At a time when discount stores such as Kohl's, Target, and Wal-Mart are recording strong sales, Kmart Corp.--the granddaddy of them all--last week declared bankruptcy. Several factors contributed to the downfall, but one of the biggest is that Kmart didn't compete on price, a failure some attribute to its inability to master supply-chain technology and, consequently, benefit from supply-chain efficiencies. Show
As Wal-Mart moved away from a promotions-driven business model, which relies on special sales to bring customers into stores, to one that focuses on everyday low prices, Kmart stuck with the former approach, which results in sharp spikes and drops in demand for products, analysts say. Sale merchandise often was out of stock when customers got to the store. One reason for that is that it's hard to get supply-chain management software to work in that model without a lot of customization, and Kmart never built a supply-chain planning and execution system to effectively manage demand, says Eric Beder, an equity analyst at Ladenburg Thalmann who tracks Kmart. Over the years, some at Kmart saw the need for better software to manage demand, but Beder says top executives never executed on that vision. Meanwhile, Wal-Mart built an E-business system to regularly communicate sales and inventory data from every store to thousands of suppliers and buyers, and deploy a private trading hub to consolidate its purchasing globally and bring suppliers online to bid on contracts--all part of a plan to lower costs and pass on savings. Promotions don't cause delivery problems for Wal-Mart because of its tight links with suppliers. The contrast between the retailers' supply-chain systems has been evident in stores, says Gartner analyst Gale Daikoku, who worked in the retail industry. Wal-Mart has almost no supply storage areas because its vendor-managed inventory system makes suppliers responsible for delivering product when Wal-Mart needs it, she says. At Kmart stores, Daikoku says, it wasn't unusual for a supplier's sales representative, wanting to discover why something wasn't selling at a certain branch, to find shelves empty but products piled up in stockrooms. Kmart has tried to change in the last 18 months. New packaged logistics and proprietary merchandising software helped the retailer improve its dismal record of getting holiday promotional shipments in on the date they're promised to customers. CEO Charles Conaway, who joined in June 2000, contracted with i2 Technologies Inc. that October for logistics-monitoring and transportation-management software, and a custom version of TradeMatrix supply-chain management software. But the retailer never implemented TradeMatrix, says Steve Robinson, executive VP with i2 and liaison to Kmart. Shortly after signing the contract, Conaway concluded that Kmart needed to reengineer its business first to improve its dealings with suppliers. Last fall, Conaway unveiled an IT project, based on Manhattan Associates' software and estimated at $600 million, to manage the flow of clothing, toys, auto parts, and other consumer goods into stores--nearly 500,000 items. In the process, he wrote off two distribution centers and IT assets, reportedly including some i2 supply-chain software and warehouse-management software from EXE Technologies Inc., worth $130 million. A Kmart spokesperson says the EXE software was so heavily modified that it cost too much to maintain. Observers say management's historic inability to fully execute on innovative IT efforts may play a role in Kmart's rapid CIO turnover. Four CIOs have left or moved to other positions in the last five years; Kmart doesn't have a CIO now. "They blame failed IT projects on the CIO turnover or IT vendors, but executive management has never delivered," Daikoku says. Despite Kmart's plan to restructure itself--making it easier to fix its supply chain by selling off as many as 250 unprofitable stores--it may be too late to take even small steps forward in the competitive space, Beder says. The bankruptcy judge won't let Kmart buy more software to deal with its problems while creditors are clamoring to be paid, and Target and Wal-Mart aren't going to sit idly by. Says Beder, "They're saying, 'This is more opportunity for us; let's go for it." Photo by Matthew McDermott/Corbis Sygma Many firms have implemented enterprise systems and systems for supply chain and customer relationship management because they are such powerful instruments for achieving operational excellence and enhancing decision making. But precisely because they are so powerful in changing the way the organization works, they are challenging to implement. Let’s briefly examine some of these challenges as well as new ways
of obtaining value from these systems. Promises of dramatic reductions in inventory costs, order-to-delivery time, more efficient customer response, and higher product and customer profitability make enterprise systems and systems for SCM and CRM very alluring. But to obtain this value, you must clearly understand how your business has to change to use these systems effectively. Enterprise applications involve complex
