No customer wants to be offered something that cannot be delivered for the advertised price or lead time. That makes supply chain management (SCM) an attractive proposition for an enterprise looking to improve its production and back-end efficiencies. Simply put, money saved by improving customer services and by better coordinating the flow of piece parts and finished product is money earned.
Although adding supply chain efficiency to the CRM mix only complicates the challenge of meeting a customer's needs in a profitable, relationship-building manner, the economic slowdown is applying increasing pressure on organizations to put their theoretical gains in context. Merging SCM and CRM is one way to do so.
Financial software giant Intuit Inc. is one company that thinks beyond just keeping store shelves stocked. The company is forging tight links with its supply chain partners in an effort to revamp its entire approach to producing and selling its flagship Quicken and QuickBooks products. "We are able to approach [retail customers] with more certainty about the supply chain, and it allows sales to have more discussions about pricing and benefits, rather than worrying about supply," says Ken Mudge, Intuit's vice president of procurement and operations.
As profitable a strategy as that may be, the benefits to linking supply and demand activities are not solely to help account managers make quota. "There's a lot of inherent value in making the information that's contained in CRM software available to the different levels of the supply chain," says Jeremy Burton, senior vice president of product marketing for Oracle Corp. "If you're a marketing executive and about to roll out a multimillion-dollar marketing program, it's probably going to create additional demand. If there is a big spike in demand and the supply chain doesn't know about it, a lot of that demand can't be fulfilled for a long period of time."
Even so, the merging of SCM and CRM initiatives in not yet widely embraced. One of the problems is that business has been able to function for some time without an intimate understanding between the supply chain and the organizations responsible for making CRM work. "We've known where demand was coming from; it has just been an incredibly manual process to link up supply and demand," Burton says. "It's not unusual for large companies to have operations departments that spend all day on the phone and fax trying to find out what demand is looking like, and communicating out to suppliers what they need to supply to meet that demand."
Despite the common-sense benefits of having supply and demand personnel working toward the same goals, the traditional division in software and strategy is rooted in pragmatism, not arbitrary cruelty. "With clients being very focused on growing revenues, [SCM and CRM] were incredibly disconnected," says Darius Vaskelis, vice president of research and solutions for Chicago-based consulting firm Inforte Corp. "We would talk about a CRM solution with someone and then start talking about SCM, and there was very little interest. If we went to the vice president of manufacturing about CRM, there was very little interest. It would require multiple parts of an organization to work together better, and they didn't have very much incentive to do so," Vaskelis says.
The problem today is this: Supply-side forecasters who champion SCM look to optimize on plant and labor efficiency, while the sales and marketing operations at the center of a CRM plan want to aggressively grow business. "People who were initially interested in supply chain applications- -production planners- -were those who were concerned with trying to utilize their assets [factories, raw materials, labor] as efficiently as possible," says Kevin O'Marah, research principal for AMR Research Inc. Their mission was to deliver maximum quality with minimum cost to meet a stated production goal.
"Meanwhile, in the sales side of the house, the orientation is: The customer is king, and we'll do whatever the customer wants," O'Marah says. Salespeople want to call the factory and say, "My customer needs 10 units by tomorrow morning," and know that those units will be available to meet that need. In principle, that is the exact opposite of what the factory wants. "[Sales is] the ultimate pull organization," he says, "and the factory wants to be a push organization." But now that growth is a more challenging imperative, solving the problems of supply and demand in isolation is becoming obsolete.
Instilling the sort of rigid discipline that characterizes the manufacturing and shipping side of the business is one approach that could go a long way toward building better links between SCM and CRM. "We're so careful on the production side about specifying the capacity of a machine center or the throughput of a work team," O'Marah says. "Yet on the sales side, where in principle there's just as much flexibility, we leave it to a quarterly or even annually updated set of discounting guidelines handed out to the field- -usually without a whole lot of analysis."
It is Intuit's careful coordination and planning on both the manufacturing and sales sides that keeps hordes of people from having to balance their monthly ledgers and fill out their tax returns with outmoded paper and pencil instead of screen and mouse.
