• October 1, 2007
  • By Colin Beasty, (former) Associate Editor, CRM Magazine

The Chain Gang

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It may be natural to think that someone with "CRM" in his title spends most of his time thinking about customers. But not Ven Bontha, CRM director for Cemex, the nation's second-largest manufacturer and distributor of cement and concrete. "People ask me what my job entails," Bontha says. "I tell them I spend most of my time managing our supply chain. Our customer experience revolves around our ability to supply them with our product." Many expensive construction projects are dependent on the timely delivery of Cemex's products. So it's understandable that Cemex, like many other companies, would have to determine the availability of those products and their precise arrival times for clients. Cemex married its supply chain management (SCM) and CRM systems in order to better respond to customer inquiries, coordinate distribution processes with partners, and streamline operations at its distribution terminals. But Cemex's use of SCM is just one example of a new approach that many companies are now taking. SCM has always been good at providing information -- such as order management, order status, and total cost -- to end users within the organization, but, with the outsourcing of manufacturing and transportation functions to third-party vendors, enterprises are looking to extend this information to their partner and customer networks. As a result, businesses desire tools that will expand visibility into their extended networks, says Noha Tohamy, a principal analyst with Forrester Research. "This can range from visibility and collaboration with external partners [to] a tool that manages the network by defining the different kinds of relationships the company has with its trading partners. In the end, it's usually good news for the customer because they're getting their products or services quicker and at a cheaper price," she says. The World Is Not Enough As businesses have searched the globe seeking new customers, markets, and manufacturing sites, they've stretched their supply chains in the process. Companies are shipping products to and from suppliers, manufacturers, and customers from all corners of the world. This global confluence is what's driving many of the technologies and strategies surrounding SCM today, says Beth Enslow, enterprise research and supply chain practice leader at Aberdeen Group. "It's not good enough to just take the order," she says. "Now you have to provide a continuous stream of information about its status, feasibility, and total cost to customers and partners throughout the world." This, Enslow says, is critical so companies can ensure their products are reaching their customers on time and on budget. "You don't want your customers receiving unexpected transportation expenses or delays in shipments -- or worse, receiving them without you knowing about it." This avenue of supply chain information throughout a company's partner network has become a two-way road. Many companies are now utilizing Web portals as part of their SCM strategy, allowing partners and/or customers to proactively check inventory levels, order status, shipment progress, and billing costs. The big advantage here is customers and partners can stay on top of increasingly complex supply chain operations and inform partners of potential changes that might influence the flow of goods. It's also important as more businesses, such as the automotive and retail industry, switch to a B2B2C supply model. "It allows everybody involved in the supply process to communicate," Enslow says. New strategies have also developed to meet the demands of a global economy. Some companies, for example, are now practicing what's called demand-driven supply networking (DDSN), or taking customer demand, supply chain, and product development into account to drive products to market. Companies practicing DDSN, such as Dell, Proctor & Gamble, Wal-Mart, and Best Buy, are likely to carry 15 percent less inventory, are 60 percent faster to market with products and/or services, and complete 17 percent more orders, according to AMR Research's Supply Chain Top 25 for 2007. "These advantages can separate the predators from the prey," says Kevin O'Marah, vice president of research at AMR. DDSN represents a radically new approach to SCM. In the past a company would most likely base its SCM entirely on its production and manufacturing capabilities and schedules. To compete in today's marketplace, O'Marah says, companies must incorporate customer demand and service, product design and innovation, and supply management -- which includes sourcing, manufacturing, and distribution. That level of integration doesn't come cheap: In fact, DDSN requires "massive amounts of IT investment," says Tony Friscia, CEO of AMR Research. A successful DDSN framework connects work processes to increase the speed, quality, and profitability of everything from order management to new-product launches. Friscia says businesses should consider electronic data interchange (EDI) systems, ERP, SCM, CRM, and product lifecycle management (PLM) solutions as the key pieces of the DDSN puzzle. "Yes, there was