pieces of software that are very expensive to purchase and implement. It might take a large Fortune 500 company several years to complete a large-scale implementation of an enterprise system or a system for SCM or CRM. According to a 2018 survey of 237 ERP users conducted by Panorama Consulting Solutions, ERP projects took an average of 17.4 months to complete, and 44 percent of the projects delivered 50 percent or less of the expected benefits. Approximately 64 percent of these projects
experienced cost overruns, and 79 percent exceeded their initial timelines (Panorama Consulting Solutions, 2018). Changes in project scope and additional customization work add to implementation delays and costs. Enterprise applications require not only deep-seated technological changes but also fundamental changes in the way the business operates. Companies must make sweeping changes to their business processes to work with the software. Employees must accept new job functions and responsibilities. They must learn how to perform a new set of work activities and understand how the information they enter into the system can affect other parts of the company. This requires new organizational learning and should also be factored into ERP implementation costs. SCM systems require multiple organizations to share information and business processes. Each participant in the system may have to change some of its processes and the way it uses information to create a system that best serves the supply chain as a whole. Some firms experienced enormous operating problems and losses when they first implemented enterprise applications because they didn’t understand how much organizational change was required. For example, Kmart had trouble getting products to store shelves when it first implemented i2 Technologies (now JDA Software) SCM software. The i2 software did not work well with Kmart’s promotion-driven business model, which created sharp spikes in demand for products. Supermarket giant Woolworth’s Australia encountered data-related problems when it transitioned from an antiquated home-grown ERP system to SAP. Weekly profit-and-loss reports tailored for individual stores couldn’t be generated for nearly 18 months. The company had to change its data collection procedures, but failed to understand its own processes or properly document these business processes. Enterprise applications also introduce switching costs. When you adopt an enterprise application from a single vendor, such as SAP, Oracle, or others, it is very costly to switch vendors, and your firm becomes dependent on the vendor to upgrade its product and maintain your installation. Enterprise applications are based on organization-wide definitions of data. You’ll need to understand exactly how your business uses its data and how the data would be organized in a CRM, SCM, or ERP system. CRM systems typically require some data cleansing work. Enterprise software vendors are addressing these problems by offering pared- down versions of their software and fast-start programs for small and mediumsized businesses and best-practice guidelines for larger companies. Companies are also achieving more flexibility by using cloud applications for functions not addressed by the basic enterprise software so that they are not constrained by a single do-it-all type of system. Companies adopting enterprise applications can also save time and money by keeping customizations to a minimum. For example, Kennametal, a $2 billion metal-cutting tools company in Pennsylvania, had spent $10 million over 13 years maintaining an ERP system with more than 6,400 customiza- tions. The company replaced it with a plain-vanilla, uncustomized version of SAP enterprise software and changed its business processes to conform to the software. Office Depot avoided customization when it moved from in-house systems to the Oracle ERP Cloud. The retailer is using best practices embedded in Oracle’s Supply Chain Management Cloud and in its cloud-based Human Capital Management (HCM) and Enterprise Performance Management (EPM) systems. By not customizing its Oracle ERP applications, Office Depot simplified its information systems and reduced the cost of maintaining and managing them (Thibodeau, 2018). 2. Next-Generation Enterprise ApplicationsToday, enterprise application vendors are delivering more value by becoming more flexible, user-friendly, web-enabled, mobile, and capable of integration with other systems. Stand-alone enterprise systems, customer relationship management systems, and SCM systems are becoming a thing of the past. The major enterprise software vendors have created what they call enterprise solutions, enterprise suites, or e-business suites to make their CRM, SCM, and ERP systems work closely with each other and link to systems of customers and suppliers. Next-generation enterprise applications also include cloud solutions as well as more functionality available on mobile platforms. Large enterprise software vendors such as SAP, Oracle, Microsoft, and Epicor now feature cloud versions of their flagship ERP systems and also cloud-based products for small and medium-sized businesses (as described earlier in the Interactive Session on Management). SAP, for example, offers SAP S/4HANA Cloud for large companies, and SAP Business ByDesign and SAP Business One enterprise software for medium-sized and small businesses. Microsoft offers the Dynamics 365 cloud version of its ERP and CRM software. Cloud-based enterprise systems are also offered by smaller vendors such as NetSuite. The undisputed global market leader in cloud-based CRM systems is Salesforce.com, which we described in Chapter 5. Salesforce.com delivers its service through Internet-connected computers or mobile devices, and it is widely used by small, medium-sized, and large enterprises. As cloud-based products mature, more companies, including very large Fortune 500 firms, are choosing to run all or part of their enterprise applications in the cloud. 