Making Ends Meet

Dec. 21, 2004
Manufacturers seek to connect supply chain with customer systems.

If "Connecting Supply Chain and Customer Relationship Management Systems" were the title of a mystery, the suspects in this whodunit would be few and far between. That's because not many manufacturers have done it. In the best of all possible manufacturing worlds, every time you take an order or sell a product, your supplier and his supplier would know about it immediately. Best of all, your sales staff, placing orders into a system smart enough to know which customers are the most profitable, would be assured they'd get priority when it came to scheduling their orders. Wow! Is that a lot to ask for, or what? For most manufacturers, that kind of linkage is a dream. The fact is, despite the proliferation in recent years of customer relationship management (CRM) and supply chain management (SCM) systems throughout the manufacturing community, few companies have made these two connect. They're missing a big bet. "By connecting CRM and SCM, you can really change how you do inventory management and how you produce your product," says Steve Pratt, partner and former global CRM practice leader for Deloitte Consulting in San Francisco. The biggest benefit is the insight into customer demand that a good CRM system offers manufacturing, he says. "In the late 1990s, a lot of companies put in enterprise resource planning, SCM and CRM systems, but they still run their businesses in the same ways as before. We still find islands of activity -- such as people who only deal with customers, and people who manufacture and distribute products." These functional groups tend to operate separately and often independently of one another, which limits the sharing of information except on an as-needed basis. Similarly, with the exception of electronic data interchange (EDI), few companies have made direct electronic connections with their suppliers and customers to facilitate balancing the demand-supply equation. One reason, of course, is that the extended supply chain -- embracing suppliers, manufacturers, distributors, and customers -- is so complex, involving so many manufacturers and their business partners. It's just plain difficult to get everyone to work off the same systems. Once they do, though, the gains can go straight to the bottom line. "You can dynamically configure your production scheduling so that you treat your best customers better," Pratt points out. By contrast, he says, most manufacturers still run their production based on relatively static forecasts determined by the marketing department. The problem with this setup, Pratt says, is that some sales tend to occur simply because the goods are available, not because they are in greatest demand. "People may be buying green cars because they're the only cars you had on the lot," he says. According to Deloitte Consulting, "e-Differentiation" is the ability of a company to differentiate in real time the entire supply chain response to individual customers according to their value and cost to serve. "Manufacturers that can do this -- and they are a distinct minority today -- are significantly more profitable than those that lag behind," states a report on "Digital Loyalty Networks" by Deloitte Research. Many companies, the report found, either excel at the front end (CRM) or the back end (SCM), and most struggle with both systems. Even so, there are a few manufacturing leaders that are able to connect CRM, SCM and the Web to provide this kind of differentiated response. For instance, furniture manufacturer Herman Miller Inc., Zeeland, Mich., has tailored its Web pages, called EZ-Connect, to let its most valued customers place orders at special rates. Another manufacturer working to leverage a connection between CRM and SCM systems is F.W. Murphy Co., a manufacturer of instrumentation and controls for gas compressors and industrial engines. "We're trying to feed information from our CRM into our supply-chain systems to do more effective planning," says Mitch Myers, vice president of operations at the Tulsa, Okla.-based maker of valves, oil pressure and temperature gauges, tachometers, odometers, and other devices. "It will help us know what to build and when, so that we can better plan our supply chain activities." F.W. Murphy uses demand-forecasting and consensus data in its PeopleSoft CRM system to fuel its ERP system to create a build plan. "CRM forewarns us that we need to plan on building this particular product," Myers says. "That way we are using customer demand to help us determine what to make and what materials to order. We believe the next step is to push this out to our distributor base, and eventually to all our major customers." Similarly, the company wants to push demand data in the other direction, as an aid to its supplier base. Adds Myers, "Our plan is to connect our suppliers so that they have visibility as soon as our customers tell us what they want." Another area where connecting SCM and CRM is beneficial is in allowing customers to have greater visibility into the status of their orders. "Giving the customer some visibility in to where their product is in the supply chain gives greater satisfaction," Pratt says. Likewise, he says, "Exposing suppliers to more of the demand signal by giving them better information could probably enable a manufacturer to get better deals from them." Manufacturers whose business includes a preponderance of custom orders may benefit the most from linking CRM and ERP. "We work very closely with our OEM manufacturers in giving them the same plans and forecasts for what we are building," says Carla Gatzke, enterprise information systems and personnel manager at Daktronics Inc., a manufacturer of computer-controlled displays including sports scoreboards. Sales staff at Daktronics' main office in Brookings, S. D., and at its 35 sales and service offices around the U.S. feed orders into the company's CRM, which is part of its Glovia International ERP system. Unlike most CRM systems, which allow sales staff to track the progress of a prospective sale, Daktronics decided to separate current customers from potential new ones, so this data goes into two different systems. Salespeople track the progress of discussions and negotiations with new sales prospects that aren't existing customers in a separate system called Maximizer from MultiActive. "This system uses a Web portal to let the salesperson view the sales process in Maximizer if it's a prospect and in Glovia if it's a current or past customer," Gatzke explains. She says this is especially helpful to the company's opportunity-oriented sales force. Once an order is placed, though, it goes into the Glovia system, which is used to manage inventory and production as well. The company has about 20,000 current customers. Daktronics recently was racing the clock to build, deliver, and install a new electronic scoreboard for the Cleveland Indians baseball team, to be installed by early March, roughly a month before opening day the first week of April. The unit, which when assembled will be 150 feet long and 40 feet wide, contains 3,770 modules in its display face, some which include surface-mounted circuitry. The manufacturer outsources much of the electronics, choosing to do assembly of the various units that make up the product at its South Dakota plant. "We use the information in our Glovia system to communicate with suppliers so that they are constantly carrying an inventory to cover any manufacturing lead time buffers we may need," Gatzke says. Sales staff and engineers work with the buyer to decide what components will be needed to build a particular display. While some units may be made to stock, others such as the Indians' scoreboard are a combination of made to order and engineered to order. Good customer data early on is critical for Daktronics, which uses large amounts of sheet aluminum, a commodity whose price can fluctuate widely over a period of only months. "To hedge against price swings, we may place an order to buy one million pounds of aluminum sheet product in advance," says Jeff Robbins, materials manager. At the end of the day, though, Daktronics continues to deal with its suppliers via a variety of methods, both new and traditional. Typical of many manufacturers that have CRM and SCM systems, Daktronics orders products and components via telephone, fax, EDI and the Web. One software company that offers CRM and ERP in a single package is Netsuite of San Mateo, Calif., which provides software applications available to companies over the Web. "The concept behind Netsuite is to have CRM and ERP in a single application," says Zach Nelson, CEO. The idea is that companies using Netsuite's hosted applications log on using a Web browser and access all the company data on a single database, but with different views depending on the person's job function. "That whole thing of having CRM and ERP systems that are disconnected is what drives our business," Nelson says. In sum, while linking CRM and SCM systems is desirable, few manufacturers are doing it -- yet. "There aren't many companies with this connection," says Deloitte's Pratt. "It hasn't happened yet, but it's inevitable it will happen if manufacturers want to retain their best customers and increase the efficiency of their assets."

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