Company Supply Chain Analysis Report for NAB Executive Summary The intent of this report is to analyse the practice of supply chain management in National Australia Bank (NAB). The sources of information for this report are from academic readings, internet news and NAB websites. Logical thinking and supply chain process mapping are the tools used to analyse NAB supply chain management practices. The raw material and products chosen to analyse is money.
The analysis concluded NAB money product supply chain is a special one with both upstream and downstream considered ‘personal and business banking customers’, and therefore both are treated as customers. NAB home loan product is chosen as an example to illustrate the importance of aligning customer needs and values with the core competencies NAB can offer. This report will then talk about NAB’s award winning Customer Relationship Management software and how CRM helps NAB to service its customers better by segmenting them into different groups as not all customers require same level of service.
Finally the importance of risk management for NAB during the recession is discussed, along with the current pressure to focus on the consumer and NAB growing customer dissatisfaction. Recommendations for improving and monitoring these issues are then discussed. Table of Contents Executive Summary2 Table of Contents3 1Introduction4 2NAB Supply Chain5 2. 1Supply Chain Management Importance6 2. 1. 1Losing Customer = Losing Fund Provider6 2. 1. 2Substantial Profit from Customers6 3Operations – Home Loan Example7 3. Understanding Customer Needs and Delivering Customer Values7 4Banking Customer Relationship Management10 4. 1Data Mining and Customer Segmentation10 5Supply Chain Issues and Recommendations13 5. 1Current Economic Issues – Recession 13 5. 2Consumerism and NAB’s Customer Dissatisfaction 14 5. 3Recommendation 14 6Conclusion16 Reference List17 Introduction National Australia Bank (NAB) is a financial institution within the NAB Group, providing a comprehensive range of banking and financial services in Australia. It is one of the biggest banking service providers along with ANZ, Commonwealth Bank and Westpac.
The report discusses the supply chain of NAB, with the focus on money being the primary raw material and product within the channel. It will first describe the supply chain of NAB, and discuss the importance of supply chain management within the organisation. The features of NAB’s operations will then be highlighted using the home loan product as an example, and how they use efficient CRM software to interact with supply chain partners. Finally issues such as operating in a recession and within the current consumerism movement will be discussed, with recommendations of how to cope with these issues suggested.
NAB Supply Chain A supply chain is an integrated process wherein a number of entities work together in an effort to achieve a desired outcome (Beamon 1998). It typically has a focal company which convert the raw material into something more useful, upstream supply chain which is the suppliers and downstream supply chain which is its customers. The NAB supply chain diagram is as figure 2. 1 below:- NAB is a financial institution, with the raw material being cash or money. The upstream supply chain consists of business banking customers e. . corporations, government bodies, trading companies and etc, personal banking customers or retail customers and lastly international or domestic funding providers e. g. overseas banks. NAB takes this cash or money and “add value” to it by lending out most of this money in the form of cash, insurances, loans, wealth management package or other financial products to business customers and personal banking customers. NAB then charges interests and fees on these products which bring in profits and revenues to the company.
The upstream suppliers are paid in the form of interest for investing money in NAB. 2 Supply Chain Management Importance Generally in most organisations the primary goal is to satisfy its customers while maintaining a profit in doing so. The theory behind supply chain management is for companies to take a holistic view of business strategy, by aligning goals, sharing resources and collaborating across company boundaries (Fawcett, Ellram & Ogden 2007, p6). 1 Losing Customer = Losing Fund Provider The supply chain of NAB can be viewed as a special case, as can be seen in Figure 2. , with both the upstream and downstream members considered ‘personal and business banking customers’, and therefore both are treated as customers. This unusual case means that customer satisfaction and loyalty are of the upmost importance for NAB, otherwise by losing a customer they risk losing a supplier and a user of funds who could bring in revenue. An example would be a 10,000 employees business corporation who uses NAB as their main transactional bank. The corporation would normally set up its employees with NAB personal account for depositing pays. That would be 10,000 NAB personal accounts and 1 NAB business account.