2.1. Social CRMCRM software vendors are enhancing their products to take advantage of social networking technologies. These social enhancements help firms identify new ideas more rapidly, improve team productivity, and deepen interactions with customers (see Chapter 10). Using social CRM tools, businesses can better engage with their customers by, for example, analyzing their sentiments about their products and services. Social CRM tools enable a business to connect customer conversations and relationships from social networking sites to CRM processes. The leading CRM vendors now offer such tools to link data from social networks to their CRM software. SAP, Salesforce.com, and Oracle CRM products now feature technology to monitor, track, and analyze social media activity on Facebook, LinkedIn, Twitter, YouTube, and other sites. Business intelligence and analytics software vendors such as SAS also have capabilities for social media analytics (with several measures of customer engagement across a variety of social networks) along with campaign management tools for testing and optimizing both social and traditional web-based campaigns. Salesforce.com connected its system for tracking leads in the sales process with social-listening and social-media marketing tools, enabling users to tailor their social-marketing dollars to core customers and observe the resulting comments. If an ad agency wants to run a targeted Facebook or Twitter ad, these capabilities make it possible to aim the ad specifically at people in the client’s lead pipeline who are already being tracked in the CRM system. Users will be able to view tweets as they take place in real time and perhaps uncover new leads. They can also manage multiple campaigns and compare them all to figure out which ones generate the highest click-through rates and cost per click. 2.2. Business Intelligence in Enterprise ApplicationsEnterprise application vendors have added business intelligence features to help managers obtain more meaningful information from the massive amounts of data these systems generate, including data from the Internet of Things (IoT). SAP now makes it possible for its enterprise applications to use HANA in-memory computing technology so that they are capable of much more rapid and complex data analysis. Included are tools for flexible reporting; ad hoc analysis; interactive dashboards; what-if scenario analysis; data visualization; and machine learning to analyze very large bodies of data, make connections, make predictions, and provide recommendations for operations optimization. For example, SAP created a machine learning and neural network application (see Chapter 11) that recognizes patterns associated with machine performance in the oil and gas industry. The software automatically generates notifications of potential machine failures and sends them to SAP Plant Maintenance, which planners use to schedule machine repair and replacement (Franken, 2018). The major enterprise application vendors offer portions of their products that work on mobile handhelds. You can find out more about this topic in our Learning Track on Wireless Applications for Customer Relationship Management, Supply Chain Management, and Healthcare. Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16th edition. LoginWhich of the following best describes supply chain management quizlet?Which of the following best describes supply chain planning systems? Supply chain planning systems enable the firm to model its existing supply chain, generate demand forecasts for products, and develop optimal sourcing and manufacturing plans.
Which of the following best describes the term supply chain group of answer choices?Which of the following best describes a supply chain? A supply chain is used for solving complex, poorly understood problems for which large amounts of data have been collected.
Which of the following best explains why many manufacturers have begun outsourcing their production?The most common reason for outsource manufacturing is the reduction of cost. American companies outsource manufacturing to China to have their goods assembled, or completely built overseas, at incredibly low costs.
Which of the following best describes operational CRM?Which of the following best describes operational CRM? A system for automating fundamental business processes like marketing, sales, and support for interacting with the customer.
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Which of the following issues did Kmart experience when it first implemented SCM software?
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