Advanced Operational BenchmarkingStrategic Benchmarking

John PaulProfessor & Research Fellow BEM

School of Management, Bordeaux, France,Managing Director, iCognitive, Singapore.

www.icognitive.com

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• Introduction of Traditional Benchmarking

• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP)– Data Envelopment Analysis (DEA) – Result Control Process

• AOB Benefits and IT Overview

Agenda

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Traditional BenchmarkingSupply Chain Operational Reference (SCOR) Model

SCOR Model

Building Block Approach

Processes Metrics

Best Practice Technology

Enable

Supplier

Plan

Customer Customer’sCustomer

Suppliers’Supplier

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

Return ReturnReturn

Return Return Return Return Return

Plan PlanPlanPlan

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Traditional Benchmarking

SCOR Level One Metrics SCORCard

Performance results for SEA Pharmaceutical Industry

Metrics Calculations4

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Best-in-class

Median

Statistical Analysis of Traditional Benchmarking

• Best-in-Class is based on Pareto’s 80-20 rule • Best-in-Class is defined as the average performance of the

top 20% of companies• Median is defined as the average performance of the 40th

to 60th percentile of companies5

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Decision Making Support of Traditional Benchmarking

• The benchmarking is done based

on each metric individually

• Not designed to identify a

company’s overall performance

• Looking at the past

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• Introduction of Traditional Benchmarking

• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP)– Data Envelopment Analysis (DEA)– Result Control Process

• AOB Benefits and IT Overview

Agenda

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Introduction to Advanced Operational Benchmarking (AOB)

• AOB combines the classic benchmarking with advanced mathematical models – Allow company to predict the outcome of an action– Theoretically evaluate various dynamic properties of

complex problem8

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• Introduction of Traditional Benchmarking

• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process

• AOB Benefits and IT Overview

Agenda

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•Make sure the best population to compared with is well selectedObjective 1

•Make sure the consistency and relevancy of criteria and parametersObjective 2

• Identification of Overall championObjective 3

• A popular tool used by decision makers when the choice of alternatives is influenced by both quantitative and qualitative data.

• Capture both subjective and objective evaluation measures

Analytical Hierarchy Process - AHP

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AHP Implementation in AOB

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• Step 1: Determine the criteria factors and the alternatives

• Step 2: Hierarchy of decisions and establish priority

• Step 3: Pairwise comparison Scale

• Step 4: One-One Comparison

• Step 5 : AHP Results

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AHP Implementation in AOB

• AHP results by Performance attribute classification

Company A

Company B

Company C

Company D

Company E

Company F

Company G

Company H

Company I

Company J

Company K

Company L

Company M

Company N

Company O

0.1364

0.0934

0.1025

0.1870

0.1467

0.2022

0.2032

0.1075

0.0846

0.1595

0.0887

0.1804

0.0809

0.0811

0.1459

0.2105

0.3806

0.1900

0.5807

0.1932

0.3844

0.1127

0.5253

0.5291

0.3484

0.5634

0.1500

0.3813

0.2579

0.1925

0.0855

0.1165

0.1054

0.0295

0.2565

0.0494

0.1174

0.0213

0.0309

0.4138

0.1283

1.1667

0.2218

0.1345

0.1227

AHP results by Performance Attributes 2008Cost Asset Management Profitability

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• Introduction of Traditional Benchmarking

• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process

• AOB Benefits and IT Overview

Agenda

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Data Envelopment Analysis - DEA

DEA Approach

• Measures the relative efficiency of the Decision Making Unit (DMU)

• DEA gives virtual frontier to measure the efficiency• Compare each DMU to the optimum virtual best DMU• DEA sets the performance targets by defining

Hypothetical efficient DMU15

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Data Envelopment Analysis - DEA• DEA Frontier and CRS model

Crite

ria B

Extreme Limit in The Market

– The Frontier

Criteria A

Input oriented CRS model

θ*= Min θ∑ λj xij ≤ θxio i = 1,2,….,m;

∑ λj yrj ≥ yio r= 1,2,….,s;

λj ≥ 0

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DEA – Implementation in AOB

• Inputs and outputs are selected base on high level that has direct impact on Supply chain operations and profitability.

• Step 1: Defining Inputs and Outputs

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DEA – Implementation in AOB

• Step 2: Actual and Targets( based on Hypotheticall Efficient DMU)

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DEA – Implementation in AOB

• Step 3: Model Results for growth and operational Efficiencies

CRS Input oriented model is used

Company D is the relatively most efficient company in terms of growth

Companies need to reduce their inputs or improve their outputs to achieve higher efficiency

Potential targets are set for each inefficient company

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• Introduction of Traditional Benchmarking

• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process

• AOB Benefits and IT Overview

Agenda

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Result Control Process

Process review

to clearly identify and analyze the overall benchmarking by using data input from previous models.

