Business Finance, Essay Example

In recent years, for many companies and organizations, using their customer relationship and supply chains has become an essential element of the strategic management process. In the course of time, customer relationship and supply chains, types of companies, purposes, functions and processes have broadened. Nowadays, companies have powerful technologies for comprehending and cooperating with customers. However, they must shift from pushing separate products to creating and developing long-term customer relationships. Such changes shift the company’s focus from profitability of the product, to customer profitability. This research paper examines the differences in approaches, achieving effectiveness, cost savings, and company profitability while using Supply Chain Management and Customer Relationship Management systems. The paper compares Supply Chain Management and Customer Relationship Management systems. It proposes the ways companies can gain profit by using these systems. This examination of Supply Chain Management and Customer Relationship Management systems points out ways of producing effective and successful business by using these traditional management systems.

Business Finance

A present-day period characterized by steadfast growth interest to traditional management systems, and especially to Supply Chain Management and Customer Relationship Management systems. Their purposes, functions, opportunities, the ways they affect the company’s performance and profitability, became the subject matter of research studies and intense debates in economic, finance, marketing and accounting spheres. I will be examining Supply Chain Management and Customer Relationship Management systems. My analyses will look at achieving efficiencies, cost savings and company profitability while using these two systems. This research paper responds to the following questions:

1. What is Supply Chain Management system?
2. How does Supply Chain Management system help companies achieve efficiencies, cost savings and profitability?
3. What is Customer Relationship Management system?
4. How does Customer Relationship Management systemhelpcompanies achieve efficiencies, cost savings and profitability?

Answering these four main questions will help to investigate and examine Supply Chain Management and Customer Relationship Management systems in terms of differences in approaches, achieving efficiencies, cost savings, and company profitability

What is Supply Chain Management system?

The introduction of Supply Chain Management concept was in 1980s (Stock, Boyer, & Harmon, 2009). Since that time, Supply Chain Management has undergone many considerable changes and modifications. Nowadays, the discipline of Supply Chain Management keeps on widening and developing. It helps to answer the questions significant to business companies, customers, suppliers and service providers.

The customer satisfaction is the basic focus of Supply Chain Management. Integrating a variety of processes and functions within the company and between the companies is a primary part of Supply Chain Management. Stock, Boyer, and Harmon (2009) pay attention that in many companies Supply Chain Management accepted to raise operating performance, supply with new sources of competitiveness, provide considerable value to consumers, and create better-managed companies and relationships between companies.

A great many of companies can be involved in one supply chain, and many processes and functions are engaged in Supply Chain Management, Stock, et al, (2009) discovered. Since supply chains involve various companies and private person in the process of decision-making, the use of two-element investigation are significant, especially studying different cooperation and partnership relationships (Stock, Boyer, & Harmon, 2009).

Banham (2009) underlines that one aspect of Supply Chain Management that is likely to become a “legacy of the recession is a much more careful assessment of the financial viability of suppliers and customers”. The author emphasizes that, with a poor purchase requirement, the entire supply demand balance is out of order. Many companies have trouble financing their operations because they are not able to access circulating capital or significant credit line. As a result, they are failing. This puts companies’ balance sheets in danger. The financial risk of the supply chain is one of the largest perils.

How does Supply Chain Management system help companies achieve efficiencies, cost savings and profitability?

The analysis and research of more than 166 definitions, founded in the literature, identified “three main themes associated with the supply chain” and Supply Chain Management. They are activities, benefits and constituents or components of Supply Chain Management. The authors also identified some sub-themes within every theme (Stock, Boyer, & Harmon, 2009).

The first theme of Supply Chain Management definitions, described by Stock, et al, (2009), is activities. It includes both materials and information flows, as well as networks of external and internal relationships with companies, and processes. The authors emphasize that the effective management of information and product flows are basic aspects of Supply Chain Management, which is the process of planning and checking of information and materials from suppliers to clients. The information and material flow is a one-sided process. Creating networks of relationships “between interrelated and interdependent organizations, as well as across business units” (Stock, Boyer, & Harmon, 2009) is another constituent part of the activities theme determined in Supply Chain Management definitions. The network of relationships concerns the relationships within the company, outside the company, and members of the supply chains. Stock, Boyer, and Harmon (2009) emphasize that the examples of activities include “service versus physical goods supply chains”, strategic cooperation, information and material flow and cooperation between supply chain participants, product return, management of the world’s supply chain network, and metric and measure of supply chain fulfillment.

