Topic 10 IT Enabled Supply Chain

Models
Measurement of SCM
performance through Supply
Chain Operations Reference
(SCOR) model
1

Agenda
Foundations
Phase I: Opportunity identification
Phase II: Analyzing basis of
competition
Phase III: Designing Material flow
Phase IV: Implementation
Extending SCOR beyond Supply
Chain
2

Foundations
The roots lie in the Supply Chain council a
non-profit organization www.supply-chain.org
An initiative that had individuals from 69
leading companies (Compaq, Procter &
Gamble, Lockheed Martin, 3M, etc)
Focus: develop a supply chain process model
MISSION: Promote use of the SCOR Model through
development, research, conference events and
application in industry

PRESENT Situation: Maintains 750 corporate members

with chapters in Australia, Europe, North America & S.E.
Asia
3

Foundations
SCOR Model

Foundations
Organizational Support
Requires an Evangelist [Leader]
o Understanding of business domain
o Keen listener
o Can drive incremental as well as radical
change

A climate for SCOR

o Exposure to prior models such as 6-sigma,
Business Process Re-engineering
o Adaptive organizational culture
5

Phase I: Opportunity Identification

Perform a
SWOT on the
company
o Similar to a
strategy
assessment tool

Assess the
financial
performance
o Top line sales,
etc
o Bottomline
profits

Phase I: Opportunity Identification

Internal Profile
o Organization chart
o Locations of manufacturing, storage, technical
centers, etc
o Control systems how the different departments
such as sales, finance, operations and Human
Resource are linked

Operational Metrics used; examples are

o Line item fill rate
o Back orders
o Unit cost
7

Phase I: Opportunity Identification

Supply Chain definition matrix (an
example is given for Madura
Garments)
PRODUC
BRAND
T
Van Heusen Shirts

Trousers

T-Shirts

Suits
Peter
England

Shirts

Trousers

T-Shirts

Blazers

Planet
Fashion

Multi Brand
Outlets

Exclusive
Brand Outlets

Factory
Seconds
outlet

Phase I: Opportunity Identification

The Project charter
o Helps establish complete understanding
of projects scope and objectives
o Defines roles and responsibilities for all
members involved

Phase II Analyze basis of

competition
Key stages
o Defining the score card matrix
Company's
Scorecard
Matrix

External Facing
Internal Facing
Data in each Shareholder
scorecard Facing

Biz Unit I

Biz Unit II

Biz Unit III

Omit

Omit

Omit

Omit

10

Phase II Analyze basis of

competition
Scorecard template with metrics
Supply Chain metrics
o Line item on time and in full
o Perfect Order fulfillment
o Order fulfillment cycle time

Financial metrics
o Asset turns
o Gross margins
o Return on Assets
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Phase II Analyze basis of

competition
Example for Madura Garments SF
Jeans (a fashion Jeanswear brand)

PRODUCT
Jeans
T-Shirts
Shirts
Jackets
Bags

Ordered
1512
1000
500
250
100

Picked
55
100
47
31
0

Despatche
d
1235
700
412
212
72

Pending
222
200
41
7
28

Order Fill
Rate
82%
70%
82%
85%
72%

* Hypothetical data, for

illustration only
12

Phase II Analyze basis of

competition
Benchmarking
Involves comparison of parameters
across several companies
Focus is on financial metrics

13

Phase II Analyze basis of

competition
CashtoIndustry comparison Revenue
cash
Asse Gross
Computer Network ($
cycle Inventory t
Margi
Hoovers.com
Million) SG&A COGS time
Days Turns n
ROA
Network Appliance
176.1
41% 47% 159
98
0.66 53% 7.8%
Dassault Systems S.A.
546
57% 14%
91
2
1.17 86% 33%
3.30
The Titan Corporation
1033
25% 73% 105
12
2.23 27%
%
12.9
RadiSys Corporation
340.7
24% 66% 130
87
1.3 34%
%
Convergys
Corporation
2320.6
30%
55%
35companies
0
5.91
The
table gives
comparative
values
for different
in
the 45% 70%
3COM
2820.9 64% 81%
39
32
1.61 19% -54%

computer network industry

Helps benchmark key financial metrics
Helps set future goals taking industry leaders metrics
Provides a clear plan that will now drive down to supply chain metrics

