figure 6.5).


Ø Then these various sales applications were interconnected, followed by an integration of theapplications.

Ø Why is application integration a big deal?

Today, most sales opportunities occur in complex team-selling environments, in which variousmembers of a sales team need to co-ordinate activities and share information to develop and executethe optimal sales strategy.

(eg.) Telemarketing, presales rep, field sales rep, regional sales manager, VP of sales.

Ø With integration, sales team members can share information such as

- Pricing updates,

- History of the customer’s relationship, and

- Other orders in the pipeline.

Ø They can also coordinate prospect management, which includes the

- Timing of the next meeting,

- Identifying who the key decision makers are and

- What their current attitudes are,

- Identifying those responsible for “ working” key decision makers before and after themeeting, and

- Outlining appropriate follow-up actions for each team member in order to close thedeal.

Ø Integration also provides the sales managers with complete visibility into all the elements of thesales process.

Product Catalogs and Marketing EncyclopediaØ Easy access to product information is an essential requirement in modern selling systems. The

rapid growth of catalog sales in channels formerly dominated by retail chains can be attributed tothe ease of finding product information.

Ø Consumers are able to obtain detailed, up-to-the-minutes information about a wide range ofproducts over the telephone or through the Internet, without having to endure the inconvenienceof visiting a showroom and the frustration of interacting with an often-unknowledgeable floorsales staff.

Ø A valuable tool is a marketing encyclopedia, an intelligent electronic catalog that connects salesrepresentatives and customers to a company’s most current product and service information. Itprovides a single point of entry for harnessing and distributing all product information.

Ø Some critical requirements of any marketing encyclopedia are

- The ability to easily create and maintain a repository of product information;

- The ability to create multiple search mechanisms to assist in locating information; and

- The ability to alter sales representatives and customers to bundled products and services,promotions, and complementary products.


Ø The marketing encyclopedia provides immediate access to product information, brochures,pictures, and pricing and availability data, dramatically increasing an organizations ability to beflexible and responsive to customers.

Sales Configuration SystemsØ Selling configurable or customized products task is cumbersome at best. From the time a sales

quotation is prepared, through product manufacturing and shipment, requirements must becaptured and configuration questions must be accurately answered.

Ø Salespeople are forced to “check with the home office” because they lack the tools andinformation they need to provide accurate and complete configuration quotes in the field.

Ø Another problem: Custom solutions tend to be very difficult to maintain as business and productlines change.

Ø Modern configurators are designed to go beyond checking configuration to embracing the needsof the customers, enabling a sales force to generate requirements based, accurate configurationsand quotes at the point of sale.

Pricing Maintenance, Distribution, and Configuration• Does your company have complex pricing and discounting structures?

• Does your company need flexible pricing to deal with market conditions by market areas ortrading/channel partners?

• Does your company suffer from high customer adjustment claim rates due to promotionalpricing and customer deductions?

• Does your pricing vary by customer contract or rebates?

• Do expensive pricing maintenance costs or untimely pricing distributions plague your company?

Ø If the answer is yes to any of these questions, then you suffer from “pricing Complexities”.

Ø A new sales configuration type has emerged: Pricing Configuration. Pricing configuration andupdate management assists companies as they develop, manage, and deploy complex pricing anddiscounting structures to selling channels.

Proposal and Quote GenerationØ The goal of proposal and quote generation system is to enable companies to provide an intuitive,

professional layout to customers who require complex quotes. Such applications include thefollowing features.

• Opportunity creation/tracking

• Interactive needs assessment

• Automatic quote generation

• Proposal wizard

Ø A further goal is to allow sales representatives to include information relevant to the individualcustomer on each quote, such as product information relevant to the individual customer on eachquote, such as product promotions or company legal statements.


Sales Incentives and Commission ProcessingØ Systems for processing sales incentives and commissions can be potent levers for increasing

sales effectiveness. These systems are used for designing, processing, and analyzingsophisticated incentive programs for large sales organizations.

Ø Commission systems have three core modules:

- Incentive design,

- Incentive processing, and

- Incentive analysis.

Ø From an incentive design standpoint, systems need to enable a company to:

- Create sophisticated commission and bonus rules that reward salespersons.

- Create individualized and account compensation programs using an unlimited numberof commissions, bonuses, and quotas.

- Create and use customized performance measures, including profit margin, netdiscount, and customer satisfaction.

Ø From the processing standpoint, systems need to be able to use no revenue performance metricsto calculate commissions and bonuses.

Ø Then realm of compensation design, planning, and processing, however, is one of the mostcomplex, error-prone, and time-consuming areas. Another challenging management problem:What should incentive and commission systems look like in an online or in a self-service setting?


UNIT IIIEnterprise Resource Planning:- Definition, ERP Decision, ERP usage in the Real World, ERPImplementation, Future of ERP Application.

Supply Chain management:- Definition, Basics of Internet enabled SCM, e-Supply Chain Fusion,e-Supply Chain Fusion Management Issues, e-Supply Chains in 200X.

ENTERPRISE RESOURCE PLANNING

ERP: Enterprise Resource Planning: DefiningERP is the backbone of e-business. ERP is the business operating system, the equivalent of the

windows operating system for back-office operations. ERP works like an information lubricant,facilitating exchange of data among corporate divisions through the unification of the processes.

What do Microsoft, Coco-cola, Cisco, Hershey foods, Colgate, Eli Lilly, Alcoa, and Compaqhave in common? Unlike the majority of businesses, which operate on 25-year-old back-officesystems, market leader’s turbo changed their business to run at break speed on transactionalbackbone called Enterprise Resource Planning (ERP). These companies swear that ERP systemshave helped them to reduce inventories, shorten cycle times, lower cost, and improve overalloperations.

The ERP phenomenon is not restricted to large firms. Smaller firms are slowly adopting ERPsolution as prices drop and larger manufacturers are beginning to demand that suppliers be ERPcompliant. As a result, ERP vendors, such as SAP, Oracle, People soft, J.D.Edwards, & Baan havebecome familiar names.

What set off this ERP adoption frenzy?

• Traditional corporate computing typically is a 20-years old general ledger system.

• The old system worked well in its day, when customers expected orders to be fulfilled inseveral weeks.

• But today, in the age of overnight delivery and split-second internet speeds, that just does notwork. Top management realizes that outmoded system must be fixed fast.

ERP is an integrated application suite. ERP is not a single system, but a frame work that includesadministrative apps (finance, accountancy), human resource app (pay roll, benefits), andmanufacturing resource planning (MRP) apps (procurement, production planning). ERP unit’s majorbusiness process-order processing, general ledger, pay roll, production within a single family ofsoftware modules.

Effective Service Delivery Requires Integrated Back-Office ApplicationsService delivery excellence requires placing the entire corporation into a unified transaction

environment. This strategy implies having one common platform instead of many software piecesthat don’t talk to each other.

Ericsson’s manufacturing uses ERP, reported significant operational improvement:

• Sales order processing lead time was reduced from 1hour to 10 minutes.

• Purchase order lead time was reduced from1 to 4 hours to less than 5 minutes.


• Production scheduling run time was reduced from 18 hours to 30 minutes.

• Ninety-eight percent of orders are now delivered on time.

Ericsson's ERP app. tracks such information as orders, materials, money, labor, and asset utilization.Ericsson's goal involves acquiring a single integrated view of all information resources: Generalledger, accounts payable/receivable, order entry, billing systems, sales, marketing, materials,purchasing, product data management, shop floor controls, and manufacturing operations.

The underlying integration across various modules provides operational transparency, whichallows manager to follow what's happening in even the farthest-reaching part of their business.

Production Planning: Manufacturing requirement planning (MRP) -- optimizes the utilization ofmanufacturing capacity, parts, components and material resources using historical production data &sales forecasting..

Integrated Logistics: Purchasing Module & Inventory Control Module.