According to Stock, Boyer, and Harmon (2009) research, benefits resulting from implementation of Supply Chain Management strategies include creating efficiencies, customer satisfaction and adding value. Ultimately, the purpose of Supply Chain Management is to attain larger profitability by creating efficiencies and adding value, thereby higher customer satisfaction. The first sub-theme of benefits is adding value. In Supply Chain Management, every supply chain participant performs a particular added value role in relation to the service and product as it progresses towards the end customer. A primary premise of Supply Chain Management is that value must growth quicker than the costs connected with creating the value. Create efficiencies, is the next sub-theme of benefits, Stock, Boyer, and Harmon (2009) found. Linking the producer, clients and suppliers, Supply Chain Management makes most favorable conditions to use shared resources both external and internal to the company, to obtain operating activity through greater effectiveness. The last sub-theme of benefits is increasing customer satisfaction. The fundamental importance of Supply Chain Management is comprehending customer needs. Stock, Boyer, and Harmon (2009) pay considerable attention to the examples of benefits. They include “outputs of integrated supply chains, doing more with less (e.g., six sigma, lean management)”, reaching customer satisfaction, cost optimization and minimization, valuation of risk, growth of profit of the company.

Constituents or components of Supply Chain Management are the last described by Stock, Boyer, and Harmon (2009) theme associated with Supply Chain Management. It is “what organizations, functions and processes comprise the supply chain”. They are made of a great many of systems, constituencies and functions grading from production equipment, material suppliers and customers to transportation, stock control, distribution, manufacturing and connected systems. Supply Chain Management contains all systems, operations, companies and business functions “involved in the management of a particular supply chain”. The examples of constituents or components include structure and module of Supply Chain Management, supply chain participants, processes and functions.

The supply chain consists of several independent and different participants. Each of them is with various purposes, desires and needs. A comprehending of relationships within the company or outside the company, how they are developed and realized are essential for understanding Supply Chain Management. “As the duration of the exchange relationship increases, so does the quality of the relationship,” Stock, Boyer, and Harmon (2009) emphasizes. Such a concept has been a basic principle behind the development of enduring cooperation and partnership in supply chain. Since there are various companies involved in supply chain, separate companies must act hand in hand to supply customers with products and services they desire. Complex supply chains should “reduce overall distribution costs and optimize customer service and satisfaction” (Stock, Boyer, & Harmon, 2009).

Banham (2009) pays serious attention, that financial strength, stability and credit of any company elevates it in the Supply Chain Risk Management sphere. The author found that many companies increase their profit due diligence to make sure that their suppliers have the financial stability. While analyzing the financial stability of the company, it is extremely vital to examine basic financial metrics. They are the proportion for circulating capital, return on invested capital, investment performance, return on stockholders’ equity, information on company’s credits, debts, and other key financial metrics.

In recent years, the financial condition of the companies has become strategic, Banham (2009) underlines. The author emphasizes that each company must make forecasts and market researches of their activity and the whole market.

Effective and efficient management of supply chain networks is significant. The purchase of materials from South America, Africa, and Asia, the “outsourcing of labor to underdeveloped nations”, and the procurement of technologies and approach management by European and United States companies from industrialized Asian nations, are vital aspects of Supply Chain Management. Banham (2009) believes, that it is necessary to avoid “high costs of carrying too much inventory”, which leads to business loss because the company can move the product at a lower cost or write it off. It helps to analyze the changes in consumer tastes and regulate precisely what to produce.

What is Customer Relationship Management system?