Last fall Mountain View, Calif.-based Intuit signed on as an IM-Logistics customer, ostensibly to leverage the reach of Ingram Micro Inc., a Santa Ana, Calif.-based technology distributor, and to streamline the fulfillment process for its retail customers. Rather than simply align retail performance with in-stock inventory, the Intuit/Ingram relationship goes a step further by integrating Modus Media International Inc., the manufacturer that reproduces the CDs, boxes, and manuals that make Quicken a physical reality.
Instead of commissioning Modus on guesswork and hoping to spur enough consumer interest to generate sales to move the finished goods out of Ingram's warehouse space, the three organizations are working more like one with the common goal of selling Intuit's products in the most efficient manner. "We facilitate meetings with them, all at the same table, about what is the build time and the production schedule, and when product should be released from partner A to partner B," says Mudge of Intuit.
In addition to being able to more accurately and quickly fill spot orders and the growing requests for direct-to-store (rather than distribution center) delivery, Mudge hopes to build smarter promotions. "We expect to be able to coordinate our internal marketing plans more effectively by teaming up internal business units with the providers," Mudge says. "And by watching fulfillment space, so we can always keep track of capacity and overcome fulfillment issues that could keep us from being as effective as we want to be."
The jury is still out on the success of the three-way partnership until at least after the 2002 tax season buying rush can be analyzed. But integrating sales data from Intuit and IM-Logistics with the manufacturing process at Modus to create a more build-to-order enterprise is a fiscal year 2002 initiative, Mudge says.
The ultimate success of the end-to-end integration of supply and demand will require the cooperation of retail partners, Mudge says. "The big success factor is to make sure that customers are willing to share demand data with us, so we understand what their plans are for demand and make sure we share that with Ingram and Modus Media, ensuring adequate capacity," he says. Anticipating some potential resistance, he says the first goal is to build a successful and profitable data-sharing relationship with one major customer, then take that proof of concept to the broader market. "It sounds simple to just share customer orders with the supply chain, but in practice it is a lot more difficult. There are going to be big challenges to overcome working with partners and customers."
Technical hurdles are one of those challenges. These problems are significant even at the level of sophisticated selling and relatively simple fulfillment methods of the most prominent Web retailers- -and they deal in finished goods from a known inventory.
It quickly becomes obvious that the multiple participants in an SCM system also must be able and willing to read and act upon information and requests generated from the customer base. For complex or custom-built products that may require parts and retooling from multiple sources, an accurate delivery projection requires the cooperation of each participant, not only to provide an honest assessment of parts delivery, but also to account for any integration or customization time.
In turn, each supplier can gain insight into how to better deliver to its partners by monitoring how the demand is fulfilled after its individual role is finished. "If [suppliers] can more accurately predict demand, they can tell the customer when they will be able to deliver, and will be able to say they will be able to deliver in a much shorter time," Oracle's Burton notes.
Some key supply chain participants have taken it upon themselves to expand beyond traditional roles and become active partners in CRM strategies. As in the case of its customer Intuit, IM-Logistics does more than simply pick-and-pack orders for clients. Using liberal doses of external systems integration and an in-house data-mining tool dubbed Magellan, IM-Logistics aims to tell its manufacturer-customers as much as possible about the state of their business. "The first thing they're looking at is what's really selling through and not selling through, and consequently they can affect what gets manufactured quicker," says Michael Terrell, IM-Logistics' general manager.
IM-Logistics also splits time as customer service representatives and marketing managers. The company provides phone support for order inquiry and returns from retail locations, and works with retail merchandisers to analyze product performance and plan availability for potential campaigns. All of that is possible because the firm can quickly read and, when necessary, influence the manufacturing decisions at the top of the supply chain it has been engaged to support by sharing insights from the point of sale.