Purchasing Module: It is rightly integrated with the inventory control, the streamline procurement ofrequired raw materials. It automates the processes of identifying potential suppliers, negotiatingprice, awarding purchase order to the supplier & billing processes.

Inventory Control Module: Facilitates processes maintaining the appropriate level of stock in a warehouse. Activities of Inventory control involves in identifying inventory requirement, setting argproviding replenishment technique and options, monitoring item usages, reconciling the inventorybalances, & reporting inventory status.

Sales and Distribution:

Sales: Implements functions of placement order scheduling, shipping &invoicing.

Marketing and Distribution: Supports lead generates direct mailing campaign & sales channel.

Accounting & Finance: It is the core of many ERP software systems. It can gather financial datafrom various functional departments, and generates ledger, trail reports such balance sheet, generalledger, trail balance, & quarterly financial statements.


HR Module: Stream lines the management of human resources and human capitals. HR modulesroutinely maintain a complete employee database including contact information, salary detailsattendance, performance evaluation and promotion of all employees..

Why is Management willingly paying millions for ERP suites?Companies are rushing to buy packaged ERP applications to address their business needs. Why

such high demand? The forces driving ERP are;

• The need to create a framework that will, improve customer order processing.

• The need to consolidate and unify business functions such as manufacturing financedistributions/logistics, & human resources.

• The need to integrate a broad range of desperate technologies, along with the processes theysupport.

• The need to create a new foundations an which next-generation applications can be developed.

Preparation for the year 2000 is often cited as a big reason for ERP adoption. Hundreds ofcompanies will “go live “in 1999 as they switch off their legacy computer systems and fire up newlyinstalled ERP software. However, these companies realize that going live is just the end of thebeginning because ERP has a second wave – e-commerce.

The Second Wave e-commerce Drives ERP Demand.The key business drivers forcing structural migration includes, Replacing create legacy systems,

Gaining greater legacy systems, Managing global control, Handling industry of decisions across theenterprise and Improving integration of decisions across the enterprise. These drivers vary inintensity across different industries, but their combined impact is inciting managers to reevaluateapplication capabilities.

Replacing creaky legacy systems: Too many systems and too little integration is not good forbusiness. The entire business core, which consists of financials/accounting, logistics, and humanresources (HR) management, has applications that are in the midst of a huge replacement cycle. Thegoal is to deploy application frameworks that reflect current business practices and are capable ofchange.

Gaining greater legacy systems: Too many expenses and too many administrative headaches.Mangers want to know how much they’ve sold, what they’ve shipped, their complete inventorystatus, and why inventory looks the way it does. Before our ERP implementation, it was four to sixweeks after the close of the month before we had information reconciled, and we still weren’t sure ofthe accuracy.

Managing global control: Too many operations, not enough control. To manage local activities andcoordinate worldwide operations, applications must change. This change must happen for threereasons: stringent business conditions accentuated by channel and brand proliferation, the pressuresof managing globally, and intense service demands by customers.

Handling industry of decisions across the enterprise: Too much change, no way to manage it. Inmany industries, new government demands such as deregulation drive application requirements.

Improving integration of decisions across the enterprise: ERP links information islands. Manycompanies have grown up with disparate, decentralized systems that prohibit different functionalunits form communicating easily.

The ERP decision, however, is very complex and can make or break a company. Let’s look at why


making the ERP decision is increasingly being equated to planning enterprise architecture.

The first step in accomplishing these objectives is for firms to gain an integrated view of theirbusiness operations. The idea behind integration is quite simple: Use technology to develop processstandardization across multiple business units in order to generate continued margin expansion andgreater return on capital. The attempt to gain control over aggregations of disparate mission criticalapps has spawned the multibillion-dollar ERP industry.

The ERP decision, however, is very complex and can make or break a company. Let’s look atwhy making the ERP decision is increasingly being equated to planning enterprise architecture.

ERP Decision = Enterprise Architecture PlanningØ Increasingly, large and medium-size companies are being called on to make strategic decisions

about enterprise architectural issues as they choose among prepackaged ERP application productfamilies.

Ø To find a good fit between the ERP apps and an organization’s business requirements, managersmust ask, “what kind of company do we want to bet?” rather than “what features are in eachapplication?”

Ø Getting the fit wrong can destroy an organization’s competitive capabilities. FoxMeyer Drugs, a $5billion pharmaceutical wholesaler, filed for bankruptcy protection due to a bad case of ERP“implementitis.” After filing for bankruptcy protection in August 1996, FoxMeyer was bought bycompetitor McKesson Drugs.

Ø ERP implementations are rarely this bad, but corporate frustration with the inability to find theright fir between the ERP apps and the business is rising.

Ø With horror stories like FoxMeyer and others, why do companies continue to invest in ERP s/w?When implemented properly, it facilitates better co-ordination within an enterprise, improvescustomer service, and in general, enhances a company's bottom line.

Ø Often the problem lies not with the ERP concept, but in the demand for quick fixes and rapid curesto underlying structural problems. ERP suites can’t fix these problems, and companies that don’trecognize this will fail.

Ø Remember that ERP provides a business foundation. Selecting and installing a new ERP solution isone of the most important and most expensive endeavors and organization will ever undertake.

Ø A lack of alignment between the ERP applications business processes and e-commerce objectivescan derail the best companies. So, a manager must be able to assess the technological andarchitectural issues surrounding a product, in addition to its core function.

Ø Technology itself isn't only challenge in managing transformation. As companies adopt newtechnology, they must ask themselves, “Is this something our customers will recognize asvaluable?” For example “Will it shorten the time between order and delivery? Will it improve ourproduct?”

Ø The impact of ERP is not limited to s/w significantly affects. The organizational architecture,processes, people and procedures.

Ø To make sound decisions, senior management needs to understand the technical basis for business&e-commerce functionality, as well as the relationship b/w technology & return on investment.


ERP Decision: Build or Buy SoftwareØ ERP application affects the whole corporation; therefore, the decision to build versus buy is very

strategic e-business objectives.

Ø Traditionally, organizations had two alternatives when choosing ERP architecture: a highlycomplex, custom-designed application to meet the organization’s specific requirements typicallydeveloped in a legacy environment; or an off-the-shelf application designed to be amenable to achanging environment and to be implemented more rapidly at a lower cost.

Ø The build vs. Buy decision is being titled towards purchasing commercial off-the-self (COTS).Software from third-party vendors for several reasons,

• Only org.’s with deep pockets can viably maintain the high total cost of ownership andcomplexity associated with developing and maintaining custom-designed applications.

• Installed appl. Are becoming technically out dated and on going redesign of business ofprocesses makes existing s/w functionally absolute.

• Off-The Shelf solutions integrate the best business practices from a variety of industries.

• Companies realize that s/w development may not be a core competency. It is estimated thatmore than 70% of internal s/w projects fail. To minimize risk, companies increasing outsource development activities.

Ø Together, these trends provide the rocket fuel for COTS application vendors to sustain stronggrowth.

Ø Every company must view a COTS solution within the context of its overall business. Seniorexecutives must consider a new set of questions.

• How can we ensure that we enhance these with COTS solutions?

• How can we support our e-commerce initiatives with COTS solutions?

The Capabilities of COTS ERP Solutions:COTS ERP solutions have become very sophisticated over the years, providing the followingfunctionality. Critical for effective e-commerce.

• Consolidation of the back office: Consolidating back-office functions allows companies tobetter leverage their capabilities & present a single face to suppliers. Goal is to centralizeoperations, yet this is rather risky.

• Creation of a single back office practices: Consolidation of the back office became a greatdeal when firms must communicate with multiple customer channels. Companies are lookingfor one seamless back office capable of supporting all paths to the customer.

• Facilitation of changes in business practice: Trying to change encrusted business practices islike pulling teeth – very painful. To get around this, companies do the best practices cannedin various ERP solutions to bring about change.

• Facilitation of changes in technology: The ERP architecture is designed to mask thecomplexities of underlying platform technologies, thus enhancing flexibility & simplifyings/w modification.


