2010May-DMSCA

Supply Chain Management

Shashank Kapoor

Contents

DMSCA 2010 - Supply Chain Measurement

PART-1WHAT IS SCM


SCM: Defination

SCM: Different viewpoints in different companies

Supply Chain Drivers: Innovation


Supply Chain Drivers: Extended Products


Supply Chain Drivers: Globalization


Supply Chain Drivers: Flexibility


Supply Chain Drivers: Process Centered Management


Supply Chain Drivers: Collaboration


Supply Chain Drivers: Summary

Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage

Total Supply Chain Management Costs (% of Revenue)

9.2%

12.3%

10.7%10.0%

10.7%

9.1%

6.6%7.4%

4.8%5.5%5.3%

4.2%3.5% 3.6%

5.4%

3.4%

0.0%2.0%

4.0%6.0%

8.0%10.0%

12.0%14.0%

Automotive Industrial Chemical &Advanced Materials

Computer Consumer Goods Pharmaceutical Semiconductor TelecommunicationsEquipment

Best-in-ClassMedian

Source: PRTM/The Performance Measurement Group

% o

f Rev

enue

Best-in-class Companies’ Outperform Their Median Competitors with a 50% Cost Advantage


The SCOR FrameworkSupply Chain Council Resources


The Enterprise: Role of Supply Chain


Sup

plie

r pro

cess

es

Product DesignDCOR™

Custom

er processes

Supply Chain SCOR™

Sales & SupportCCOR™

Product Management

What is SCOR®?

16

Customer processesSu

pplie

r pro

cess

es Supply Chain

Customer processesSu

pplie

r pro

cess

es Supply Chain

Process, arrow indicates material flow directionProcess, no material flow Information flow

DeliverMakeSourc

e

Return

Return

Plan

• SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management

• Organized around the five primary management processes of Plan, Source, Make, Deliver and Return

• Developed by the industry for use as an industry open standard - Any interested organization can participate in its continual development


The SCOR® model – a cross-industry open standard

• The five integrated processes provide a boundary-free view of the true end-to-end Extended Supply Chain

• Supports intra- and cross-enterprise optimization of arbitrary scale


Supplier

Plan

Customer Customer’sCustomerSuppliers’

Supplier

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

Return Return Return Return Return Return Return Return

SCOR Processes – Five Levels of Decomposition

Level 1 Level 2 Level 3 Level 4 Level 5

Scope Configuration Activity Workflow Transactions

Differentiates Business

Differentiates Complexity

Names Tasks Sequences Steps Links Transactions

Defines Scope Differentiates Capabilities

Links, Metrics, Tasks and Practices

Job Details Details of Automation

Sets Strategy First Tier Diagnostics

Second Tier Diagnostics

Industry or Company Specific

Technology Specific


S1Source

Stocked Product

Supply-ChainSource

S1.2Receive Product

Standard SCOR definitions Company/Industry definitions

EDIXML

Supply Chain Balanced SCORcard

Standard Strategic (Level 1) Metrics

Attribute Metric (Strategic)Reliability Perfect Order Fulfillment

Responsiveness Order Fulfillment Cycle Time

Agility Supply Chain Flexibility

Supply Chain Adaptability†

Cost Supply Chain Management Cost

Cost of Goods Sold

Assets Cash-to-Cash Cycle Time

Return on Supply Chain Fixed Assets

Return on Working Capital


† upside and downside adaptability metrics

Cust

omer

Inte

rnal

SCOR 10 - Skills

• Baseline Capabilities

– Essential skills required for job – “non-starter” gaps

• Critical Capabilities

– Difference between adequate and superior performance

• Performance

– Key incentives for process execution

• Credentialing

– Training and validation of capabilities


SCOR Benefits Companies

SCOR can be used to describe supply chains that are very simple or very complex using a common set of definitions and enabling a common understanding

•Form an integrated measured strategy which translates overall business objectives clearly and comprehensively to all operational business entities

•Create a common balanced scorecard by which customers can measure their performance and by which SCC members can measure suppliers’ performance

•Compare the performance of supply chain and related operations within their company or against other companies•Determine what processes to improve and by how much to improve them either eliminating waste, or by improving process reliability•Guide the consolidation of internal supply chains (which results in significant cost reductions from eliminating duplicative assets)•Create standard processes and common information systems across business units (which generates major cost savings, cycle-time and quality improvements)