oversell during the '90s tech boom," Friscia acknowledges, referring to the bad reputation some of these applications have with big businesses. But times have changed: "The 'perpetual license' sales model was bad for customers, but the systems work. DDSN leaders are getting plenty of return on investment, provided they blend best practices and innovative IT applications, and don't rely exclusively on packaged software." In addition, these highly rated companies prioritize accordingly, placing top-level executives atop each of the three areas of responsibility associated with DDSN: product, supply, and customer demand. To that end, partner relationship management (PRM) and PLM have become nourishing letters in the industry's alphabet soup, as these solutions contain much of the functionality that bridges the gap left between SCM and CRM. PRM tools let vendors, partners, and customers access a company's invoices, revenue agreements, and payment exchanges, among other items, all via a Web portal. While most of this information is utilized by the sales or accounting departments, thanks to PRM's focus on automating the tasks between sellers and indirect channels, PRM solutions are improving the flow of information between SCM and CRM by providing a repository for "all the little data that applies to both sets of applications," O'Marah says. PLM tools, on the other hand, have been around for years, but that doesn't mean their importance to SCM has diminished. These tools offer companies visibility into the complex process of product design by providing a collaborative system that keeps information flowing smoothly and accurately between the parent company and its partners and manufacturing sites. PLM applications assist designers and engineers in understanding the real-world performance and challenges of the products they're creating. The result, O'Marah says, is the development of generalized, reusable parts, shorter development cycles for products, and frugal component counts. That means less strain on the company's supply chain, which can lead to lower prices or additional promotions for consumers. A perfect example would be lower warranty/service charges for the automotive industry, O'Marah says. Vendors have taken note of these evolving processes and technologies, and are responding. Enterprise suite providers such as Oracle and SAP have always focused on ERP and SCM, and offer integrated packages that include their CRM applications. Still others are taking the acquisition route in their quest to marry SCM with other software applications. Oracle, for one, has been on a rampant acquisition spree over the last few years, including SCM vendor Demantra in June 2006. Just a month earlier, Infor had snatched up SSA Global Technologies, and in the process created the world's third largest enterprise software maker behind Oracle and SAP. (SSA Global had been an acquirer itself, buying E.piphany and Baan, among others, over the previous half-decade.) The combined Infor now has its hands full merging many back-end applications -- its existing expertise in SCM, ERP, warehouse management, and business intelligence with SSA Global's focus on SCM, PLM, CRM, and marketing automation. The Price is Right
Television game-show host Bob Barker may be hanging up his trademark "the price is right" motto, but that catchphrase is fitting for SCM's developing involvement in price optimization. Businesses are beginning to use SCM data to take some of the guesswork out of product pricing. "Price optimization from a supply chain perspective is where one of the next big pushes in supply chain and CRM will take place," Forrester's Tohamy says. "You're determining the prices, promotions, and deals you offer customers based on how your inventory is shaping up for that month, quarter, or year." To do this, companies are starting to measure inventory levels, such as constraint, capacity, or excess, and tie that information with CRM data such as customer segmentation. The resulting pricing decisions not only maximize revenue, but also serve to optimize customer relations. This also works well for nationwide corporations that have to deal with regionalized pricing, Tohamy says. "You could offer promotions to get rid of excess inventory, increase prices to deal with a constrained supply chain, or more effectively compete with regional competition by keeping inventory costs low," she says. Businesses are also using SCM to determine which customers they want to sell to, and which mode of transportation is most appropriate. With manufacturing sites located in Asia and elsewhere, and customer bases residing in North America and Europe, companies are using SCM to determine which customers are profitable or which ones will simply burn up profit margins via high transportation costs. Aberdeen's Enslow sees the global impact: "As the shipments flow in from China and costs build up, companies ask themselves, 'Are those costs what I expected them to be, or did I miscalculate duties and could have sent the products via cheaper transportation?' " Enslow cites retailers as a perfect example of an industry beginning to combine price optimization, SCM, and CRM. With an integrated system in place, retailers will change the prices