Traditional Management Systems VS. CRM And SCM - Essay Example

?Running Head: TRADITIONAL MANAGEMENT SYSTEMS VS. CRM AND SCM Traditional management systems vs. CRM and SCM School Executive summary As consumers increasingly become more powerful due to globalization, increased availability of better technology, and increased competition, organizations have to find ways to create sustainable competitive advantages. Forward-thinking organizations have realized that they cannot continue using traditional management systems. To remain competitive these organizations have resorted to build better relationships with their supply chain partners and most of all with their customers. This paper looks at the difference between traditional management systems with both customer relationship management (CRM) systems and supply chain management systems (SCM). The paper shows as that both CRM and SCM are not simply information technology (IT) systems but rather they are strategies that use people, businesses and processes to increase the competitive advantages of an organization. The paper shall first compare traditional management with CRM in the first section then secondly, it shall compare traditional management with SCM. In conclusion, it is evident that both customer relationship management systems and supply chain management systems create increased efficiency, achieve more costs savings and generate greater profits for organizations that implement them. Customer Relationship Management Customer Relationship Management (CRM) is a strategy used to learn more about customers’ needs and behaviors in order to solidify their loyalty to the business’s offerings (Wailgum & Patton, 2011; “What Is CRM?,” 2010). This strategy enables businesses effectively utilize their resources to increase their knowledge of the behavior and value of their target customers. This increased insight enables businesses to identify and target the best customers, customization and/or personalize their products and services, track customer contacts, add cross-sell and upsell opportunities, reduce costs and increased overall profitability. CRM may mean different things to different industries but, ultimately, its purpose is to help organizations derive competitive advantages that will sustain their long-term profitability. This section shall differentiate traditional management systems from CRM in terms of differences in approaches, achieving efficiencies, costs savings, and firm profitability. Differences in approaches (empowering customers, becoming a trusted partner) A good example that could be used in comparing traditional management systems with CRM is the marketing function of an organization. Under traditional management systems the marketing was product-based and company focused. Management was more concerned with how much control they have on the message conveyed to the customer. In these cases the company was the active participant in the marketing process whereas the consumer was inactive or passive. In contrast under CRM, customers are empowered for example Dell customers can configure their computers prior to ordering through Dell’s website. CRM enables companies to ensure that only those products or services that consumers want are produced. This alters organizations’ marketing strategies from the traditional push to pull strategies. Furthermore, the increased consumer participation that is encouraged by CRM enables organizations to understand their customer requirements better. This makes organizations that have CRM become more trusted partners than those firms that are stuck on traditional management systems. Achieving efficiencies CRM management systems are generally supported by information and technology (IT) solutions that are designed for the unification of customer information (Kumar, 2011). Where these solutions are well integrated with other business systems in an organization and /or with partner organizations, the company can be able to centralize all its customer information in a few IT applications. This means that senior management can easily be presented with the real time consumer information on a single dashboard to facilitate quick decision making and strategy formulation. On the converse, traditional management systems were built around organizational functions that operated as separate silos – where information sharing was a big challenge. Therefore, companies that have implemented CRM strategies have a greater likelihood to efficiently respond to a rapidly changing market and anticipate new customer demands than companies without CRM strategies. Costs savings CRM management systems are customer-driven unlike traditional management systems that were company-focused and product-driven. CRM strategies support mass customization and personalization of products and services which mean that the company only produces and deliver what the customer needs. This “pull” strategy enables the company to save money and resources on various fronts such as promotion, inventory (customization and personalization support just-in-time production), staffing (allows for increased automation), distribution and so on. In addition to that, CRM strategies through consolidation and centralization of customer information enables organizations identify and target the best customers. Targeting the best customers leads to increased likelihood of increased customer lifetime value for the firm and targeted marketing which leads to savings in marketing and associated costs. Firm profitability Firm profitability can be increased in a number of ways including: reducing production costs, increasing price and increasing sales volumes. An organization can increase its sales volumes by lowering its price, increasing its number of customers or increasing the number of purchases made per single customer. CRM strategies enable companies to profile their customers better such that they can identify their best customers. Where these best customers are niche customers the organization can provide them with better value propositions and thus increase its prices to increase its profits. Alternatively, by targeting the right type of customer, the organization can increase the number of purchases that this category of customers make which will lead to higher profits. In a nutshell, CRM strategies enable an organization to find more high-value customers (Kumar, 2011) and/or increase cost saving which eventually leads to increased profitability. Supply chain management Supply Chain Management (SCM) is the active management of supply chain activities that go into improving the way a company sources the raw components it needs to make a product or service and deliver it to customers to maximize customer value