Companies must “shift their focus from driving transactions to maximizing customer lifetime value” (Rust, Moorman, & Bhalla, 2010) to survive in these aggressive surroundings. That implies creating brands and products subordinate to permanent customer relationships. That means modification of structure and strategy across the company.

With growing competition, survival is becoming complicated every day. The companies are searching for the solutions, which can help them support and growth the effectiveness and efficiency of their companies. Soch and Sandhu (2008) emphasize that as a “customer’s relationship with the company lengthens, profits rise”. Companies can increase profits by almost one hundred per cent by holding just five per cent more of their customers. On average, companies spend six times more to get clients than they make to retain them.

Customer Relationship Management has been taken on by companies’ Information Technology groups because of the performance attributes Customer Relationship Management system need. Yet, Customer Relationship Management is an instrument for measuring customer behaviors and requests. Rust, Moorman and Bhalla (2010) believe, that bringing Customer Relationship Management into customer department “means bringing IT and analytic skills in as well”.

The final goal of any measurement process is to grown the company’s owner wealth. One of the veritable preference of a Customer Relationship Management measurement process is that the company normally also get measures such as retention and acquisition costs, customer lifetime value. “The customer market is often the key market” (Soch, & Sandhu, 2008). Marketing tools that companies use for holding their clients is, therefore, likely to support for a competitive preference by contributing to service and product distinction, as well as developing obstacles for switching for other services and products. Because of that, the idea of Customer Relationship Management has obtained much significance in recent years. Earlier it has been determined as a technology and process which support fulfillment, planning and checking-up of customers and distributors. Customer Relationship Management is all about creation, development and support of long duration, mutually beneficial and advantageous relationships, with strategically significant customers (Soch, & Sandhu, 2008).

How does Customer Relationship Management system help companies achieve efficiencies, cost savings and profitability?

A good customer management is significant and can bring to the company’s owner profit, as there is a strong correlation between business performance and customer management performance. That means that customers consider assets to the company that drives to growth of company’s owner wealth (Soch, & Sandhu, 2008).

Rust, Moorman and Bhalla (2010), believe that customer managers play a significant role in Customer Relationship Management. They “engage individual customers or narrow segments in two-way communications, building long-term relationships” by advertising any of the company’s products, the client would appreciate at any given time. Customer managers must combine the knowledge of individual segments or customer with deep knowledge of the company and its products. Customer managers must also be “sophisticated data interpreters, able to extract insights from the increasing amount of information about customers’ attitudes and activities acquired by mining blogs and other customer forums” (Rust, Moorman, & Bhalla, 2010). They must control online customer behavior, monitor retail sales, and using various kinds of analytic.

Rust, et al, (2010) pay attention, that customer relation managers take more deeper, combined and broader opinion of the customer. The most efficient customer managers have deep training in marketing, sociology, psychology and economics. They gather information about customers, cooperate with and learning from them, and spread what they studied.

While investigating Customer Relationship Management, Soch, and Sandhu (2008) analyzed 171 companies from eight various industries. Financial performance of the selected companies was “measured in terms of growth and profitability by generating a composite index using factor analysis”. For researching the impact of Customer Relationship Management on financial performance of the companies, Soch, and Sandhu (2008) used regression analyses. The authors used factor analyses for generating a composite index of performance. The performance constructs included market or financial-grounded constructs such as profitability, fundamental analysis and market ratio. For analyzing the financial performance of a company, the authors chosen four main indicators, namely net profit, return on assets, growth in assets and growth in sales. The higher net profit, the better it is for company’s profit. Return on assets used as the measure of management effectiveness and production in using all the assets under company’s control. Growth in assets is an ordinary growth indicator. Growth in sale shows the company’s success in its market.

The analyses and research of 171 companies from eight various industries shown that there is a positive influence of Customer Relationship Management at companies activity and performance. Unfortunately, the results indicated that this influence is inessential. The needless development of human and financial resources in Customer Relationship Management process is not defensible. The reason of such analyses is that Customer Relationship Management looks to have no meaningful influence on the financial performance of the companies.

