A quick introduction for CRM, ERP, and SCM

Today, I wanted to summarize an topic that I've been trying to get a basic understanding in my field. What does CRM, ERP and SCM actually mean? I hear these terms but what do they stand for? I decided to summarize what I've learned from CIO Magazine.

This post will began with an explanation of ERP since it is an component that both CRM and SCM can utilize. This will follow with CRM and SCM. Finally, I will discuss how the three systems work together. Sources for this post is listed below.

1. ERP stands for Enterprise Resource Planning software. What ERP software attempts to do is "integrate all departments and functions across a company onto a single computer system that can serve" ever department. Why would this be good for a company?

A typical example is that ERP can improve "the way [a] company takes a customer order and processes [the order] into an invoice and revenue." By using the same software across different departments, people can see in real time what is happening. Orders are processed faster through improved communication by utilizing the ERP software. There is a reduction in human error and lost paper (or knowledge) as information is retained in one centralized location.

Now, multiple this idea across all departments. Imagine HR being able to see Finance (improve HR's ability in staffing or compensation) while Finance can view Shipping (to determine if revenues should be counted for once a product is shipped).

However great the promises of ERP, the reality can be quite different. The first reality check is actually finding a software that works well across all departments. Each department has its own unique requirements that requires special software. To have one piece of software be the best in every field is a tall order. Second, ERP entails a more connected system. This is great in the theoretical stage but in real life, real-time systems is costly to maintain and update. Froe example, pre-ERP, HR was using its own software and processes, but post-ERP requires HR to update and provide the most recent information into the system. Otherwise, other departments, say Finance, might use out of date HR information in the ERP system to produce financial reports. That would occur less since pre-HR, Finance might actually have to call up HR to get the latest data. So with ERP, there must not only be new software, but new processes have to be created in the way people perform their jobs. In the previous example, the HR department might have to redesign some of their business processes.

Ultimately, those new processes are what brings the biggest improvements with an ERP implementation. Once a standardized procedure is implemented company wide, the ERP software will benefit from people utilizing the new business processes.

2. CRM stands for Customer Relationship Management. The goal of CRM is "to learn more about customers' needs ... in order to develop stronger relationships" such as

• providing tailored services and products
• help improve sales
• retain and discover new customers

While CRM is generalyl thought of in terms of software, like ERP, the software is only a tool. CRM is only as good as the strategy underlying.

Since the goal of CRM is "to learn more about customers' needs" and to build relationships, CRM is important for those companies that do not have a understanding of who their customers are or what their customer needs. A CRM system will include softwares and processes that can collect, analyze, centralize customer data from a variety of sources to help improve customer understanding. As example of CRM in action is a retailer collection information (Web, mailing lists, credit cards) that it can then combine to help target those customers through either promotional items (discounts) or products (special offerings).

3. SCM stands for Supply Chain Management. The purpose of SCM is to help "plan, source, make, deliver and return" products. In general, SCM applies more for manufactures, but SCM can also apply to retailers.

Think of a ship building company. It needs to plan how many ships to build and the resources they require (steel, electronics, wiring, etc.), choose suppliers to provide the raw materials or semi-raw materials (guidance systems, engines), manufacture the ship, help with logistics after manufacture, and manage returns (defects, recalls).

Now, while each industry might requires a different type of SCM system (manufacturing might focus more on planning, sourcing and making while retail might care more about delivery and return) the overall goal with SCM is to improve either each individual step which hopefully will improve the overall processes. Why is this good?

Think of terms such as "just-in-time." Pre-SCM, manufactures had a difficult time planning for production. Overproduction would often result in a waste of resources will underproduction meant lost profits. Retailers would sometimes be at the mercy of manufactures and would have to keep warehouses full in the event demand rises. But SCM can help solve some of these problems with the right information. Retailers could provide manufactures data on demand so manufactures can plan strategically to source and make products. This helps reduce delivery and manufacturing costs by making only as much as needed. Furthermore, excess returns are reduced.

With the event of global manufacture and extended supply chain, SCM becomes even more important. With companies located sometimes across oceans, having processes and systems in place to gain information regarding your supplies chain is vital to company planning. Rather than just examining the immediate supply chain, now, a manufacture might look at the supply chain of its suppliers and or its customers (retailers) to help planning. In turn, retailers or suppliers might examine the manufacture supply chain.

4. So how does all this together? To understand this, let's go back first ERP. Since ERP is a software system that is standard across all departments, it is best thought of as a central data warehouse. Both CRM and SCM requires an extensive amount of information for each to work properly. CRM needs data from Finance, Sales, Manufacturing, etc. that have been collect on customers. Similarly, SCM utilizes the data in ERP for planning. But ERP also benefits from CRM and SCM. Each system in turn provides feedback to ERP on new information. While each and function independently, it is the synergies gained from all there system that is one of the biggest gains.

Here is an example of an idea world:
"For example, if you wanted to build a private website for communication with customers (CRM) and suppliers (SCM), you will wan to pull information from ERP, CRM, SCM together to present updated information about orders, payments, manufacturing status, deliver, and return."

Source: "ABC: An Introduction to ERP" by Christopher Koch, CIO, "ABC: An Introduction to CRM" by Thomas Wilgum, CIO, "ABC: An Introduction to SCM" by Ben Worthen, CIO