If the firm not happy with NAB and changed over to let says ANZ, many of the personal accounts would also switch over to ANZ. Revenue losses from this event could be large. By contrast, in a manufacturing industry, if one loses a supplier it does not automatically mean it loses its customer also. 2 Substantial Profit from Customers According to NAB Group’s 2009 half yearly financial report (2009) in Figure 2. 3, both personal banking and business banking customers within Australia contributed more than $1. 8 billion underlying profit out of the total $4. 7 billion, which is more than 38% of total profits.
As such, managers need to remain constantly aware of the areas of customer value – quality, cost, flexibility, delivery and innovation – and ensure they consistently deliver to their customer’s expectations from these aspects within all their product categories (Fawcett, Ellram & Ogden 2007, p32). Operations – Home Loan Example As NAB has a large range of products, analysing the features of each would be beyond the scope of this report. Home loan product is chosen to demonstrate the common practice in supply chain management. The process is illustrated in Figure 3. 1. Understanding Customer Needs and Delivering Customer Values Home loan process starts when the potential customer submits and application (NAB 2009). After receiving the customer application, one of the NAB’s home loan specialists will contact the applicant and set up an appointment. The main purpose of the meeting is to understand what customer needs and explain how NAB could best meet them. Salvador and Brown (2009) said it’s pointless to have many products unless the customer could match what he needs. NAB understands that by insisting the applicant to meet and talk with home loan specialist before granting loan approval.
The helps to align customer needs and how NAB could best meet them with their core competencies. The core competencies in this example are the great range of home loan products and other related products e. g. insurances. NAB offers itself as a ”One Stop Shop” for home buying process by doing the rest of the processes e. g. verification, valuation, and etc. They could even arrange insurances and send the fund away on settlement day on the customer behalf. This is very convenient to the customer because this frees up customer’s time to do other things.
However, as illustrated in Figure 3. 1, sometimes the customer needs could not be met by any of the products. Flexibility is the ability to tailor and deliver the products to the distinct customer (Vokurka, Zank & Lund, 2002). Each customer is different and deserves distinct service and product. NAB is flexible as the home loan specialist could meet with the potential applicant at a place deems comfortable and convenient to him. NAB also has 12 different home loan products and it could tailor and combine these products to meet customer needs. Banking Customer Relationship Management
Hadaya & Cassivi (2009) said customer relationship, product development and data integration are the key concepts to remain competitive in a demand driven supply chain. NAB’s operation could be classified as demand driven supply chain as the products are offered based on customer needs e. g. customized home loan package in the home loan example. As NAB’s money product supply chain’s upstream and downstream partners consist of personal and business banking customers, it is very important to retain customers as mentioned in Section 2 of this report.
Hadaya & Cassivi (2009) said Customer Relationship Management (CRM) can be defined as an “enterprise approach to understanding and influencing customer behaviour through meaningful communications in order to improve customer acquisition, customer retention, customer loyalty, and customer profitability”. This report will discuss how CRM is used in NAB internal supply chain partners collaboration. 1 Data Mining and Customer Segmentation NAB’s uses CRM to track customer’s transaction activity and capture information on the customer relationship with the bank.
This information is processed in the data mining analysis module and the outputs are shared across functional units within the organization. The simplified process is illustrated in Figure 4. 1. It could be seen from figure 4. 1 that for a CRM to work, one must be able to segment the customers according to the needs and customer types as not all customers require the same attention and resources. According to Khirallah (2001), NAB segmented major customer groups as illustrated in Figure 4. 2 based on financial needs and profitability assessment. Stem from these major groups, they are subdivided into more defined customer groups.