of a promotion or cancel it altogether if they feel they won't have the inventory in stock to support it, or if market research points to reduced consumer demand. "Those companies that marry CRM and SCM price optimization are going to be the ones with the highest gross margins," she says. The Vendor Landscape Moving Forward: On-Demand SCM On demand is the next big push in integrating SCM with CRM -- but the intensity of that push is a matter of some debate. A recent study by Aberdeen Group found that 50 percent of companies surveyed said they're using or planning to use an on-demand SCM application. A separate study, from Forrester Research, pegged the adoption of on-demand SCM at less than 20 percent. What industry pundits do agree on is the fact that on-demand SCM providers such as Mitrix, Click Commerce, and GXS (which offers a solution for B2B supply chain management) will allow small and midsize businesses to leverage the new concepts surrounding SCM. Mitrix, for one, offers Order Live, a module built for Salesforce.com's AppExchange platform, which allows users to book and maintain orders and view inventory via the Web. In general, the cost of on-demand SCM solutions runs 20 to 30 percent less than on-premise solutions, according to Aberdeen Group. For enterprises, suite providers such as SAP and Oracle continue to gain traction against best-of-breed vendors, according to Tohamy. Currently, the functionality gap between the two sides stands at 20 percent, she says, but thanks to the strong push by enterprises to integrate SCM with multiple solutions, the day will come when the suite providers catch up. "The long-term strategy should be to go with the ERP/CRM vendors because their SCM functionality will get to the point where it's apples to apples with the best-of-breed vendors," she adds. SIDEBAR: Laying a Firm Foundation In business, time is money. In the case of SCM and CRM, though, time can also be the difference between satisfied and unsatisfied customers. This certainly holds true for Cemex: Cement, of course, dries up sooner or later, so it's critical that Cemex maintain sufficient levels at its distribution terminals so there's never a shortage for the endless lines of cement trucks. To manage this, Cemex focuses its efforts between the hours of 6 a.m. and 1 p.m., which is when the company's terminals experience peak operating conditions. Besides the trucks that contractors send themselves, Cemex also has its own fleet that delivers cement and concrete to construction sites. The catch is Cemex doesn't own the trucks. They're rented from a third-party carrier, which means Cemex must have accurate, up-to-date information on orders and shipping schedules so the carriers set aside the right number of vehicles. Add customer inquiries into shipping schedules, loads, order status, and delays, and "it's one hell of a juggling act," says Ven Bontha, CRM director for Cemex. To deal with all this, Cemex installed LeanLogistics' On-Demand Transportation Management System (TMS) in the company's Houston region in June of 2005. Before LeanLogistics, the region's contact center was fielding 3,400 calls per month because the company had no Web self-service portal for its customers. As part of On-Demand TMS, the company installed a new online portal that ties directly into Cemex's new Customer Care Center (CCC). The CCC now adds 200 customers online each day, greatly reducing call volumes into the contact center. Centralized order management allows customers to file complaints or inquire about order status, loads, shipping schedules, etc. This information is fed directly to On-Demand TMS, allowing agents to schedule shipments, optimize loads, and provide visibility into transportation operations. An inventory management system is also integrated which improves on-time response to customers by managing demand and allowing no "stock-outs," or running out of cement or concrete at the terminals. As for the third-party carriers who are shipping loads for Cemex, they, too, can access On-Demand TMS and communicate order status, shipping changes, or delays. This information is downloaded directly to the CCC in real time -- if customers call in or access their accounts via the Web, they'll have up-to-date information on the status of their order. Cemex has seen customer satisfaction levels soar since on-time deliveries have improved. And Bontha estimates the project has resulted "in millions in hard-dollar savings" since the initial implementation in the summer of 2005, thanks to lower freight costs, lower call volumes into the CCC, and higher productivity at its terminals during peak operating hours -- a set of results that may explain why Cemex now has Bontha overseeing the rollout of On-Demand TMS nationwide. Cemex is so confident, in fact, that it now provides customers with an Available-To-Promise time when taking orders. "If a customer says they want cement loads at 10 a.m., 11 a.m., and 12 p.m., we can now predict and tell them 10 and 11 are okay -- but 12 won't work because we're booked. We can negotiate another time," Bontha says. "Everyone drives away happy." Contact Associate Editor Colin Beasty at cbeasty@destinationCRM.com.
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