ERP usage in the Real world:No doubt the success of the SAP R/3 ERP solution has been quite phenomenal. However, there iswidespread misunderstanding that ERP equals production scheduling. This is not the case. Thefundamental ideas behind ERP apps have a broad range of applicability.

Let us consider three components that have built their business around ERP.

• Microsoft in the s/w industry

• Owens-Corning in the building supplies industry.

• Colgate-Palmolive in the consumer products industry.

MICROSOFT:

Ø In general, ERP software is used for division-wide or enterprise-wide business-critical purposesand involves significant capital commitments by customers.

Ø Microsoft spent the months and $25 million installing SAP R/3 to replace a tangle of 33 financialtracking systems in 26 subsidiaries.

• Resulted in annual saving of $18million, Bill Gates calls SAP “an incredible success story.”

• ERP app. has proud to be a good investment for Microsoft. SAP R/3 made them to feel abetter tool.

Ø As the world’s largest software company, Microsoft employs more that 25,000 people, operatesmore than 50 subsidiaries around the world, and expands every day. Microsoft’s tremendousgrowth rate was straining the systems supporting its business.

Ø More than 30 separate systems supported the company’s financial, operations, and humanresources groups alone. These systems had been implemented in a piecemeal fashion over time,with significant customization in many Microsoft subsidiaries.

Ø Microsoft executives realized that they needed a new solution to support the core business – onethat was both global and integrated.


Ø According to John Connors, Microsoft’s CIO, “What we needed was to develop a unified generalledger solution that streamlined and standardized the business processes around the world-one thatwould enable us to gain control over capital assets, establish worldwide business performancestandards, and get rid of the multiplicity of legacy systems.”

Ø The SAP R/3 solution enabled Microsoft to keep pace with and support its growth. The ERPapplication has proved to be a good investment for Microsoft. SAP R/3 has provided mangers withbetter tools for making decision with a single chart of accounts. Consolidating the financial, humanresources, and order management functions provided managers real-time access to accurate andtimely financial information. Timely, accurate and global information access also made it possiblefor Microsoft to close its books faster each quarter.

OWENS-CORNING:

Ø Building supplies manufactures Owens-Corning is one of the world’s top Marker of Glass Fiber &Component Materials. Owens-Corning manufactures Fiberglass insulation, piping and roofingmaterials, asphalt, specialty foams, windows, vinyl, & yarns.

Ø The company operates manufacturing facilities in the United States and about a dozen othercountries. Owens-Corning continues to grow internally and geographically through acquisitions.

Ø CEO-Glen Hiner wants to grow the business for $2.9 billion-a-year company to $5 billion-an-yearorg.. Mr.Hiner’s vision is that Owens-Corning should offer one-call shopping for all the buildingmaterials.

Ø One-stop shopping will give Owens-Corning the ability to integrated sales by allowing salespeopleto see the inventories at any plant or warehouse and quickly assemble orders for customers.

Ø Typical goals of sales order management include:

• Accepting customer orders from any location world wide into one system.

• Assigning ship dates to available products

• Scheduling future ship dates for products not in stock

• Checking order status 24 hours a day, seven days a week.

Sounds simple, but like other larger companies, Owen-Corning had operated as a collection ofautonomous fiefs with as estimated 211 legacy system.

Ø The Owens-Corning to grow, it was critical to integrate order management, financial, reporting,and distribution. The company chose to implement SAP R/3.

Ø The use of SAP R/3 effectively demands that Owens-Corning staff come up with a single productlist & a single price list. The use of R/3 also allowed the finished goods inventory to be trackedeasily, both in company warehouses and in the distribution channel.

Ø The estimated saving were more than $65 million by end of 1998.

Ø The example of Owens-Corning shows that one of the major aims of implementing ERP is todevelop aligned strategies throughout the organization.

COLGATE-PALMOLIVE

Ø ERP implementation has become the foundation of Colgate-Palmolive’s business. The corporationis the world leader in oral-care products (mouthwashes, toothpaste, and toothbrushes) and a majorsupplier of personal care products.


Ø To stay competitive, Colgate’s management continuously seeks to streamline its business. At thesame time, one of the challenges Colgate faces is that of new product acceleration, which has beena factor in driving faster sales growth and improved market share.

Ø Colgate needed the ability to co-ordinate globally and acts locally. Colgate’s U.S. division InstalledSAP by the end of 1996, a year a head of most of its competitions

Ø Installation of SAP, increase the profit by 35% of Colgate’s worldwide sales, and SAP will beexpanded to all Colgate divisions worldwide by 2001.

Ø The benefits from Colgate ERP implementation include the following:

• Before SAP R/3, Colgate had 75 data center &now has two data centers, employing only40 peoples.

• Before SAP R/3, it took Colgate U.S. anywhere from 1 to 5 days to acquire an order, &another 1 to 2 days to process that order & now order acquisition &processing combinedtakes 4 hours.

• Before SAP r/3, on time delivered used to occur only 91.5% of the time & cases orderedwere delivered correctly 97.5% & now after R/3 the figures are 97.5% &99.0%

• After SAP R/3, Domestic inventors have dropped by one-third. Receivable outstandinghave dropped by 22.4 days from 31.4. Working capital as a percentage of sales hasplummeted to 6.3% from 11.3%

• After SAP R/3 accounts payable was consolidated into one location from 8 & 3 HRadministration officers were consolidated into 1.

ERP Implementation: Catching the bull by the horns.Ø A combination of better products, time-to-market urgency, and thin in-house technical skills

ensures that mainstream firms will embrace packaged ERP software.

Ø It’s important to note that the each ERP application suite has its own architecture, customizationfeatures, installation procedures, and level of complexity. Therefore, you can never approach theinstallation of all ERP packages in the same manner.

Ø ERP can be implemented by 3 ways,

• Step-by-Step (Modular Implementation): One SAP module at a time is installed, tested &integrated with other system

• Big bang: Companies layout a grand plan for their ERP implementation, the installation ofERP systems of all modules happens across the entire org. at once

• Modified Big Bang (process-oriented Implementation): In which various modules areimplemented at one time, piloting them in one area of the company &extending the programthroughout the firm

Ø Even if the implementation strategy is right, actually setting up the ERP solution is not easy. Thereare numerous obstacles that hinder the organization’s ability to move quickly.

Roadmap to Rapid Implementation: The Accelerated ERP ApproachØ Today’s intense competitive require fast response. Unfortunately, most ERP application suites

can’t keep up – systems take too long to install, and, once installed, take too long to adapt to theever-changing business processes vital to competitive success.


Ø To reduce the pain of implementation and to address time-to-display issues, SAP offers amethodology called ASAP, Accelerated SAP. ASAP uses a methodical question-and-answerformat to guide customers through a maze of features.

Ø Other packaged applications have their own installation and integration methodologies andapproaches as well. Let’s look at the implementation methodology phases.

• The Project Preparation Phase: The project took off is organized and all the arrangement forthe project team is made. This phase also includes the estimation of project resources, castsand duration of each activity.

• The Blueprint Phase: The consultants document the requirements of the enterprise and itsbusiness process design, including interviewing potential users.

• The Pilot Phase: In this phase, the s/w is configured to match the structure of the companywith the desired business processes.

• The Final Phase: In final phase, all the work from the previous phases is consolidated, withthe goal of preparing the system for final acceptance.(cover the final system test, user training& final migration of the data to the new system)

• The Assessment Phase: Here it receives the system to ensure that all business requirementswere met. (Checking the business processes & technical architecture as well as checking withthe end users, assuring that their expectations were met.

Ø Implementing ERP is just the beginning. By far the most important challenges facing anycompany are developing a new set of leadership skills and changing management techniques.

Roadmap to New Leadership SkillsEffective co-ordination management encompasses a combination of the following four capabilities.

Strategic Thinking:

How will your ERP selection, implementation and evolution strategy align with your businessstrategy? There is no easy or generic answer. The biggest mistake users make is getting caught upin the bandwagon effect surrounding some new technology without looking at what they really aretrying to improve in their business.