14

Phase II Analyze basis of

competition
Sample findings from analysis of a company (Fowler)
o Across different companies, wide range of SG&A, COGs,
hence valid comparisons cannot be done
o Metrics of 197 days for the company vs an industry
average of 58: potential for improvement !
o A 7% operating income was comparable with peers

Key finding & action agenda

o The op. income was only at the 50% percentile with regard
to industry
o The company would need to fund additional $70 million
o The shortfall could be met through supply chain
performance

15

Phase II Analyze basis of

competition
Competitive Requirements Analysis
o 4 attributes of SC performance
Delivery Reliability
Flexibility and responsiveness (combined)
Supply chain management cost

Asset management efficiency

16

Phase II Analyze basis of

competition
The scorecard review
o Focus on difference between
requirements (goals) and actual
performance
o Work towards the specific goal within
the performance attribute (or SC metric)

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Phase II Analyze basis of

competition
Performance
Attribute

External

Internal

Perf. Metric

OTIF
Supply Chain
Delivery reliability Perfect Order
Requirement
Supply Chain
Responsiveness Cycle time
Supply Chain
Upside SC
flexibility
Flexibility

Parity Advantag Superior

(50%
e (70%
(90%
Percentil Percentil Percentile Parity
Actual
e)
e)
)
Gap
49.20% 74.70%
85%
95.00% 25.50%
30.20%
74%
81%
88.00% 43.80%
9 days

10 days 6.5 days

91.5 days 60 days

COGs
96%
Total SCM costs 15.50%
Supply Chain Cost
SG&A costs
7%
Warranty/Return
Costs
0.70%
Cash-to-cash
197
Supply Chain Asset cycle time
Management
Inventory days
Efficiency
of supply
91
Asset turns
2

45 days

3 days

1 day
-31.5
29 days days

27.00%
3.90% -6.00%

10%

69%
9.50%
17%

35%
6.70%
9%

1.50%

1.00%

0.50%

1%

97.9

63.8

29.7

-99

74
2.5

37
4.7

7.0

-18
-1

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Phase III Design Material

Flow
The focus moves from data analysis to
deciding action plans
Focus on all points of the material flow
o Inbound / outbound
o Lead times
o Internal / external customers

Metric defect analysis

o Identify where gaps are present
o Take remedial measures
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Phase III Design Material

Flow
SCOR
Process
Types

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Phase III Design Material

Flow
Level One Process categories
o PLAN
o SOURCE
o MAKE
o DELIVER
o RETURN

Decomposes to 12 Supply chain

execution process types and 5
planning process types
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Phase III Design Material

Flow
SOURCE
S1 Source stocked product
S2 Source make-to-order product and
S3 Source engineer to order product
Key factors in determining the source process types are
trigger event from PLAN, MAKE & DELIVER
S1 triggered by forecast requirement from PLAN,
MAKE or DELIVER
S2 by specific customer order requirement from MAKE
or DELIVER
S3 triggered by design specification from MAKE or
DELIVER
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Phase III Design Material

Flow
MAKE
M1: Make to stock

Forecast or
replenishment
requirement from PLAN

M2: Make to order

Specific customer order

requirement from
DELIVER

M3: Engineered to order

Specific customer order

requirement, design
specification from
DELIVER

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Phase III Design Material

Flow
DELIVER
D1: Deliver stocked
product

Forecast or
replenishment
requirement

D2: Deliver make-to-order

product

Specific customer order

requirement

D3: Deliver engineered to

order product

Specific customer order

requirement, design
specification

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Phase III Design Material

Flow
RETURN
R1: Return Defective product triggered by warranty
claim initiated on a customer / large scale product recall
(such as recall of Toyotas Corolla / Honda Jazz, etc)
using process steps in PLAN
R2: Return maintenance, repair and overhaul product (R2)
triggered by a planned maintenance event (using PLAN)
R3: Return excess product triggered by planned
inventory returns
o Based on contractual agreements with specific customers