The Weakest Link
Information and data exchange are only parts of the solution for companies serious about blending supply chain optimization with their customer-facing efforts. To make the bridge between CRM and supply chain work, business processes must change, as well. On the manufacturing side, growing acceptance of practices such as build-to-order and postponement, in which subassemblies are started but not completed until the customer's final specifications are received, are promising signs that the partnership can work, says O'Marah of AMR Research. For such potentially expensive delays to be rational for a manufacturing organization, it must trust that any and all information from customer touches will be delivered in a timely, accurate manner- -otherwise, it just becomes a fancy inventory experiment.
Take for example, the sometimes problem of unfulfilled volume contracts. "Customers, even an internal sales force, will promise a certain level of volume to get a certain price, but there is often very little done to monitor what is actually shipped off that contract," says Tom Jacobson, senior vice president of the price and revenue optimization business unit of Manugistics Inc., which develops SCM technologies. The result makes a mockery of the "volume" in "volume discount," and can jeopardize the success of a combined SCM/CRM initiative, he says.
The supply chain may be better prepared than customer-facing agents to do what is required in the new order. "The customer is not the only king, and the customer has to open his mind to being flexible to a supplier's capabilities," he says. That is why making configuration tools available to both salespeople and customers presents an opportunity for the account representative to frankly explain the trade-offs in availability, margin, and potential discounts to a buyer. Guided selling is as much about building complex goods quickly as it is about quickly optimizing a configuration around price and performance.
If the challenges of SCM/CRM have a single face, it may be the management of extended or extra-enterprise orders that cross multiple suppliers or even multiple supply chains through partners and must come together for a single, coordinated delivery or installation. The vendor at the hub of such a deal could be an Internet retailer that relies on a drop-ship network to satisfy customers or an integrator of a multimillion-dollar industrial press.
"From the customers' point of view, they are just placing one order, and don't want to hear stories about supplier X not getting the components of the order," says Chris Newton, an AMR Research senior analyst. "It is up to the selling organization to manage that complex process. The key is extra-enterprise order systems that streamline, optimize, and automate the process as much as possible."
The seemingly mundane questions of availability, shipment, and payment take on added dimensions of complexity when the network of loosely aligned suppliers must come together to satisfy the single customer. "Especially today, when nobody wants to hold inventory, the problem then becomes, when you accept the order, how do you know if you can fulfill the order?" Newton says. Before anybody signs off on an order sheet and makes a customer commitment that might later be regretted, "you need to know the inventory levels at the various stocking locations, and you need to have insight into what's already been allocated [to other customers]."
Basic extended order management approaches try to migrate established phone and fax communication to a browser interface that offers up-to-date order status and changes information to supply chain partners on demand. "It is an option when dealing with a large number of small suppliers who don't have sophisticated back-end systems or the internal staff to maintain integration," Newton says. As the size and frequency of transactions grow, however, a direct link between partner order and inventory systems is more appropriate.
And much as SCM adopters found when they invited their partner networks to join and benefit from a new way of doing business, there can be serious institutional hurdles. "There is usually a big limitation- -many companies haven't mapped out their own internal [order] processes, let alone how to coordinate with other supply locations on a large order," he says. While Newton does not feel any single vendor has completely solved the extended order management problem, he cites promise from supply chain and order-execution-minded providers such as i2 Technologies Inc., Optum Inc., and Yantra Corp.
Supply and Demand Unchained
One of the major benefits of a fully aligned supply chain and CRM effort is the ability to run a business from a single forecast. Companies using collaborative forecasting processes will "improve revenue predictability by 10 to 25 percent and decrease inventory-carrying costs by more than 30 percent within three years," according to research firm Gartner Inc. Attaining such insight requires harmonizing key internal measurements, including the time necessary to turn an order into a delivered good, the total sales and marketing effort that goes into each sale, and the time and resource requirements to obtain raw and finished goods to fulfill the order.
Private trading exchanges that support secure, many-to-many relationships being pioneered at firms such as Cisco Systems Inc. are one of the major technologies that will make demand-aware SCM a reality, says Robert DeSisto, Gartner's vice president of CRM research. The shared end-customer base makes it easier to align on-the-spot overstock discounts and manufacturing rescheduling as secure, authenticated deals are brokered between resellers and distributors without the direct intervention of the manufacturer hosting the system.