Process Reengineering:

“You cannot implement large-scale system without first changing processes.”

This requires takes rules &producers & mapping them in a logical manner into the s/w

An ERP system is really a collection of business rules & procedures (called best practices) the endusers, assuring that their expectation were met.

Managing Implementation Complexity:

The complexity of implementing large scale ERP systems is giving rise to a “ can’t live with ‘em,can’t live without’ em” partnership scenario.

So, here the company gives the gain share contract, with the ERP consultant.

Transition Management:

Coordinating a smooth transition & overcoming employee resistance can be critical factors for thesuccessful completion of a project. Even after effectively completing process reengineering, animplementation can fail.


The logic behind is, the top management often under estimates the amount of pain involved withlarge-scale ERP implementations.

The Future of ERP Applications:“The Road to excellence is always under construction” Like wise, the ERP solution is also ”underconstruction”. The long term goal is achieving more flexibility in operation.

Four crucial elements are required to achieve flexibility:

1.) Components, not modules:

2.) Incremental migration, rather than massive reengineering

3.) Dynamic, rather than static, configuration of ERP systems.

4.) Management of multiple strategic sourcing and partnership relationships.


SUPPLY CHAIN MANAGEMENT

Supply Chain Management: Defining A Supply chain refers to the complex network of relationships that organizations maintain

with trading partners to source, Manufacture & deliver products.

Supply chain encompasses the facilities where raw materials, intermediate products, & finishedgoods are acquired, transformed, stored and sold.

A process view of the Supply chain:

SCM is the co-ordination of material, information, and financial flows between and among all theparticipating enterprises.Ø Material flows involve physical product flows from suppliers to customers through the chain,

as well as the reverse flow via product returns, servicing, recycling and disposal.Ø Information flows involve demand forecasts, order transmissions, and delivery status

reports.Ø Financial flows involve credit card information credit terms, payment schedules and

consignment & title ownership arrangements.

Supply chain execution is managing and coordinating the movement of materials, information andfunds across the supply chain. The flow is bi-directional.

Enterprise is rethinking their relationship with suppliers, manufactures, distributors, retailers andcustomer. As these partner relationships become more efficient; that also became more dependent oninformation flow, leading to mutual beneficial interdependence and intertwined relationships. Asupply chain perspective transforms a group of ad hoc and fragmented processes into a cohesivesystem capable of delivering value to the customer (process optimization (or) minimizing the totalcost of the order-to-deliver process.

Supply chain management problemsSupply chain management must address the following problems:

• Distribution Network Configuration: Number and location of suppliers, productionfacilities, distribution centers, warehouses and customers.


• Distribution Strategy: Centralized versus decentralized, direct shipment, Cross docking, pullor push strategies, third party logistics.

• Information: Integration of systems and processes through the supply chain to share valuableinformation, including demand signals, forecasts, inventory and transportation etc.

• Inventory Management: Quantity and location of inventory including raw materials, work-in-process and finished goods.

• Cash-Flow: Arranging the payment terms and the methodologies for exchanging fundsacross entities within the supply chain.

An e- supply chain in action: How completely technology can be woven into the product delivery process. Lets look at thedynamics of the entire consumer product supply chain between Warner-Lambert (WL) and CVS. Asyou reach for a bottle of Cool Mint Listerine at your local pharmacy, your action is the culminationof a complex set of events and processes that ensure that bottle is waiting for you. The journeybegins in Australia,

First Raw ingredient

Farmer sells his Eucalyptus crop in Australia given to Processing company(Extracts the oil) sells extracted oil to Distributor New jersey Distributor transports the oil to WL manufacturing/ Pennsyluania

Second Raw ingredient

Saudi Arabian desert, natural gas is being drilled for the synthetic alcohol that gives Listerine

Union carbide ships the synthetic alcohol to

Texas City (where its refined into ethanol)

Ethanol is shipped to

WL’s Plant in Pennsylnvania

Third Raw ingredient

Midwest, Farmers grow corn that is converted to sorbitol, which sweetens and alls bulk, andshipped to WL’s plant.

Once all these ingredients are mixed, Listerine flow through pipes to be packaged. The packages areshipped to pharmacy warehouse and then distributed to retail stores.

• The transaction system calculates the exact quantities of product needed, generates apurchase order, and sends it via electronic data interchange (EDI) to WL.

• At WL, the supply chain planning system analyzes manufacturing, distribution, and salesdata against expected demand to decide how much product to make and consequently howmuch of each raw ingredient is needed.


The SAP R/3 ERP package prices the order & determines how much must be manufactured. Sameday; the ERP system transfers the order to WL's transportation planner to determine how best toconsolidate order delivery & and which shipping companies to use to minimize cost.

Several models have been proposed for understanding the activities required to manage materialmovements across organizational and functional boundaries. SCOR is a supply chain managementmodel promoted by the Supply Chain Management Council. Another model is the SCM Modelproposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped intostrategic, tactical, and operational levels of activities.

Strategic

• Strategic network optimization, including the number, location, and size of warehouses,distribution centers and facilities.

• Strategic partnership with suppliers, distributors, and customers, creating communicationchannels for critical information and operational improvements such as cross docking, directshipping, and third-party logistics.

• Product design coordination, so that new and existing products can be optimally integratedinto the supply chain, load management

• Information Technology infrastructure, to support supply chain operations.

• Where-to-make and what-to-make-or-buy decisions

• Aligning overall organizational strategy with supply strategy.

Tactical

• Sourcing contracts and other purchasing decisions.

• Production decisions, including contracting, locations, scheduling, and planning processdefinition.

• Inventory decisions, including quantity, location, and quality of inventory.

• Transportation strategy, including frequency, routes, and contracting.

• Benchmarking of all operations against competitors and implementation of best practicesthroughout the enterprise.

• Milestone payments

Operational

• Daily production and distribution planning, including all nodes in the supply chain.

• Production scheduling for each manufacturing facility in the supply chain (minute byminute).

• Demand planning and forecasting, coordinating the demand forecast of all customers andsharing the forecast with all suppliers.

• Sourcing planning, including current inventory and forecast demand, in collaboration with allsuppliers.

• Inbound operations, including transportation from suppliers and receiving inventory.

• Production operations, including the consumption of materials and flow of finished goods.


• Outbound operations, including all fulfillment activities and transportation to customers.

• Order promising, accounting for all constraints in the supply chain, including all suppliers,manufacturing facilities, distribution centers, and other customers.

Basic of Internet-Enabled SCM: e-supply chain 101SCM is where the action will be in the next decade. But as the SCM industry grows, so doesconfusion over which software application do what functions best. With a host of products for everytask from forecasting and purchasing to warehousing and shipping, and with countless variations inthe terms used for various supply chain functions, managers struggling to improve their SCMinfrastructure find themselves wandering in the dark, In order to turn on the lights, we must firstunderstand the basic of SCM.

SCM Requires Interenterprise IntegrationInter enterprise Integration is the core of SCM. SCM is evolving from the current enterprise-centricmodels (eg. Nabisco) to more collaborative partnership-oriented models (eg. The proctor & Gamble& Wal mart). No company wants excess in inventory, the aim behind inter enterprise integration is“drive down inventory, production, & distribution cast".

The basic economic reality, however, is that retail stores and distributors maximize profits byinventory turns frequently delivery of goods to replace sales (order cycles of less that 18 hours),whereas manufacturers maximize profits by longer production lead times (production cycles of manydays or weeks). To mange this mismatch between the two, companies create stores of inventory inthe supply chain. This exactly what manufacturers like Nabisco face.

Types of Inter enterprise Integrators:It will take skilled managers to successfully engineer high-performance supply chains, in the

shortest time possible that will be responsive, enterprising, or intelligent.

i) Responsive supply chains accurately & quickly respond to customers needs. Important factor,Available-to-promise (ATP) factor.(need to know material & resources are available before they canpromise a delivery data to the customer)


ii) Enterprising supply chains can be rapidly reconfigured to adapt to changing consumer demand.