Two types
o Returns from customers (DRx)
o Returns to suppliers (SRx)
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Phase III Design Material

Flow
PLAN

P1: PLAN Supply Chain

P2: Tactical planning

process

P3: Tactical planning

process
P4: Tactical planning
process

P5: Aggregating planned

returns

Take actual demand data;

generate 12 to 18 month
supply plan
Compare total material
requirement with P1 constrained
forecast, generate 12 to 16
week Material Requirements
resource
Compareplan
actual production
orders plus replenishment
orders from P4 against P1
constrained forecast; generate
12-16 week
MPScommitted
Compare
actual
orders with P1 constrained
forecast; generate 12-16 week
distribution resource plan
Take actual demand data;
generate 12 to 18 month
supply plan
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Phase III Design Material

Flow
Metric Defect Analysis
o Borrowed from Six Sigma and Total
Quality Management disciplines
o For each metric identified in the score
card,
Team must analyze the failures or defects
Can adopt the 5 WHY technique to arrive at
the root of the problem

o Suggested that Pareto charts,

histograms, control charts, etc be used
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Phase III Design Material

Flow
Metric Defect Analysis
Identified defect categories & metrics
o Perfect Order Fulfillment
Product not available at initial ATP (Available To
Promise) Check
Warehouse shipping delays
Transporter delivery delay

o Order fulfillment cycle time

Orders having cycle time exceeding targets
Order picked to orders shipped
Orders shipped to order delivered
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Phase III Design Material

Flow
Order Fulfillment Cycle time
140
(Example)
120
Count of Orders
(000s)

100
80
60
40
20
0

Order Cycle time in

days
29

Phase III Design Material

Flow
Effect

Disconnect
Analysis: Using
Fishbone
Diagram

Cause

Methods

Machinery
Re-design screen

Office Layout

New office
working
method

Effect on other office

Training

Remove old forms

Design new forms

Teamwork

Materials

Manpower
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Phase IV: Implementation

Identifying drivers of change
Factors of Change
TO BE Change
Drivers also known
as Implementation
Scope factors

Trading Partner

Organization

Process

People-Jobs
Technology

Goals-Strategy

Design
Replenishment &
Cost & Service
purchasing
Priority
relationship
Competitive
Requirements,
Organizational
i.e. SAP
Structure

Measurement
Service Level
Agreement

Scorecard

Customer
Responsiveness TO BE processes,
[more efficient] leading practices
Defect Analysis
Annual
Performance
Job Scope &
Goals
Responsibilities Performance Appraisal
Screenshot
Technology
Storyline, detailed Uptime, response
Strategy
solution, etc
time

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Phase IV: Implementation

Assessing performance improvements
o Improved demand management & forecasting
o Increase in suppliers OTIF metrics
o Improvement in supplier flexibility
o Reduction in inventory holding
o Increased customer responsiveness

Expected management orientation

o Better, cohesive team work
o Functional silos eliminated and an integrated
SCOR model is in place
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SCOR beyond Supply Chain

Questions posed by management
that has benefited from SCOR
o Can I go beyond and assess
organizational areas of concern?
o Is a value chain assessment necessary?
o Can I extend the concept to other
business units and to my suppliers
suppliers?

33

SCOR beyond Supply Chain

Value chain excellence Phases
Educate for value chain support
o Identify improvement areas; evangelists, active
sponsor
o Assemble and deliver appropriate educational content
o Gain consensus for pilot project

Discover value chain opportunity

o Define big business questions and summarize
business background
o Assemble high level industry comparison
o Decide scope and finalize project charter
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