measuring scm benifits & scor

Suhas Rane, [email protected], 98210 24029

Measuring SCM benefitsand

SCOR Model

Suhas RaneDirector ( Planning & Admin.)NMIMS University, [email protected]

98210 24029

mailto:[email protected]


Strategic Objectives of SCM

• Profit• Growth Rate• Market Share• Product Quality• Time to Market• Customer Satisfaction


Why measure ?

• If you can’t measure, you can’t control

• If you can’t control, you can’t manage

• If you can’t manage, you can’t improve

Measurements are the keys


Key Supply Chain Metrics

•Perfect Order •Demand Forecast Accuracy (DFA) •Cash-to-Cash Cycle Time •SCM Cost


Measurement Approaches

• Balance Score Card – Financial, Customer, Internal Business &

Innovative Perspectives

• SCOR Model – Cycle Time, Cost, Quality & Asset Metrics

• Logistics Scoreboard– Financial, Productivity, Quality & Cycle Time

Performance


SCOR Model – What’s that?

SCOR • Supply Chain Operations Reference Model • Developed by Supply Chain Council (SCC)

SCC• Independent, not-for-profit corporation formed in 1996 • Started with 69 voluntary companies; now 1000+ members.• Objective: To develop a standard supply-chain process

reference model enabling effective communication among the SCM

partners, by- Using standard terminology - Using standard metrics to

compare and measure their performances


SCOR : Integrates BPR, Benchmarking, and Process Measurement into a cross-functional framework.

Benchmarking

Best Practices

Analysis

Process Reference

Model

Business Process

Reengineering

Quantify performance of similar companies and

establish internal targets

Quantify performance of similar companies and

establish internal targets

Characterize the management practices and software solutions

Characterize the management practices and software solutions

Capture “as-is” process and

derive “to-be” future state

Capture “as-is” process and

derive “to-be” future state

Capture “as-is” process and derive “to-be” future state

Capture “as-is” process and derive “to-be” future state

Quantify performance of other cos. & Establish internal targets

Characterize the mgmt. practices and software solutions


Primary Use of SCOR:

– To describe, measure and evaluate supply chain configurations.

SCOR contains:

– Standard descriptions of management processes

– Relationships among the standard processes

– Standard metrics to measure process performance

– Management practices that produce best-in-class performance


SCOR : Basic Management Processes

Plan-Source-Make-Deliver-Return

Supplier’sSupplier

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliverSource

Customer’s Customer

Plan

Supplier (Internal or External)

Your Company

Customer (Internal or External)

ReturnReturn ReturnReturn

ReturnReturn

Plan-Source-Make-Deliver-Return provide the organizational structure of the SCOR-model


Scope of Basic Management Processes

• Plan : Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production and

delivery requirements)– Balance resources with requirements– Establish/communicate plans for the whole supply chain

• Source : Processes that procure goods and services to meet planned or actual demand

– Schedule deliveries (receive, verify, transfer)

• Make : Processes that transform product to a finished state to meet planned or actual demand)

– Schedule production

• Deliver : Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management)

– Warehouse management from receiving to ship product.

• Return : Processes associated with returning or receiving returned products – Manage Return business rules


Return

Level

Description Schematic Comments

Top Level(Process Types)

Level 1 defines the scope and content for the SCOR model. Here basis of competition performance targets are set.Source Make Deliver

Plan1

#

Configuration Level (Process Categories)

A company’s supply chain can be “configured-to-order” at Level 2 from the core “process categories.”

2

Process Element Level (Decompose

Processes)

Level 3 defines a company’s ability to compete successfully in its chosen markets, and consists :Process element definitionsProcess element information inputs, and outputsProcess performance metricsBest practices, where applicableSystem capabilities required to support best practicesSystems/tools

3

P1.1Identify, Prioritize, and Aggregate

Supply-Chain Requirements

P1.2Identify, Assess, and Aggregate


P1.3Balance Production Resources with


P1.4Establish andCommunicate

Supply-Chain Plans

Implementation Level (Decompose Process Elements)

4

Not in Scope

Return

Three Levels of Process Detail

Companies implement specific SCM practices at Level 4 to achieve competitive advantage and to adapt to changing business conditions.

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The Hierarchy of Supply Chain Metrics

Demand Forecast

Perfect OrderSCM Cost

DPO

Inventory Total DSO

Supplier Quality

Supplier On Time

Raw Material Inventory

Direct Material Costs

Cost Detail

Production Schedule Variance

Plant Utilization WIP & FG Inventory

Purchasing Costs

Order Cycle Time Perfect

Order Detail

What it is What it tells You

Demand VisibilityPerfect Order Predictor

Performance Tradeoffs Responsiveness

Cost / Margins

Cash-to-Cash

Cash flow Health Customer versus Supplier Balance

Operational Effectiveness Root Cause Analysis Surgical Intervention

Top Tier

Mid Level

Ground Level


Perfect Order :An order that is complete, accurate, on time,

and in perfect condition

Conditions that prevent a Perfect Order include:• Orders Not Delivered On Time

- Due to stock out/manufacturing delay- Due to late shipment- Due to in-transit/ delivery delays

• Order Not Meeting Customer Requirements- Due to inaccurate shipment- Due to poor quality of finished goods- Due to damage to finished goods in transit


• Delivery Order Fill Rate

– %age of ship-from-stock orders shipped within 24 hrs.

• On Time Delivery (or Delivery Performance)– Orders delivered on or before the committed date to customer.

• Order Fulfillment Lead Time– Time from order receipt date to shipment date

Key Performance Indicators


Key Performance Indicators

• Supply Chain Responsiveness– Ability of complete supply chain to react according to the

changes in the marketplace

• Production Flexibility – No. of days needed to absorb an unplanned 20% growth in

demand


Demand Forecast Accuracy (DFA)

Difference between forecasted and actual demand

Specifically, this is the inverse of the mean absolute percent error (MAPE) between forecasted and actual demand


Cash-to-Cash Cycle Time Time between –

company spending cash to buy raw materials to company receives cash from its customers

Includes the following metrics:

1. Ship to customer Delivery: Time from shipment of

F G to delivery at customer’s address

2. R M Receipt to Payment – Also called Days

Payables Outstanding (DPO)

3. Inventory Days – Av. days of inventory on hand

4. Days Sales Outstanding (DSO) – Av. collection

period from invoicing to cash receipt


Supply Chain Management Cost

Includes -

– Direct purchasing - Operating cost

– Manufacturing - Operating cost

– Transportation Cost

– Warehouse/ DC - Operating cost

– Inventory Holding cost

– Customer Service - Operating cost


Survey of Top Performers

• Performance Measurement Group

PRTM Management Consultants, UK

• Survey of 110 firms in America, Europe & Asia• • Industries covered : Chemicals, Computers,

Defense, Telecom, Consumer packaged goods


Top Ten

1. Dell2. Proctor & Gamble3. IBM4. Nokia5. Toyota6. J & J7. Samsung8. Wal-Mart9. Tesco10. Johnson Controls


Findings of Survey

• Best-in-class operate within 40 days of inventory throughout the supply chain

• Leading cos. have cut SCM cost to 4-5 % of Sales

• Cash-to-cash cycle time is less than 30 days

• Best-in-class Production Flexibility has dipped below 2 weeks


Thank You

measuring scm benifits & scor

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