Companies must accelerate the rate at which they identify and respond to mutating businessconditions and consumer requirements.

iii) Intelligent supply chain Arc not static and must be continuously fine-tuned. They arc changingmore & more rapidly as companies look for that slight edge over other chains.

Service via SCM integration has become the Holy Grail for competitive advantage. Companies hardpressed to knock out competitors on quality or price now try to gain an edge by delivering the rightstuff in the right amount at the right time.

Evidence is mounting that inferior integration affects corporate performance. The lack of integrationbetween planning and execution manifests itself in the following ways:

• Erratic levels of customer service. The cause: Inventory is either too high or too low.

• No vision of future demand and its impact on production. The cause: Production lacksconfidence in marketing

• Too many changeovers in production. The cause: lack of agreement between customerservice, distribution, and manufacturing on what products are required, when they’re needed.

• Too many stock outs. The cause: Inventory is in the wrong place at the wrong time.

To manage and facilitate integration among various participants in the supply chain, organizationshave to deploy large-scale enterprise application to address collaborative planning and executionrequirements.

Basics of Internet-Enabled SCM: e-supply chain 201The Application side of SCM. SCM is a business framework comprised of multiple applications anddivided into two application camps:

• Supply Chain Planning

• Supply Chain Execution

Elements of Supply Chain PlanningPlanning process focuses on

• Demand fore casting

• Inventory simulation

• Distribution

• Transportation

• Manufacturing Planning

• Scheduling

Designed to improve:

• Fore cast accuracy

• Optimize production scheduling


• Reduce inventory costs

• Decrease order cycle times

• Reduce transportation cost

• Improve customer service

Order commitment:

Available-to-promise system, allows vendors to accurately quote delivery date to customer

Advanced scheduling and manufacturing planning modules provide detailed co-ordination of allmanufacturing and supply efforts based on individual customers orders, Scheduling is based on real– time analysis of changing constraints throughout the process, from equipment outages to supplyinterruptions.

Demand planning modules generate and consolidate demand forecasts from all business units inlarge corporations.

Distribution planning functions create operating plans by the logistics mangers. Distributionplanning is integrated with the demand and manufacturing planning modules to provide a completemodel of the supply chain and the operating plan for fulfilling orders.

Transportation planning Facilitates resource allocation & execution to ensure that materials &finished goods are delivered at the right time & to the right place, according to the planningschedule, at minimal cost.

Flexible SCP application involve evaluation as multiple planning strategies, such as the following

• Profitable to promise - "should I take the order at this time?"

• Available to promise – " Is inventory available to fulfill the order?"

• Capable to promise-" Does manufacturing capacity allow order commitment"


Elements of Supply Chain ExecutionThe execution process addresses

• Procuring

• Manufacturing

Distributing products throughout the value chain

Designed to

• Manage the flow of products through distribution centers & warehouses.

• Help ensure that products are delivered to the right location using the best transportationalternatives.

Supply chain execution – the process of fulfilling customer-specific needs for goods and value-added services in a timely, efficient, and cost-effective manner- is a key differentiator in increasinglycompetitive markets.

Why execution? Planning can cut costs by streamlining the procurement and manufacturingprocesses, but that may not help satisfy customers. To keep customers happy, companies mustdeliver as promised.

To manage sophisticated outsourcing arrangements, companies are turning to supply chainexecution application to provide fulfillment pipeline visibility and to control orders, inventory, andassets. The market for supply chain execution application is growing due to tow major factors:

• Businesses that have maximized efficiencies within their organizations are now working toachieve greater operational efficiencies in their relationships with supply chain partners.

• As they look beyond their own our walls, companies realize that planning application isaiming for the ideal. These applications have to be constantly fed data that adjusts plans tothe real world.

Supply chain execution is composed of (see figure 8.6)

• Order planning• Production• Replenishment• Distribution

Order Planning Process: The objective is to select the plan that best meets the desired customerservice levels with respect to transportation & manufacturing constraints. Order fulfillment planningmust consider all supply chain constraints simultaneously, including transportation limitations suchas truck capacity and weight, alternate modes, and availability of downstream resources such asloading docks.

Production Process: Production is increasingly performed at dedicated warehouses & includeslight sub assembly and sequencing, kitting, merging, packaging & labeling. Timing of the finalassembly often derives the production plan for subassemblies. Starting from the master productionschedule for the finished products, a manufacturing resource planning (MRP) system expands thisschedule to derive when, where, and in what quantities various subassemblies and components arerequired to make each product.


Replenishment: Includes component replenishment strategies that minimize the amount ofinventory in the pipeline and co-ordinate product hand-off between the various parties involved.Timely replenishment of warehouses is critical because customers no longer tolerate out-of-stocksituations.

Distribution Management: Encompasses the entire process of transpiring goods frommanufacturers to distribution centers to final consumption. Distribution management has beeninnovated by integrating it with transportation planning and scheduling. Distribution gives userseasy access to shipping, tracking, and delivery data and also supports the complex, ever-changingrequirements of international trade, including document generation and regulatory compliance.

Reverse Distribution or Reverse Logistics: Rapid obsolescence and more generous warrantieshave sparked a growing trend of customer returning products for warranty claiming. Reverselogistics means that due to the manufacturer or disposed of. Reverse logistics encompasses not onlydamaged or returned goods, but also products designed for remanufacture, hazardous material, andreusable packaging.

e-Supply Chain Fusion: e-Supply Chain 301How do you create integrated supply chain structures? How do you migrate from existing nonintegrated supply chain models to more effective integrated models?

Diagnosing Root Causes of Supply ProblemsFirst diagnose what the problems are that prevent collaborative work.

"It you don't understand the problem, its hard to fix it!

Fixing a business problem requires untangling, underlying, symptomatic, structural trouble such as

• A lack of knowledge about the end-to-end demand planning function.

• Inconsistent or out-of-date, due to a lack of integration with ERP.

• A lack of process integration across partners.

• Effective deployment of SCM requires structural change.


Historical application have consisted largely of separate legacy applications at eh corporate,static and distribution levels. These legacy applications have primarily been host-centric systems thatoperate on main frame or midrange computers. These systems developed and modified internallyover many years or licensed from third parties, represent considerable investments and have beenbeneficial over the years.

They don’t have the flexibility to support diverse and changing operations within a company’sbusiness, nor can they respond efficiently to changing technologies.

• These apps have targeted only distinct levels of the supply chain and generally have notprovided the full benefits of integration, which allows information to be distributedeffectively.

• This has been changing with the advent of both e-business goals. Companies such as SAP, I2Technologies, and other are creating solutions that provide integrated functionalities.

• These solutions are adopt at handling large volumes of transaction, posses a high degree ofreliability and rapidly capture and analyze data and distribute information throughout thegeographically dispersed parts of the enterprise.

• These solutions support the specialized requirements of global business, such astransportation planning and the increased prevalence of e-commerce.

E-Supply chain Heal thy self: Fixing the Roof CauseSupply chain fusion goes throughout four stages.

1 Enable information sharing: This stage requires a solid communication process. For instance,more and more retailers are restructuring existing operations so that consumers interacteffectively with the entire enterprise from a single store or web site.

2 Create joint performance measurement system and collaborative planning process: Keychallenges are creating performance measurements and developing a clear understanding of thecosts and benefits involved in supply chain integration.

3 Exchange responsibilities and realign work: This is, what you used to do, I now do; what youused to decide, I now decide for you.

4 Redesign products and processes so that becomes easier or more efficient: A challenge is toconsider the entire supply chain when doing Interenterprise process reengineering.


e-Supply Chain Fusion Management IssuesDo your board and top management understand the issues behind SCM?

SCM decisions are really business design decisions. With customer satisfaction at stake, SCM isquickly becoming an executive and boardroom issue, not a technical, functional, or storeroom issue.Senior management is being asked to make complex strategic decisions in order to create integratedSCM solutions.