If there is a catch to the potential success of a SCM/CRM initiative, it may come from the channel partners. Amid promises of noble intentions and benefits for all, distributors and retailers have often expressed reluctance to directly share the detailed information necessary to make on-the-fly decisions about selling price, quantity, and future production. In a heavily publicized move, Wal-Mart stores Inc. said last year that it would stop sharing aggregated sales data with research organizations such as Innovative Routines International Inc. and ACNielsen.
Despite the challenges, companies may have little choice but to plow ahead and try to improve the interplay between those that procure and produce goods, and those that induce others to buy them, lest their accomplishments become little more than footnotes in a difficult business environment. Saving a few pennies per transaction on transportation or having a top-notch database of projected customer demand are both noble goals- -but understanding how each can benefit the other is the stuff of heroes.
Jason Compton is an Evanston, Ill.-based writer who specializes in business and technology.
Sidebar: BRIDGE BUILDING
The thought of linking supply chain and CRM initiatives leaves most executives feeling overwhelmed. Kevin O'Marah, research principal for AMR Research Inc., simplifies the process with these four steps:
1. Examine customer requirements. "Whether it's something highly unique like a power plant or utterly mass-market like diapers, product-requirement input is absolutely essential to supply chain management," O'Marah says. The understanding of how many units customers may be drawn to buy in a given color or texture cannot remain the province of marketing or merchandising planners. If the supply chain understands the components customers want to see in their finished goods, manufacturers and procurement agents can better prepare to meet demand before the flood of orders for orange zippers or digital pressure readouts arrive.
2. Conduct thorough forecasting. It can be difficult to get plant managers and sales executives to perfectly align their goals, simply because they tend to be evaluated on different criteria. Establishing a feedback loop between demand and supply forecasting, so that each is aware of the other's intentions and capacity, can help ensure that manufacturing understands the sales force's objectives well enough to meet the likely demand, and helps sales deliver more accurate projections of available-to-promise.
3. Manage aftermarket and field service. "This is a huge and still fairly undermanaged piece of the supply chain," O'Marah notes. There is a serious lack of integration between CRM and SCM in the field, yet it is one of the easier and more rewarding problems to solve, he says. "It's very, very inventory-heavy, and it's not likely planning for production or [an initial] sale. It's ?When is the belt going to break?' and ?When is a gasket going to blow?' and there is a degree of predictability to that." With automated, remote diagnostic tools becoming an increasingly important part of complex service agreements, there is little reason for the enterprise to hoard customer equipment status and time-to-fail in an isolated field dispatch application.
4. Structure an order management process. Perhaps easier said than done, but the ultimate goal of any supply chain/CRM marriage should be to give the enterprise a cohesive and consistent way to service and react to the order process. "CRM systems take the order, and that order is a call on the factory and on the manufacturing system," O'Marah says. "The order is the intersection of supply and demand. If you don't look at this, you're just filling shelves." --J.C.
Sidebar: SUPPLY PARTNERSHIPS
A growing number of companies are recognizing the importance of forging links with supply chain partners. In fact, according to AMR Research Inc.'s quarterly survey on e-business spending, companies are increasing their 2002 budgets to do so. The survey reveals that 31 percent of respondent companies plan to increase their budgets for supplier management initiatives, and 41 percent plan to increase their spending on sales and customer management initiatives.
Companies are not only increasing their budgets, but they are increasing their use of online collaboration, as well. A recent study conducted by the National Association of Purchasing Management and Forrester Research Inc. reveals that the number of organizations using the Internet to collaborate with suppliers grew to almost 50 percent at the close of 2001, an increase of about 7 percent over the previous quarter. Large-volume buyers and manufacturers cited the largest increases: large-volume buyers' Internet collaboration with suppliers grew from 46 percent to 64 percent and manufactures' online collaboration increased to 52 percent from 40 percent.--J.C.