Based on Figure 4. 2, NAB has established strategic alliance relationship with “Custom Business” customers and transactional relationship with “Retail Business” customers. Khirallah (2001) reported NAB is managing the customer portfolios fairly e. g. the “premium” segment has an individual assigned to him and the retail customer has a bank taking care of him. The typical customer portfolio of a premium segment banker is 200 customers and the retails segment is 1000 customers. Supply Chain Issues and Recommendations 1 Current Economic Issues – Recession
Perhaps the biggest issue facing most companies currently is the problems associated with the global recession, in particular the challenge of remaining profitable. NAB has made it clear in their report to shareholders that they will remain to balance all stakeholders’ interests fairly as can be seen in figure 5. 1 [pic] Figure 5. 1 Managing operations under these uncertain conditions is very difficult and risky, and therefore NAB has to invest a lot of time into risk management practices. Recognising what the risks are and what has to be done to minimize these risks is the basis of risk management and according to figure 5. , NAB appears to have done this. NAB needs to build flexibility into their supply chain practices, and continue to monitor its operations to ensure compliance (Meredith & Mantel, 2009, p58). 5. 2 Consumerism and NAB’s Customer Dissatisfaction With consumerism taking hold of businesses worldwide, Australian banks have taken to focusing on customers in order to maximise satisfaction. Bank managers want to create loyalty among their customers by providing strong satisfaction, which as previously stated is particularly important as it not only provides loyalty in its customers but also its suppliers of funds.
NAB has successfully implemented this strategy through methods such as specialising in business banking, and providing greater choice in banking delivery in the retail banking sector (2008 Shareholder Review p8-9). They continue to improve customer, community and employee satisfaction, with the latest example of customer satisfaction being no fee products, and have the ‘highest satisfaction level for business customers amongst major banks’ (2008 Shareholder Review p8).
In contrast to the above statement, Choice Magazine recently conducted a ‘Bank Satisfaction Survey’ which resulted in NAB being ranked bottom of the ‘Customer Service Class’ (FSU Australia 2009). The study showed that the actions of the major banks during the financial crisis have led to dissatisfaction among its customers compared to those of credit union and building societies, mainly regarding high fees and the failure to pass on interest rate cuts (ABC News 2009). The reason for these bad results can be contributed to NAB’s lack of understanding of what exactly its customers want.
When looking at the five basic areas of customer value, based on the research conducted, NAB have been flexible and innovative in its product and service offerings. However the bank appears to rank low on the quality, cost and delivery aspects, and therefore their reputation has suffered (Fawcett, Ellram & Ogden, 2007, pp 32-35). 5. 3 Recommendations During the recession and uncertain economic conditions, NAB must continue to manage its risk, this is particularly important for financial institutions whose business is based on making successful investments.
They need to continually assess and monitor their approaches in risk management to ensure they are still valid and effective, as well as to identify new risks that may appear. It is important for NAB to begin to understand exactly what their customers want, particularly in regards to the five areas of customer value previously discussed. Many consumers are attracted to the ‘big four’ banks by their high credit ratings, and therefore it is important that NAB successfully differentiate itself from the other major banks in order to lure customers to their products and services.
NAB should implement a quality management model such as Deming’s ‘Plan, Do, Check, Act’ (PDCA) model, which aids in ensuring customer/supplier information is valid and reliable. The ‘Plan’ phase recognises a need or problem with the customer relationship, the ‘Do’ phase is about gathering relevant information and developing or altering products and services accordingly. ‘Check’ involves assessing the effectiveness of changes made, and finally ‘Act’ involves any corrections required (Fawcett, Ellram & Ogden, 2007, pp 483 – 484). Conclusion
This report analysed and evaluated the importance, common operation practice, customer relationship management and the current issues of supply chain management applied in NAB bank service. The research results show that supply chain management is very important for NAB banking business as losing a customer for NAB means losing a supplier also. Through a bank service home loan analysis, this report finds NAB always took great care to learn customer expectation and put upmost efforts on providing flexible bank service to fulfil those expectations.