Supply Chain MeasurementThe SCOR Reference Process


Configuring a Supply Chain Architecture

Process Layer Focus Planning Horizon

Scope Define MarketsDefine Products & Services Business Changes

Configuration Define StrategyDefine Governance Market Changes

ActivityDefine ProcessesDefine PracticesDefine Skills

Performance Changes


Measurement and Benchmarking

• Qualitative Benchmarking– Comparing best practices among organizations– Maturity Assessments

• Quantitative Benchmarking– Comparing levels of measured performance– Assessment of Performance Gaps

• Competitive Benchmarking– Quantitative Benchmarking between companies– Identifies superior relative performance


7 Steps of a Benchmarking Program

• Supply Chain Definition• Supply Chain Prioritization• Supply Chain Strategy• Selecting Metrics• Sourcing Data• Creating a Balanced SCORcard™• Performing Benchmark


Supply-Chain Definition

• Supply Chains are the Totality of processes spanning operations from supplier to end-customer, focused on material, work and information flow

• We use a tool called the Supply Chain Definition Matrix to define the supply-chains within an enterprise

• The Supply Chain Definition (i/o Matrix) Matrix helps determine the number and size of supply chains

• Columns: Customers (Output)• Rows: Products (Input)• The intersection of each column and row – if the goods or

services flow to the customer – is a supply chain


• Columns are Retail/Commercial, and sub-segmented• Rows are the Major Product Lines

Example: Air Conditioning Company


Supply Chain Prioritization

• We use a tool called the Supply Chain Prioritization Matrix to order the supply-chains according to relevance

• Each supply chain can be ranked by a number of features• We suggest:

– size (revenue, volume, and margin),– complexity (# SKUs)– strategic importance

• You can also look at them by– Cash Consumption– Risk– Volume variability– Etc.


• We use a tool called the Supply Chain Strategy Matrix to Identify priority strategic features or attributes of supply-chains.

• Each supply chain strategy is indicated by a collection of ranked features:

Reliability On time? Complete? Undamaged?

Responsiveness From Customer Request to final acceptance

Flexibility How long to scale up? How expensive to scale down?

Cost Cost of Processes? Cost of Goods Sold?

Assets Working Capital? Return on Investments?

Supply Chain Strategy


Supply Chain Strategy in 5 Minutes

Build Strategy Model Lifecycle Likely Priority

Buy 1. Assets2. Cost

Make ETO 1. Reliability2. Response

BTO 1. Assets2. Reliability

BTS Start 1. Flexibility2. Response

Middle 1. Cost2. Reliability

Commodity 1. Cost2. Assets

EOL 1. Assets2. Cost


• Each unique combination of ratings defines Your Supply Chain Strategy for the channel

• Think of the rating as a desired state, NOT where you want to improve the most

Supply-Chain Strategy Matrix


S

A

A

P

P

The SCORcard

• We use a tool called the Supply Chain SCORcard™ to Identify performance characteristics of supply-chains.

• Each SCORcard™ is built from a subset of hundreds of SCOR metrics.

• For supply-chain benchmarking we generally use only Level 1, 2 and 3 metrics

• The SCOR Manual provides all necessary definitions


• SCOR metrics: Standard Strategic (Level 1) Metrics

Performance Metrics


† upside and downside adaptability metrics

Attribute Metric (Strategic)Reliability Perfect Order Fulfillment

Responsiveness Order Fulfillment Cycle Time

Agility Supply Chain Flexibility

Supply Chain Adaptability†

Cost Supply Chain Management Cost

Cost of Goods Sold

Assets Cash-to-Cash Cycle Time

Return on Supply Chain Fixed Assets

Return on Working Capital

Cust

omer

Inte

rnal

Philosophy• You need to have the most data where performance is

most critical• You need to have least data where performance is least

critical

For Every Superior Advantage ParitySelect Level 1 Metric Level 1 Metric Level 1 Metric

and Level 2 Metric Level 2 Metric

and Level 3 Metric

SCORcards in 5 Minutes


A Metrics Architecture


D1.3Reserve Inv.

Calculate Date

Result: The Workflow Diagramm

p3 H

Q(C

uper

tino)

mp3

Fac

tory

(S

henz

hen)

Reta

il, in

c.(A

mst

erda

m)

D2.2Receive, Enter, Validate Order

D2.3Reserve Inv.

