Chapter 9

Short Questions:
1. Definitions: Enterprise Systems, Supply Chain, Just in Time strategy, Bullwhip Effect, Push-based
model,
Pull based model, PRM, ERM, SFA, Cross selling, CLTV, Churn Rate.

Enterprise Systems
Enterprise systems, also known as enterprise resource planning (ERP) systems, are based on a suite of
integrated software modules and a common central database. The database collects data from many
divisions and departments in a firm and from a large number of key business processes in manufacturing
and production, finance and accounting, sales and marketing, and human resources.
This makes the data available for applications that support nearly all an organization’s internal business
activities. When new information is entered by one process, the information is made immediately
available to other business processes.
Supply Chain
A firm’s supply chain is a network of organizations and business processes for procuring raw materials,
transforming these materials into intermediate and finished products, and distributing the finished
products to customers.
It links suppliers, manufacturing plants, distribution centers, retail outlets, and customers to supply
goods and services from source through consumption.

Just-in-Time Strategy
In a just-in-time strategy, components arrive exactly at the moment they are needed, and finished goods
are shipped as they leave the assembly line.

Bullwhip Effect
The bullwhip effect is a phenomenon in which information about the demand for a product becomes
distorted as it passes from one entity to the next across the supply chain.

Push-Based Model
In a push-based model, production master schedules are based on forecasts or best guesses of demand
for products, and products are pushed to customers.

Pull-Based Model
In a pull-based model, also known as a demand-driven or build-to-order model, actual customer orders
or purchases trigger events in the supply chain.
Transactions to produce and deliver only what customers have ordered move up the supply chain from
retailers to distributors to manufacturers and eventually to suppliers. Only products to fulfill these orders
move back down the supply chain to the retailer.
Manufacturers use only actual order demand information to drive their production schedules and the
procurement of components or raw materials.

PRM (Partner Relationship Management)

PRM uses many of the same data, tools, and systems as customer relationship management (CRM) to
enhance collaboration between a company and its selling partners.
If a company does not sell directly to customers but works through distributors or retailers, PRM helps
these channels sell to customers directly. It provides a company and its selling partners with the ability
to trade information and distribute leads and data about customers, integrating lead generation, pricing,
promotions, order configurations, and availability.

ERM (Employee Relationship Management)

ERM software deals with employee issues that are closely related to CRM, such as setting objectives,
employee performance management, performance-based compensation, and employee training.

SFA (Sales Force Automation)

Sales force automation (SFA) modules in CRM systems help sales staff increase productivity by
focusing sales efforts on the most profitable customers—those who are good candidates for sales and
services.
SFA modules provide sales prospect and contact information, product information, product
configuration capabilities, and sales quote generation capabilities.

Cross-Selling
Cross-selling is the marketing of complementary products to customers.
For example, in financial services, a customer with a checking account might be sold a money market
account or a home improvement loan.

Customer Lifetime Value (CLTV)

Customer lifetime value (CLTV) is based on the relationship between the revenue produced by a
specific customer, the expenses incurred in acquiring and servicing that customer, and the expected life
of the relationship between the customer and the company.

Churn Rate
Churn rate measures the number of customers who stop using or purchasing products or services from a
company.

2. Draw a diagram to show how Enterprise Systems (ERP) work. (p 372, Fig. 9.1)

3. Explain the business value of Enterprise Systems (page 373-374)

Enterprise systems provide value by both increasing operational efficiency and providing firmwide
information to help managers make better decisions. Large companies with many operating units in
different locations have used enterprise systems to enforce standard practices and data so that everyone
does business the same way worldwide.

Coca-Cola, for instance, implemented an SAP enterprise system to standardize and coordinate important
business processes in 200 countries. Lack of standard, companywide business processes had prevented
the company from using its worldwide buying power to obtain lower prices for raw materials and from
reacting rapidly to market changes.

Enterprise systems help firms respond rapidly to customer requests for information or products. Because
the system integrates order, manufacturing, and delivery data, manufacturing is better informed about
producing only what customers have ordered, procuring exactly the right number of components or raw
materials to fill actual orders, staging production, and minimizing the time that components or finished
products are in inventory.

4. Draw a diagram of Nike’s supply chain. (Fig. 9.2)

5. What happened to P&G’s inventory of disposable diapers along its supply chain? How did P&G fix
the
issue? (See page 376!)
For example, Procter & Gamble (P&G), a global company with operations in over 80 countries, found it
had excessively high inventories of its Pampers disposable diapers at various points along its supply
chain because of such distorted information.

Although customer purchases in stores were fairly stable, orders from distributors to manufacturers
fluctuated because of promotions. Orders for Pampers and Luvs diapers spiked when promoted, causing
a spike in orders along the supply chain to meet demand that did not actually exist.

To eliminate this problem, P&G revised its marketing, sales, and supply chain processes and used more
accurate demand forecasting.
6. Briefly discuss the global supply chain issues. (p 378-379)
More and more companies are entering international markets, outsourcing manufacturing operations,
and obtaining supplies from other countries, as well as selling abroad. Their supply chains extend across
multiple countries and regions. There are additional complexities and challenges to managing a global
supply chain.

Global supply chains typically span greater geographic distances and time differences than domestic
supply chains and have participants from a number of countries. Performance standards may vary from
region to region or from nation to nation. Supply chain management may need to reflect foreign
government regulations and cultural differences.

Today’s apparel industry, for example, relies heavily on outsourcing to contract manufacturers in China
and other low-wage countries. Apparel companies are starting to use the web to manage their global
supply chain and production issues.

In addition to contract manufacturing, globalization has encouraged outsourcing warehouse

management, transportation management, and related operations to third-party logistics providers, such
as UPS Supply Chain Solutions and DHL, the global delivery service. These logistics services offer
web-based software to give their customers a better view of their global supply chains.

7. List some of the challenges of implementing Enterprise Applications. (Page 388)

Enterprise applications are complex software systems that are very expensive to purchase and
implement. According to a 2020 survey by Panorama Consulting Group, 38% of ERP projects
experienced cost overruns, with an average of 66% over budget. These systems require not only major
technological changes but also deep, fundamental changes in how a business operates. Companies must
redesign their business processes to align with the software, and employees need to learn new work
activities while understanding how the data they enter can affect other parts of the organization. SCM
systems require multiple organizations to share information and coordinate their business processes,
which adds further complexity. Some firms have faced serious operational problems and financial losses
during initial implementation because they underestimated the level of organizational change required.
Enterprise applications also introduce switching costs; once a company adopts a system from vendors
like SAP or Oracle Corporation, it becomes very costly to switch to another vendor, making the firm
dependent on that provider. In addition, these applications are based on organization-wide definitions of
data, so companies must clearly understand how their data is used and structured. CRM systems often
require data cleansing, meaning existing data must be cleaned and organized before it can be used
effectively.

List:
• Enterprise applications are complex software systems that are very expensive to purchase and
implement.
• These systems require not only major technological changes but also deep, fundamental changes
in how a business operates.
• Companies must redesign and adjust their business processes to fit the requirements of the
software.
• SCM systems require multiple organizations to share information and coordinate their business
processes, which adds complexity.
• Some companies have faced serious operational problems and financial losses during initial
implementation because they underestimated the level of organizational change needed.
• Enterprise applications create switching costs. Once a company adopts a system from vendors
like SAP or Oracle Corporation, it becomes expensive and difficult to switch to another vendor,
making the company dependent on that vendor.
• These applications rely on organization-wide data definitions, so companies must clearly
understand how their data is used and structured across the business.
• CRM systems often require data cleansing, meaning existing data must be cleaned and organized
before being used effectively.