and achieve a sustainable competitive advantage (Handfield, 2011; Wailgum & Worthen, 2008). The ultimate objectives of SCM are to surpass the demanded customer service level in targeted markets and to optimize total supply chain investment and cost (“Four Fundamentals of SCM,” 2011). Here too, like in the topic on CRM, this section of the paper shall compare traditional management systems with SCM in terms of differences in approaches, achieving efficiencies, costs savings, and firm profitability. Differences in approaches According to Handfield (2011) under traditional management systems most companies only paid attention to what was happening within their precincts. This was largely because organizations operated on product-based, company-driven mentalities. Traditional management systems were all about retaining as much control as possible within the firm. On the other hand, SCM represents a conscious effort by organizations to develop and run their supply chains in the most effective and efficient ways possible so as to give the customers what they want, when and how they want it, at the lowest cost possible. Under traditional management systems, companies focused on maximizing their own returns at the expense of all the other firms in that supply chain. Managers practiced win-lose strategies with their suppliers and buyers on either sides of the chain. On the contrary, SCM promotes win-win strategies where companies seeks to make the entire supply chain as effective and efficient as possible so as to transfer maximum value to the customer. Under SCM the final customer is king even for the organizations several levels below in the whole supply chain for example; SCM seeks to ensure that a gold miner in South Africa works to ensure that the jewellery buyer in New York gets the right product at the right quality and price. Achieving efficiencies In traditional management the thinking was that companies competed against each other, which is why managers only focused on what happened within their organization’s four walls. SCM thinking states that it is no longer about companies rather it is about supply chains competing against other supply chains (“Four Fundamentals of SCM,” 2011). As the cliche goes, a chain is only as strong as its weakest link. This means that in SCM the goal is to ensure that there are minimal inefficiencies at every link in the supply chain. It is important to note that there are two supply chains for any organization, the internal and the external. The business value goals for SCM include: rapid demand fulfillment, collaborative supply, chain planning and execution. The greatest benefits of SCM are derived from its focus on inter-enterprise coordination of manufacturing and business processes, effective distribution and channel partnerships, and responsiveness and accountability to customers. Costs savings As stated above, SCM’s key focus areas necessitates cross-functional integration within an organization and across the network of companies that comprise its supply chain. This means that the physical flow, money flow and information flow through the whole chain must be managed in an integrated and holistic manner (“Four Fundamentals of SCM,” 2011). This drives down the cost for example of inventory and logistics across the chain. Physical flows comprise of the conversion, movement, and storage of goods and materials (Handfield, 2011). Money flows involve the movement of money from the final customer down the chain to the first producer/manufacturer of the raw material. Information flows enable the supply chain organizations to control the day-to-day flow of goods and material and to coordinate their long-term plans. Firm profitability According to Wailgum and Worthen (2008) supply chain management is made up of five components: planning, sourcing, making, delivering and returning. At the planning stage the organization develops a strategy for managing all the resources that it will require to meet customer demand for its product or service. The sourcing and delivering stage necessitate the organization to build strong relationships with their suppliers and buyers. In these two stages is where the inter-enterprise coordination of manufacturing and business processes is sharpened to reduce/remove inefficiencies. The make stage enable the organization to optimize its internal supply chain. Lastly, the return stage allows the company to increase intimacy with its customers through receiving of defective products back and supporting those who have problems with delivered products. The sourcing and returning phases were not optimized in traditional management systems and that is why SCM is able to create more efficiency within a supply chain which shall affect the overall profitability of a company. Conclusion SCM and CRM strategies enable organizations to create better relationships with the most important person in business, the customer. These two strategies are customer-focused and customer-driven which means that they are better able to fulfill the needs of the customer. SCM and CRM are today supported by several IT tools that make their implementation and auditing much easier to do. Often when the SCM and CRM IT tools are integrated with other business systems, senior management can receive real-time information on a single dashboard and are thus able to come up with better decisions at a pace that matches todays’ rapidly changing business environment. SCM and CRM systems increase operation efficiencies, cost savings and firm profitability more than traditional management systems. References Four Fundamentals of SCM. (2011, August 7). National Institute for Transport and Logistics (NITL). Retrieved August 7, 2011, from http://www.nitl.ie/Four_Fundamentals_of_SCM/Default.126.html Handfield, R. (2011, January 11). What is Supply Chain Management? Supply Chain Resource Cooperative (SCRC). Retrieved August 7, 2011, from http://scm.ncsu.edu/scm-articles/article/what-is-supply-chain-management Kumar, R. (2011, May 11). Taking advantage of CRM. Connectingindustry.com. Retrieved August 7, 2011, from http://www.connectingindustry.com/story.asp?sectioncode=663&storycode=199506 Wailgum, T., & Patton, S. (2011, August 7). CRM Definition and Solutions. CIO.com. Retrieved August 7, 2011, from http://www.cio.com/article/40295/CRM_Definition_and_Solutions Wailgum, T., & Worthen, B. (2008, November 20). Supply Chain Management Definition and Solutions. CIO.com. Retrieved August 7, 2011, from http://www.cio.com/article/40940/Supply_Chain_Management_Definition_and_Solutions What Is CRM? (2010, February 19). CRM magazine. Retrieved August 7, 2011, from http://www.destinationcrm.com/Articles/CRM-News/Daily-News/What-Is-CRM-46033.aspx  Read More