Where do they start? To make an effective supply chain design, ask yourself the four fundamentalquestions:

1 What is the right e-supply chain structure for my company?

2 Does the chain enable effective differentiation capabilities?

3 Does my supply chain facilitate effective order fulfillment capabilities?

4 Does my company have the right infrastructure capabilities?

1. What is the right e-supply chain structure for my company?

• To meet customer’s demand, an expensive option is to keep a large finished good inventory.

• SCM is a pre-requisite for doing business.

• Clearly SCM is not a technology issue; it’s a business strategy issue.

• What is the right supply chain for your products?

• Marshall Fisher wrote:

• “Before devising a supply chain, consider the nature of the demand for your products,because Functional products require an effective process; innovative products, a responsiveproduct”.

• Different strategic goals motivate companies to adopt different supply chain with a Strategicview restraints the tendering to focus only on cost.

• While analyzing strategies, make sure that the entire team understands and agrees on how tohandle the basic elements of the supply chain, including demand & capacity planning,strategic Scheduling & performance measurements.

• The objective of any supply chain design is to please the customer and to make money.

2. Does the chain enable effective differentiation capabilities?

• Most profitable strategies are built on differentiation: offering customers something uniquethat the competition doesn’t have.

• We believe that companies have the opportunity to differentiate themselves through theirsupply chains.

• Differentiation using the supply chain makes even more sense when you consider the factthat most companies don’t have just one supply chain. They have multiple supply chainsrunning concurrently.

• It’s estimated that large companies such as 3M have more than 30 different supply chainconfigurations.


3. Does my supply chain facilitate effective order fulfillment capabilities?

• Order fulfillment is the highest single cost of doing business and therefore offers a greatopportunity to reduce cost and improves service.

• The different functional groups involved in the supply chain have different priorities andsometimes conflicting objectives.

• Unless these conflicts are resolved, the supply chain can be whipsawed between extremes,resulting in increased cost & poor customer service.

• Order Promising: Order promising gives companies the ability accurately quote deliverydates to customers. The goal is to provide real-time, detailed visibility into the entirefulfillment cycle, from the availability of raw materials and inventory to production statusand prioritization rules.

4. Does my company have the right infrastructure capabilities?

• Typical SCM solution span multiple packaged app, legacy systems and geographic.

• Decisions about how to deploy network app, ERP Software and other SCM systems areincreasingly participatory with line of business managers, marketing executives andcorporate leaders joining IT professionals in the technology and decision making process.

• SCM investments must be made surgically while bearing in mind the existing ERP andlegacy infrastructure.

• Large companies have already made the necessary investments in ERP systems to integratefunctions such as purchasing, inventory, and finance within the enterprise.

The next step is to leverage ERP investments to integrate the functions and information of multipleenterprises in real time. Today, with SCM recognized as a very important key to competitiveadvantage, the industry has boomed and now hundreds of software and technology suppliers arecompeting. As more and more companies initiate internal and external supply chain improvementefforts, the industry is expected to explode in the coming decade. However, in this boom periodseparating hype from capability can the difficult.


Unit IVe-Procurement:- Procurement as Top Management Issue, Operating ResourceProcurement, Procurement Business Problem, Next Generation Integrated ProcurementApplications, Elements of Buy-Side e- Procurement Solutions, Buy-Side Applications for theProcurement Professional, Elements of Sell-Side e-Procurement Solutions.

E-ROCUREMENT

E-PROCUREMENT: The Next Wave of Cost Production

Procurement:

Procurement is a closed loop process that begins with the requisition and ends with payments.Integrated procurement remains one of the truly significant business strategies to be developed in thiscentury.

Large companies spend more than 5 t 10 percent of revenue on office equipment; supplies,software, computers, peripherals, and other so-called non-production goods. This business-to-business e- commerce comprises a significant market, exceeding $500 billion a year. Buyersand sellers recognize that by creating a more efficient method of exchange, they can realizebusiness benefits such as additional revenue and lower costs.

Procurement inefficiencies are astounding. Consider, for instance, a high-techmanufacturer, which figures it spend $100 to process each purchase order. The company knowsexactly how much it spends on the material used in production. But don’t ask thecompany how it spends approximately $1 billion a year on computers, office products,furniture, and other non-production supplies.

Does this remind you of your company?

Don’t despair. With the increasing use of e-commerce, procurement is going through a revolution.We’re entering a new era of self-service approach to requisitioning. Help is just around the corner, with anew breed of integrated procurement applications whereby everyday employee business tasks can beefficiently completed through easy-to-use Web-based applications.

Structural Transition: From Isolated Purchasing to Real-Time Process Integration:

Consider the following scenarios:

• A machine goes down and a $100 part is needed immediately. The manufacturing company less$100,000 for every hour the machine is not operational. Jim the factory far more uses thee- procurement system to expedite the replacement part order. The system automatically routesthe purchase order to the supplier that has the part. The part is delivered to the shop floor withinfour hours. This is a maintenance repairs and operations (MRO) scenario.

• Ann used to fill out requests for miscellaneous office supplies and wait weeks for delivery. Nowuses the new e-procurement system browsers the catalog from the approved under list, makessolutions


and drops them in her shopping basket. The system automatically gets purchase order approvaland ships the products overnight to arrive at her desk the next day.

• A’s boss calls at 7 p.m to ask him to take his place at an important meeting in Chicago. A logsinto the e-procurement system goes to the American Express corporate travel website and books anairline ticket car and label accommodations in less than five minutes. The e-procurementsystem automatically lies profile and authorizes the purchase.

• B’s logs into an internal system for travel expenses. Instead of having to key in credit cardexpenses the totals are already simply added out of pocket expense and submits the reportelectronically.

Companies have talked about improving transactional services like office suppliesprocurement, travel, and expense-reporting processes for years. Why? Because the purchase ofgoods and services represent the single largest cost item for an enterprise. It’s estimated for eachdollar a company earns on the sale of a product, it spends about 50 to 60 cents on goods andservices. More capital is spent on the purchase of materials and services than all other expenseitems combined. Billions of dollars are wasted every year in inefficient procurement practices.

You say ³Purchasing´ and Say ³Procurement´

Purchasing refers to the actual buying of materials and those activities associated with the buyingprocess. Electronic purchasing addresses only part of the problem and represents only the tip of the iceberg.

Procurement, on the other hand has a broader meaning and includes purchasing, transportation,warehousing and inbound receiving.

The initial goal of integrating the procurement supply chain was to take apart sometraditional, hierarchically structured purchasing organization. The focus is moving quicklytowards integrated procurement chain management. Procurement is migrating from traditionalpaper-based processes to e-procurement.

The benefits of e-procurement fall into two major categories

• Efficiency

• Effectiveness

Efficiency: Includes

• Lower procurement cost

• Faster cycle times

• Reduced maverick or unauthorized buying

• More highly organized information

• Tighter integration of the procurement functions.

Effectiveness: Includes

• Increase control over the supply chain

• Proactive management of key procurement data.

• Higher quality purchasing decisions within organizations.


So, what’s new? Procurement models of the industrial era are being replaced by the informationera’s more effective practices, which enable firms to reap benefits at both ends of the supplier-to-customers chain.

Mangers need a detailed understanding of how the next generation of e-procurementapplication is being developed. Ok, managers, let’s start by asking some key questions:

• What is operating procurement and why is it important to top management? What functionswithin an organization do these solution address?

• How did e-procurement systems restructure such companies as Microsoft?• What are the primary e-procurement concepts on the buy and sell sides?• What benefits will e-procurement bring to your organization? Is it worth the cost?• What are the management pitfalls in moving towards an e-procurement solution? How

does this redefine procurement chain relationships across different industries?

Why is Procurement a top-management issue?

Companies are looking for solution that control

• High procurement cost

• Length cycle time

• Ensure smooth receipt and delivery of materials.