The report also concluded NAB used customer relationship management to extend suitable and value added service to customers. The major current issue in NAB was investigated and recommendations discussed include: NAB should put more effort in risk management to identify the potential risks. They also need to implement quality control methods such as Deming’s four stage model in order to constantly improve their products and service delivery and meet customer expectations. Reference List Beamon, B M 1998, ‘Supply Chain Design and Analysis: Models and Methods’, International Journal of Production Economics (1998), Vol. 5, No. 3, pp 281-294. Big 4 customer? Bank on being unhappy 2009, ABC News, viewed 20 October 2009 Fawcett, S E Ellram, L M & Ogden, J A 2007, Supply Chain Management: From Vision to Implementation, Pearson Education, New Jersey, USA. Jahangiri, T 2009, An Interview with Mark Quartermaine, Head of CRM & Sales Support, National Australia Bank, FST Media, viewed 14 October 2009 http://www. fst. net. au/print. aspx? op=in=125. Half Year Results – Investor Presentation NAB, NAB, viewed 20 September 2009 Home Loan Application Process 2009, NAB, viewed 2 October 2009 http://www. nab. com. u/wps/wcm/connect/nab/nab/home/personal_finance/2/12/3 Hsu, L Chiu, C Chen, J & Liu, C 2009, ‘The impacts of supply chain management systems on information sharing and integrated-performance’, Human Systems Management, Vol. 28, No. 3, pp 101-121. Khirallah, K 2001, CRM Case Study: Optimizing Relationship at National Australia Bank, Ltd, Tower Group, Meredith, J R & Mantel, S J 2009, Project Management: A Managerial Approach, 7th edn, John Wiley & Sons, USA NAB Bottom of the Customer Service Class: Bank Satisfaction Survey 2009, FSU Australia, viewed 20 October NAB Customer Promise, viewed 12 October 2009,
Salvador, F & Brown, T 2009, ‘Custom-built’, Business Strategy Review, Vol. 20, No. 2, pp 80-83. Vokurka, R J Zank, G M & Lund, C M III 2002, ‘Improving competitiveness through supply chain management: A cumulative improvement approach’, Competitiveness Review, Vol. 12, No. 1, pp 14-25. ———————– Cash, loan, Financial Products and etc. Cash or Money deposit Focal Firm Business Banking Customers – Business Banking Customers – Everyday Banking Accounts – Investments – Superannuation – Insurance – Finance & Loans – ‘Cards for business’ – Agribusiness – ‘Your Industry’ – ‘Business Lifestage’ International Trade International Wholesale Funds Sellers Personal Banking Customers: – Everyday banking accounts – Savings Accounts – Superannuation – Insurance – Investments – Credit Cards – Personal Loans – Car Loans – Home Loans – Financial Planning – Private Wealth – Superannuation – Insurance Personal Banking Customers – Figure 2. 1: NAB Supply Chain Customer Group A Data Business Customers transaction data, sales data, feedbacks. Product Development – develop award winning products Specialist Teams screen the data for quality and usefulness CRM system – Generate Customer Data Sets
Retail Customers transaction data, sales data, and feedbacks. [pic] Figure 2. 3 : Extract from NAB 2009 Half Yearly Financial Report (2009) Presentation No Do nothing Proceed with loan Meet and Talk with Home Loan Specialist Potential Customer Apply Home Loan Signing of contract and formal approval Inform applicant that loan application was not successful. Inform applicant to submit more information. Valuation OK? Yes Settlement Day – Money is sent to the vendor and customer starts paying loan. No Applicant resubmit new documents or information. Valuation of the security property Yes No Credit and Docs OK?
Verify all documents and information is correct. Do credit check. Yes Information Flow across functions Marketing Department – Check for sales or service opportunities Customer Group C Data Customer Group B Data Figure 3. 1 Home Load Application Process Map adapted based on Home Loan Application Process from NAB website (2009). Management Team – make strategic decisions Other internal business groups e. g. Internet Banking, Wealth Management, Insurance and etc. Figure 4. 1 – Simplified NAB CRM according to the Financial Services Industry Interview with GM Customer Strategy & Cross Marketing, NAB (2006).
NAB Sales teams/ Bank Staffs Agri-business Private Premium Retail Low Cost Tailoring, Transaction Migration Tailoring, Any Place, Any Time Bespoke Specialist, Expert Advice Specialist Services Packaged Business Cost-efficient tailoring, Transaction Migration Alliance Relationship Custom Business Business Solutions management, Partnership Management Customer Segment Product and Service Focus Figure 4. 2 – NAB Major Customer Segments modified from Khirallah (2001). Transactional Relationship Revenue – Service fees and loan repayments Interest payment