Magazine Article | November 1, 2002

CRM And The Supply Chain

Source: Field Technologies Magazine

Success for manufacturers hinges on the integration between CRM (customer relationship management) and SCM (supply chain management) systems.

Integrated Solutions, November 2002

Despite the sluggishness of IT spending, projections for the growth of the CRM (customer relationship management) software category meet with little dispute. As CRM is focused on the interaction between prospect and sales representative, it's no surprise that "high-touch" services companies with close and frequent interactions with customers - such as financial institutions - embraced CRM first. Now, industries that shunned CRM - perhaps due to a few early, spectacular, and highly publicized failures - are giving CRM a second look.

Indeed, CRM is entering mainstream business. New markets are beginning to consider the technology that's allowed banks and utility companies to not just personalize but streamline customer interactions, through new options such as online account access and self-service. In fact, J.D. Edwards' studies of our own installed base revealed that although 5% or fewer of our customers had implemented CRM solutions, nearly 30% are considering such solutions in the next two years.

CRM Is Not A Stand-Alone App
For sectors such as manufacturing, however, CRM applications alone can't be expected to transform relationships in sophisticated value chains that may include dozens of intermediate customers leading up to the final, finished product. In manufacturing, every step in every business process may affect a customer. And, access to data in back office systems, such as SCM (supply chain management) and ERP (enterprise resource planning), has repercussions for front office CRM applications.

Inventory management is a good example. Customers who place orders want to immediately know if fulfillment will take place on the requested date. Inventory and available production capacity have to be evaluated to determine whether product is available or can be produced. At the same time, manufacturers need to consider whether the customer's request reduces the profitability of fulfillment. This may lead to alternatives, such as splitting an order across multiple facilities, and the associated costs and benefits.

The balance of customer and manufacturer interests in this example should result in an order promise. No doubt, the customer would find a specific commitment to a ship date extremely valuable. Yet, tied as it is to supply chain and resource planning data, order promising cannot be performed by a CRM application alone. It depends on integration and real-time interaction with ERP and SCM systems to balance responsiveness to customers with minimizing cost to business.

Mitch Myers, vice president of operations for FWMurphy, a $50 million provider of products and services for equipment management and controls, says that, today, every sale would be unprofitable if the company were required to research precise ship dates before its customers placed orders. In fact, FWMurphy considers CRM an extension of its supply chain systems, not a stand-alone system. And CRM is focused on giving sales professionals access to the same back office customer information that internal operations managers have had. This year, FWMurphy will implement the order promising module of J.D. Edwards' supply chain management suite to improve responsiveness and make order commitments with confidence, despite the complexities of lean and continuous flow manufacturing.

Neither Back Office Nor Front Office, But One Office
For companies just beginning to study CRM, it's important to keep in mind that customer loyalty and production management are mutually dependent. The systems that help companies forecast and adjust procurement and production and fulfill and ship orders must share data with CRM applications. This has to happen if customer interaction is truly going to be applied to improve the quality of products and services delivered. A report from Wachovia Securities in November 2001 indicates the potential benefit of this integration: A mere 5% increase in customer retention can increase bottom line profitability by 25% to 75%.

Perhaps it's not only a question of numbers, but one of common sense. Having information about your customers' preferences can only go so far. At the end of the day, they want the goods - at the right time, at the right place, at the right price. Only with tightly linked back and front offices can you best meet these needs.