Companies are seeking to automate the day purchasing order such as

• Catalog searching

• Authorization

• Processing purchase orders


The company’s goal is to free professional buyers so they can focus on more strategic issues such asmanaging supplier relations, reducing inventory and improving the quality of the parts coming in the door.

The five biggest challenges that a chief procurement officers are looking to solve is

1. Reducing order processing cost and cycle times.

2. Providing enterprise wide access to corporate procurement capabilities.

3. Empowering desktop requisitioning through self service.

4. Achieving integration with key back office system.

5. Elevating procurement to a position of strategic importance within the organization.

Operational cost management is a central objective of e-procurement. As companies aggressivelylook at improving margins, remaining nimble, and maximizing profits, there is unprecedentedpressure to manage operating expenses as intelligently and efficiently as possible.

The dollar-for-dollar, bottom-line impact of the margin enhancement afforded by operationalcost management is startling—especially when compared with only fractional increases in profitsrealized through revenue-focused initiatives.

Now that you understand why this subject is important to top management and have done a quickassessment of your computer. Let’s look more closely at what constitutes operating resourceprocurement.

What exactly is operating resource procurement?

There are two types of corporate procurement

• Production related goods

• Non production related goods

Production goods include raw materials, components, assemblies, and other items needed toproduce a finished good.

Non-productive goods, the step children of purchasing, are increasingly taking centrestage. Consider the case of Ford Motor Company. In its continuing quest to cut cost.

E.g. Ford Motor Company:

Ford is using e-procurement solutions from Intelisys in an attempt to slice billions of dollarsfrom such mundane tasks as purchasing office supplies and filling expense reports. Ford spendsan estimated $15.5 billion each year on non-production goods and services, making it one of thebiggest purchasers of such goods world wide.

It’s estimated that large corporations spend about $36 on processing each expense report.With the internet and electronic downloading of credit cards receipts, the cost drops to about58—an approximate savings of $28 million annually.


As the example of Ford illustrates, the focus of procurement automation is not so muchon production-related raw materials but on non-production-related goods, let’s take a closer lookat the different types of operating resources.

Characteristics of production Related Procurement

Type of Non Production or Operation resources Products

The procurement of non production goods, known as operating resources management (ORM)is defined as the strategic purchase of non production goods through the effective use ofaggregate buying, volume discounts, lowered transaction costs, and decision support techniquesto identify vendors discount operations.

All the types of operating resources referenced in Table 9.2


Operating Resource procurement process: Controlled chaos

Inefficient buying, redundant processes, non-strategic sourcing, and maverick buying areall symptoms of poor operating resource procurement practice. Clearly, Even though operatingresource is already corporate expenditure most procurement processes are paper intrusive.

How much does it cost your company to buy something? Company spends for more onmanaging the procurement cycle than it does on the goods it actually purchases.

Is maverick buying a problem in your company? Maverick buying happens when employees buyproducts on their own, often charging items to corporate credit cards and missing out on volumes discountsthat large companies arrange with preferred providers of products and services. This costs organizationincredible overhead in terms of additional administrative effort.

Purchasing managers have growing awareness of how they can reduce maverick buying and improveprofits: Reduce the need to service small-dollar orders (focus on new, better contracts), and obtain betterpurchasing information for contract negotiations (negotiate with the knowledge of what has been purchased).

Electronic procurement will not only immediately reduce off-contract buying, but it will alsofree purchasing professionals to concentrate on more strategic activities that will make the companymore competitive in the global business climate.

Now that we have identified the problems, let’s look at the size of the market opportunity.

How Big Is the Operating Resource Market?

Automation operating resource procurement is definitely a big market opportunity. But whilethe area of production-related procurement is mostly automated with enterprise planningapplications, non-production-related procurement has seen very limited automation.

It’s estimated that even though operating resources account for at least 30 percent ofcompany spending, such spending is managed via a maze of paper-based processes. This methodallows for


very little leveraged buying and savings across the enterprise. Therein lies opportunitiesfor automation, control, and leverage.

Procurement enterprise applications must support internal processes, e-commerce capabilities,and sharing information in real time.

Firms not pushing ahead at a fast rate on information system tend to plateau. At some point,there will no longer be able to make significant efficiency jumps in their integrated procurementchains.

Procurement Business Problem: Lack of Process Integration

Operational resource management is a discipline requiring comprehensive and consolidated solution.

It must be able to stages to encompass of a company’s major cost areas, while augmentingexisting investments in accounting, financial planning, and human resources system. Thus, while it’seasy to automate distinct procurement areas, current stand-alone or” point solutions” address eachsegment of the procurement life cycle individually and miss the point entirely. The need for anintegrated solution—e-procurement chain management—is evident.

In managing the movement of resources—materials, services, knowledge, or labor—through theprocurement chain, successful firms have created direct linkages between suppliers and employees.This method obliterates rigid intra-organizational and inter-company barriers that tend to dominateoutmoded procurement practices.

The big challenge is structural migration—how to get from the current state to the nextgeneration of an integrated framework. Integrated e-procurement becomes critical as companiesadapt strategic sourcing.

What are the integrated solution requirements?

A successful system must be designed for casual use by untrained employee.

Evaluate your integration alternatives using the following guidelines


• Management Control: Purchasing manager should have control over which productsare available to employees, where they can be purchased and who needs to approve anorder.

• Online product selection: Online catalogs save time and reduce errors by catchingmistakes earlier. But managing these catalogs can be the most challenging aspect ofthe system. Employee should be able to quickly find what they need, place an order andreturn to work.

• Electronic ordering: A procurement system should provide a seamless transition fromrequisition to purchase order with no rekeying.

• Application Integration: Unless a procurement system can seamlessly integrate withexisting applications such as general lodger, accounts payable, purchasing and humanresources applications, duplicate efforts will be required to maintain multiple systems.

• Information &Reporting: Solid information is the key to process optimization andcost reducing. A good procurement system should track what was purchased, bywhom, from whom at what price and how long it took to complete each step of the cycle.

Next-Generation Integrated Procurement Applications

Broadly speaking, e-procurement application can be further divided into the categories.

• Buy side desktop requisitioning.

• Buy side centralized procurement

• Sell side applications

Buy Side desktop requisitioning software: This enables employee to buy online .By hookingup the corporate intranet to suppliers’ web based commerce sites. Buy side softwareroutes employee purchase requests internally before turning them into order.

Buy side centralized procurement solution: These are solutions that help distributorsor manufacturers sell products over the web. These applications often include tools forcreating and maintaining electronic product catalogs, as well as transactional support fororder entry from customer.

Sell-side applications: This is solutions that help distributions or manufacturers sell productsover the web. These applications often include tools for creating and maintaining electronicproduct catalogs as well as transactional supports for order entry from customer.

Elements of Buy-Side e-Procurement Solutions

A buy side application is an intranet application that streamlines and integrates the entireprocurement process.

A good buy side application

• Automates the selection and purchase of goods right from the desktop.


• Cuts the administrative overhead in valued in purchase goods throughout the organization.

• Integrates the sourcing, ordering and payment process into one standard end to end solution.

• Electronically sends and receives the full range of requisition documents.

• Reports quickly and accurately about organizations wide purchasing patterns.

• Controls the number of preferred suppliers, eliminating unauthorized purchasing by employees.

The Buy-Side requisitioning Process

Using an easy point and click interface, employees can create, submit, and track many types ofrequisitions, including catalog, off-catalog, and blanket, and preauthorized purchases, right fromtheir desktops. Pre-approved shopping lists speed ordering supplies for new employees or forrepeat purchases.

Let’s look at the requisitioning process, depicted in Figure 9.4, in greater detail


Secure personal log in: Each requisitioner is given a secure personal log in code that contains a userprofile (job title, default department, accounting codes, and default ship to and bill to information).

Browse authorized supplier catalogs: Requisitioners can use powerful search and browsecapabilities to peruse multiple supplier catalogs. Catalogs can be viewed by specific supplier or byfunctional category of products across all suppliers.