According to the research of Soch, and Sandhu (2008), there are many factors, which may be liable for distinction in performance of companies. They are sector or industry, age of business, leverage, capital intensity, skill, size and risk. It is, therefore, necessary to check up and monitor for the influence of such factors on performance. For example, an older company may grow quicker and get higher profitability because it has fixed itself in “market and has certain core skills, experiences and economies of scale which its younger counterparts may not have” (Soch, & Sandhu, 2008). The authors underline that large companies possess more resources. They endow with definite advantages, such as higher returns and lower costs “on account of economies of scale”.

Rust, Moorman, and Bhalla (2010) believe that, for effective and efficient use of Customer Relationship Management, companies need to make some steps. First, they must concentrate less on product profitability and more on customers and their profitability. This step helps to strengthen and intensify customer relationships. Also, companies must pay less attention to present-day sales. A company in the decadence state may have considerable present-day sales, bur miserable perspectives. The customer lifetime proceeds metric estimate the future profits obtained from a customer, correctly discounted to show present cost of money. Than, companies require to shift their focal point from the value of brand to the “sum of the lifetime values of their customers” (Rust, et al, 2010). The authors underline that increasing the value of brand is better seen as a mean to an end, one method to create customer equity, which is a good proxy for the worth of the company. The last proposed step is to pay less attention to present market ratio and more attention to the value of a company’s client base in the market.

Soch and Sandhu (2008) found that using Customer Relationship Management in some companies is not successful. The authors underline that there are several reasons for this. The first is that some companies see Customer Relationship Management primary as placement of funds in software and technology, whereas other companies treat Customer Relationship Management more widely and persistent in developing fruitful relationships and cooperation with customers. It is also probable that companies “are reluctant to terminate relationships with customers who are not profitable” (Soch, & Sandhu, 2008). The authors emphasize that it is also probable that companies are not as resulting in realizing Customer Relationship Management processes at this phase because of an absence of comprehension of the probable advantages of supporting, practicing and improving customer relationships. Finally, fruitful Customer Relationship Management needs a “strong people-related component” (Soch, & Sandhu, 2008). Customers prefer to cooperate with the employees of the company, and not just with services and products.

Making company wholly customer-centred orientation, will be complicated, Rust, Moorman and Bhalla (2010) pay attention. It can be the reason of some difficulties of Customer Relationship Management. The authors believe that because the change needs overcoming entrenched benefits, it will not come about structurally and organically. However, “daunting, the shift is inevitable.

Customer Relationship Management processes do not certainly “lead to profit generation” (Soch, & Sandhu, 2008). The authors suggest that Customer Relationship Management activities and other instruments may not “lead to the required dividends unless special efforts are made to develop long-term relationships” (Soch, & Sandhu, 2008). In addition, the influence of investments made in Customer Relationship Management activities for developing short-term and long-term financial performance of the companies, must be explored. Soch and Sandhu (2008) believe that, in recent years, companies have undergone considerable changes.

Nowadays, companies must create and carry out their own Supply Chain Management and Customer Relationship Management programs to perfect the quality and dimensions of their business. Therefore, it is significant to determine the types of Supply Chain Management and Customer Relationship Management activities that companies can use and investigate how these relate to company fulfillment and return on sales. Since the companies can now cooperate directly with customers, they must fully reorganize to put relationships ahead of creation and development of brands.

References

Banham, R. (2009, September 1). Supply Chains and Demand. CFO Magazine. Retrieved July 5, 2010, from http://www.cfo.com/article.cfm/14290335/1/c_14292723?f=search

Rust, R.T., Moorman, C., & Bhalla, G. (2010, January 01). Rethinking Marketing. Harvard Business Review, 1-9.

Soch, H., & Sandhu, H.S. (2008). Does Customer Relationship Management Activity Affect Firm Performance? Global Business Review, 9 (2), 189-206.

Stock, J.R., Boyer, S.L., & Harmon, T. (2009, March 6). Research opportunities in supply chain management. Journal of the Academy of Marketing Science. Retrieved July 4, 2010, from http://www.springerlink.com/content/36m16635gn25140w/fulltext.html.