• Evaluation model and interpretation

It reflects the current strategic positioning of the company within the overall industry

• Recommendation based on decomposition

It identify improvement directions and set the base for future design.

• Implementation Steps

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Result Control Process

• Bi-Directional Analysis

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Result Control Process

• Bi-Directional Analysis

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• Introduction of Traditional Benchmarking

• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process

• AOB Benefits and IT Overview

Agenda

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Process•Efficiency•EffectivenessPerformance •Efficiency•EffectivenessBest Practices•Efficiency•Effectiveness

AOB

AOB Benefits

• Measure Effectiveness and Efficiency

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AOB Benefits

• Measure Effectiveness and EfficiencyBetter positioning in the market place

Better objectives setting

Operational cost savings through intelligent spending 26

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AOB IT Overview

ScipoApplication server

Server-sideDataAccess

Server-sideBusinessLogic

Server-sidePresentation

ETL(Extract,Transform,Load)

ScormetricsLogic

ASP& ASPXpages

ScipoWeb server

ScipoDataMart

SQLserver

SCIPO

EnterpriseInformationSystems

SAP R/3

EnterpriseApplications

Databases

Client-sidePresentation

ASPXReports

ASPXReports

AHP

one-

one

co

mpa

rison

Grad

e en

gine

EME

(effe

ctive

ness

m

easu

rem

ent

Engi

ne)

Indu

stry

Ra

nge

SCHEM Tool

Inpu

t &

O

utpu

ts

Perf

orm

ance

Ta

rget

s

Effici

ency

M

easu

rem

ent

DEA

Mod

els

Joe ZHU DEA Excel Solver

Extreme Limit in The Market

– The Frontier

Effectiveness Results

Efficiency ResultsSCIPO : Supply Chain Information PortalSCHEM: Supply Chain Effectiveness Measurement

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Thank You!

Q&A!!!

john.paul@icognitive.comsuresh.indukuri@icognitive.com

www.icognitive.com

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Backup Slides

john.paul@icognitive.comsuresh.indukuri@icognitive.com

www.icognitive.com

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SCOR Level One Metrics

Back

Traditional Benchmarking

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Traditional BenchmarkingTypical SCORCard

BackiCognitive

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Traditional Benchmarking

Scope for Improvem

ent BIC

South East Asia Pharma SCORCard

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Days of Sales Outstanding:

Inventory Days of Supply:

Days of Payables Outstanding:

Cash-to-Cash Cycle Time:

Asset turns :

Cost of Goods Sold:

Operating expenses:

[total annual cost of goods sold] / [total gross annual sales] result = percentage

[operating expenses] / [total gross annual sales] result = percentage

[5 point annual average of gross accounts receivable (AR)] / [total gross annual sales / 365] result = time (in days)

[5 point annual average of gross value of inventory at standard cost] / [annual cost of goods sold (COGS) / 365] result = time (in days)

[5 point annual average of gross accounts payable (AP)] / [total gross annual material purchases / 365] result = time (in days)

[inventory days of supply + days of sales outstanding – days of payables outstanding] result = time (in days)

[total gross annual sales] / [total net assets] result = turns per year

Operating income:

Return on Assets:

Net profit (after tax) : [net profit after tax] / [total gross annual sales] result = percentage

[Asset turns] * [Net profit – Sales] result = percentage

[operating income] / [total gross annual sales] result = percentage

Cost Asset Management Profitability

Traditional BenchmarkingMetrics Calculations

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AHP Implementation in AOB

• Step 1: Determine the criteria factors and the alternatives

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AHP Implementation in AOB

• Step 2: Hierarchy of decisions and establish priority

Select the best company with overall supply chain and business excellence

Cogs

Oper

ating

Exp

ense

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Cash

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h Cy

cle T

ime

Cost

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oods

Sol

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Cash

-Cas

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ntor

y Day

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)

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OOne-One comparison between each alternatives is done for each criteria . Only one example (cost of goods sold) is shown due to space constraint.

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AHP Implementation in AOB

• Step 3: Pairwise comparison Scale

– A core characteristic of AHP model – allow to solve qualitative decision by using quantify technique

– The approach is to identify how important one criteria compare to another one is

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AHP Implementation in AOB

• Step 4: One-One Comparison ex: Cost of Goods Sold

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DEA – Implementation in AOB

• Step 2: Model Overview

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