Requisition/order Creation: Requisitions are created in real time and can include products fromone or more suppliers.

Requisition/Order Submission: Payment options supported include a blanket purchase order, a newpurchase order number, or procurement/credit card, limited by what each supplier accepts.

Purchase Controls: Embedded purchase controls ensure that requisitions can not purchase restricteditems or place orders beyond limits such as a specified dollar amount per order or dollar amount perperiod.

Workflow and approval routing: Once a requisition is submitted, its routed for approval based on anorganization’s business rules. Approvers are notified of pending approval requests via e-mail andcan choose to approve, reject, or forward the request to another approver.

Order Dispatch and fulfillment: Cross-supplier requisitions are broken down into one purchaseorder per supplier and sent to each supplier via a range of order formats to match thesuppliers preferred method of receipt.

Order status tracking: Requisitioners are notified via e-mail of order status, including approvalstatus, order acknowledgement from the supplier, and shipment status. Requisitioners canalso access online order status information to review detailed order and line-item status histories.

Buy-Side Requisitioning Integration Issues

The buy side e-procurement solutions are only viable if they enable a broad range ofusers, existing management systems, and suppliers to work together easily and seamlessly, not onlywithin the company, but also across the supply chain.

Solutions need to connect people and systems to meet the dynamic requirements of the entireprocurement process.

The types of integration in buy side applications include the following:

Employee connectivity: E-procurement solutions, with their intuitive, graphical web browserinterfaces, enable employees to increase their productivity immediately by connecting with suppliersright from their desktops. The interface must be powerful enough to meet the needs of a boardrange of users.

Back-end systems connectivity: Leverage the enterprise resource planning investments alreadymade in your organization’s information technology infrastructure by integrating existingfinancial applications. The goal is to use data from the ERP applications to create a seamlessflow of information from process to another. A good buy-side solution must be linked to the ERPbackbone.


Supplier connectivity: Buy-side applications must streamline and automate all interactions betweenthe enterprise and suppliers, from creating and updating catalog pages to issuing purchase ordersdirectly to the suppliers systems, while giving the professional buyer complete control over theentire process.

Buy-Side Applications for the Procurement Professional

Typically, purchasing has little control beyond direct production materials and shop-floor MROspending. Limited control minimizes the purchasing professional effectiveness. Figure 9.5 provides adetailed view of procurement professional.

Spending analysis and planning can give procurement professional the information they needto purchase wisely and measure the savings. Spending analysis, suppliers managementdecisions, configuration of spending controls, and continuous feedback.

Data collection: Professional buyers need to collect and generate comprehensive data onall purchasing activities, including spending to date against budget; spending approval; activityby geography; supplier on-time delivery compliance, items received, and weekly, monthly,quarterly, and annual historical spending data.

Multi-dimensional analysis: Analysis is critical to strategic sourcing. It is a very definedprocess that helps buyer better understand their spending, requirements, and market.Procurement professional use predefined, procurement-centric online processing (OLAP) reportsto view the vast amount of data collected for forecasting and trend and what – if analysis.Figure 9.6 shows the objectives of multidimensional analysis.

Supplier Management Decision: Management can use various decision criteria to analyze datain useful ways and make informed procurement decisions based on best practices. Thesedecisions include what products to include in a given catalog, restricting the procurement ofcertain goods to meet fiscal and business imperatives, or renegotiating volume contracts formore favorable discounts.

Configuration of Spending Controls: All of the data, analysis, and decisions available would notbe useful if procurement professional could not actually reconfigure spending controls in realtime. Because the horizon for completing purchasing transaction is relatively short, the ability toenact controls quickly is paramount.


Continuous Feedback: To close the spending analysis loop, procurement professionals need toquickly see the results of their controls through subsequent data collection and analysis. Thisfeedback allows them to further refine controls, if necessary.

The buy-side e- procurement solution are only viable if they enable a broad range of users, existingmanagement systems, and suppliers to work together easily.

Elements of Sell-Side e-Procurement SolutionsWhat is sell-side functionality? In the second generation of e-commerce, companies are movingbeyond the business-to-supplier model and are moving toward trading communities.

Here’s how the community model works. The content from many supplier product catalogs isaggregated into one entity, which resides in a secure, online trading “community”. Note that theseare vertical, specialized trading communities for specific markets, not broad horizontal shoppingmalls.

Three factors must be addressed to ensure success with this model:

1. Supplier integration Supplier’s networks must be seamlessly integrated into the extranet.

2. Supplier content: Product information from suppliers catalogs must be maintainedreligiously.

3. Customer internal rollout. The user interface for this community must be browser based, andthe infrastructure must be infinitely scalable to accommodate changing product and uservolume.

So what’s in it for the supplier? Suppliers can use the Web to reduce the acquisitions cost they mustcharge buyers, and they can start to compete with much larger suppliers. Let’s look at the exampleMaintenance Warehouse.


Maintenance Warehouse

A subsidiary of Home Depot, Maintenance Warehouse is a leading supplier of building repairand replacement products to owners and managers of multi-housing, lodging, and commercialproperties, such as apartment complexes, hotels, and office-buildings. Maintenance Warehousecurrently offers more than 10,000 products, including hardware, electrical, lighting, plumbing,appliance, and HVAC products. Published and mailed twice a year, the company’s catalog is uniquein the industry for the way it provides easy-to-identify, 3-D technical illustrations, plus published,three-tier pricing that’s guaranteed for the catalog’s six-month lifetime.

Maintenance Warehouse customers want to be able to search for and order products easily,compare prices, and review order status via the internet 24 hours a day. Customer currently searches1,500 pages, 10,000 products catalog and place orders by phone or fax.

With its Internet based sales solution, Maintenance Warehouse will be able to update its catalogas new products or pricing become available. And as electronic catalog can proactively informcustomers when they approach volume discounts, track previous orders, and offer cost savingsuggestions based on established buying patterns. Customers can also minimize unauthorizedpurchases and can work with Maintenance Warehouse to determine purchase limits for designatedemployees.

Vertical Procurement Portals

A vertical portal is a sell-side destination site. Vertical procurement portals are also calledinfomediaries-online exchanges that link buyers and sellers by efficiently distributing marketinformation. Infomediaries are a cross between electronic catalogs, efficient marketplaces thatgreatly reduce transaction costs, and content libraries, which help companies, make purchasingdecisions.

These vertically oriented sites license or produce content that is tied closely to the productseach vertical or industry niche needs. For example, chemdex.com is one of the largest onlinesources of biological and chemical reagents, featuring over 150,000 products from varioussuppliers. Chemdex.com enables lab personnel to search, locate, and instantly order everythingthey need 24 hours a day, seven days a week.

A key difference between portals like Yahoo! And a sell-side vertical portal is that a portal issomething you go through to get somewhere else, whereas a sell-side destination likeChemdex.com or SciQuest.com is where you go to satisfy industry-specific needs. Since differentindustries have different needs, focus seems to be key.

Vertical portals have the ability to lower transaction costs, especially in fragmentedmarkets where prices are difficult to compare. For instance, information on laboratory chemicals isso hard to find that a chemist can spend five hours a week thumbing through thick paper catalogs.The price of a single chemical can vary by more than 200 percent. Now pharmaceutical industryand university scientists can search electronically through multiple suppliers’ products onChemdex.com or SciQuest.com and cut their research time to an hour a week. The cost ofprocessing a transaction has dropped too, since scientists can place orders directly from theirdesktops.


Vertical procurement portals are an important trend that deserves attention. The appeal of avertical portal is that it is Web based and easy to use. The vertical portals figure that if their content,services, and products are vertically organized, it’s easier to sell their own products, keep customerson the site, and most important offer advertisers a more focused demographic.

Refference Book1. Ravi Kalakota and Marcia Robinson, “e-Business: A Roadmap for Success”, Addison-Wesley, 2000.

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