Calculate Date

S1.1Schedule Prod.

Deliveries

Customer P.O. Delivery Commit

S2.1Schedule Prod.

Deliveries

D1.2Receive, Enter, Validate Order

Inter-Company P.O.

C.O. = Customer Order, Inv. = Inventory, P.O. = Purchase Order, Prod. = Product

C.O. C.O.


Planning Data Gathering: Sources of Data

• Financial Data– 10-K data, Company Annual Reports, Cost Center Reports– Must be Verified by Financial Team (Controller)

• Non-Financial Data– Customers

• Delivery Performance• Total Cycle-Time Performance

– IT Systems• Process-to-Process Transactions• Planning System Parameters (Lead Times)

– Suppliers– 3PL Providers


• Look at who owns the data• Consider where the transactions may be• Organize to alert data owners to gather data• Collect and assess Data Quality• Use SCOR Metrics Definition as a guide

Metric Process Owner Due Date Status

On-Time Delivery D1.16 Logistics 2/2/2008 Complete

Undamaged D1.17 3PL Provider 2/15/2008 50% Collected

Order Fulfillment Cycle Time

D1.1 – D1.17 Deliver Team 2/22/2008 Not started

Etc…

Data Gathering Plan


Interpreting the Data

• Used for choosing target performance• Critical to understand Performance in a particular Demographic• Can be “internal” (competing against other supply chains in same

company)• Aligns Strategy, Performance, and Performance Goals


Attribute SAP Metric (level 1) You Parity Adv Superior Gap

Reliability S Perfect Order Fulfillment 97% 92% 95% 98% 1%

Response A Order Fulfillment Cycle Time 14 days 8 days 6 days 4 days 8 Days

Flexibility P Ups. Supply Chain Flexibility 62 days 80 days 60 days 40 days 0

Cost P Supply Chain Mgmt Cost 12.2% 10.8% 10.4% 10.2% 1.4%

Assets A Cash-to-Cash Cycle Time 35 days 45 days 33 days 20 days 2 Days

Continuous Top Down Supply Chain Integration

Scope

Configuration

Activities


AssesBusiness

Gaps

AssessBusiness

Performance

IdentifyProcessNeeds

CreateStrategy

AssessBusinessMarket

AssessProcess

Performance

DeployChanges

CreateTo-Be

Programs

IdentifyProcessGaps

IdentifyProcessNeeds

DefineAs-IsState

AnalyzeRoot

Cause

CreateTo-Be

Projects

CreateTo-Be

IdentifySolutions

IdentifyProcessGaps

SCC: An independent, non-profit global association

• Formed in 1996 to create and evolve a standard industry process reference model of the supply chain for the benefit of helping companies rapidly and dramatically improve supply chain operations

• SCC has established the supply chain world’s most widely accepted framework – the SCOR® process reference model – for evaluating and comparing supply chain activities and their performance

– It can be used to describe supply chains that are very simple or very complex using a common set of definitions and enabling a common understanding

– It lets companies quickly determine and compare the performance of supply chain and related operations within their company or against other companies

• SCC continually advances its tools and educates members about how companies are capitalizing on those tools

– With membership open to all interested organizations


Industry Membership Scope


http://www.bp.com/home.do?categoryId=1&contentId=2006973

http://www.atkearney.com/main.taf

http://www.bayer.de/

http://www.boozallen.com/home

http://www.bcg.com/default.html

http://www.chevron.com/

http://www.lockheedmartin.com/wms

http://www.oracle.com/index.html

http://www.prtm.com/Home.aspx?id=422&LangType=1033

Typical Company Benefits

$200M Cost Improvements Single Division

US$2.3B Savings supported with Merger

$5B Working Capital

$66M Revenue/Inventory

€2M Improvements Single Division (Peroxides)


SUPPLY CHAIN COUNCIL, INC.


Comparative Data1

Improvement Area Range

Delivery performance 16% - 28%Inventory Cost Reduction 25% - 60%

Reduction in order fulfillment cycle time 30% - 50%Improvement to forecast accuracy 25% - 80%

Increase in overall productivity 10% - 16%Lower supply chain costs 25% - 50%Improvement of fill rates 20% - 30%

Improved capacity realization 10% - 20%


1Stephens (2000) 1997 Comparative Study Pittsburg, USA

Many Thanks

[email protected]

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2010May-DMSCA

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