measuring supply chain performance (joe...

Measuring Supply Chain PerformanceMeasuring Supply Chain Performance

Joseph FrancisExecutive Director

A Bit of History: 1930‐1950

• Bank Robber “Slick Willie” Sutton

• When asked why he robbed banks Suttonrobbed banks, Sutton simply replied

• "Because that's where the money is."

DMSCA 2010 ‐ Supply Chain Measurement

But SCM is Paramount in Times of Economic Uncertainty

• In 2007, US business logistics costs rose to an all time high of $1.4 trillion (10.1% of US

Fortune-10 Company Supply-Chain Cost as % of Total Costs 2

GM 94%nominal Gross Domestic Product ) 3

• Supply‐chain generally accounts for between 60% and 90% of all company

GM 94%

Ford 93%

Conoco 90%

Wal-Mart 90%between 60% and 90% of all company costs1

• A 2% improvement in process efficiency for

Chevron 88%

IBM 77%

Exxon 75%A 2% improvement in process efficiency for supply‐chain processes has 3000% ‐ 5000% the impact of a 2% improvement in ffi i f IT HR Fi 1 S l

GE 63%

Citi1 0%

AIG1 0%efficiency for… IT… HR… Finance1… Sales…

1 Exclusive of Financial Services companies2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries3 CSCMP 19th Annual State of the Logistics Industry


3 CSCMP 19 Annual State of the Logistics Industry

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

Total Supply Chain Management Costs (% of Revenue)

14.0%

Best-in-ClassMedian

9.2%

12.3%

10.7%10.0%

10.7%

9.1%10.0%

12.0%

0%

enue

6.6%7.4%

4.8%5.5%5.3%

4.2%3 5% 3 6%

5.4%

3 4%4 0%

6.0%

8.0%

% o

f Rev

e

3.5% 3.6%3.4%

0.0%

2.0%

4.0%%

0.0%Automotive Industrial Chemical &

Advanced MaterialsComputer Consumer Goods Pharmaceutical Semiconductor Telecommunications

Equipment

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

Source: PRTM/The Performance Measurement Group


SCM Asset Returns: Superior Valuation

40-Point spread between SCOR Companies and Major US Indices


The SCOR FrameworkSupply Chain Council Resources

The SCOR Framework


The Enterprise: Role of Supply Chain

sses

Custo

Product Management

uppl

ier p

roce

s

Product DesignDCOR™

omer process

Sales & SupportCCOR™

Suses

Supply Chain SCOR™


What is SCOR®? Cu

es Supply Chain

Cu

es Supply Chain

• SCOR is a supply chain process reference model containing over 200 process

ustomer pr

oces

se Supply Chain stomer pr

oces

se Supply ChainPlan

containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental processup

plie

r p processup

plie

r p

DeliverMakeSourcemanagement

• Organized around the five primary management sesSu

sesSu

P i di t t i l fl di ti

ReturnReturnprocesses of Plan, Source, Make, Deliver and Return

• Developed by the industry for Process, arrow indicates material flow directionProcess, no material flow Information flow

p y yuse as an industry open standard ‐ Any interested organization can participate in its continual development

8

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 ChainS t i t d t i ti i ti f bit l• Supports intra‐ and cross‐enterprise optimization of arbitrary scale

PlanPlan

D liS M k

Supplier Customer Customer’sSuppliers’

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Your Company

Source

Return Return Return Return Return Return Return Return

Supplier Customer CustomerSuppliersSupplier

Internal or External Internal or External

ou Co pa y


SCOR Processes – Five Levels of Decomposition

Level 1 Level 2 Level 3 Level 4 Level 5

Scope Configuration Activity Workflow Transactionsp g y

S1Source

Stocked Product

Supply-ChainSource

S1.2Receive Product

EDIXML

Differentiates Business

Differentiates Complexity

Names Tasks Sequences Steps Links Transactions

Defines Scope Differentiates Links, Metrics, Job Details Details of Capabilities Tasks and

PracticesAutomation

Sets Strategy First Tier Diagnostics

Second Tier Diagnostics

Industry or Company Specific

Technology Specificg g p y p p

Standard SCOR definitions Company/Industry definitions


Standard SCOR definitions Company/Industry definitions

Supply Chain Balanced SCORcard

Standard Strategic (Level 1) Metrics

Attribute Metric (Strategic)Attribute Metric (Strategic)

Reliability Perfect Order Fulfillment

Responsiveness Order Fulfillment Cycle Time

tom

er

Agility Supply Chain Flexibility

Supply Chain Adaptability†

Cost Supply Chain Management Cost

Cu

st

Cost of Goods Sold

Assets Cash‐to‐Cash Cycle Time

Return on Supply Chain Fixed AssetsInte

rnal

Return on Supply Chain Fixed Assets

Return on Working Capital

† upside and downside adaptability metrics

I


upside and downside adaptability metrics

SCOR 10 ‐ Skills

• Baseline Capabilities

E ti l kill i d f j b “ t t ”– Essential skills required for job – “non‐starter” gaps

• Critical Capabilities

– Difference between adequate and superior performance

• Performance

– Key incentives for process execution

• Credentialingg

– 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

Supply Chain Measurement


Configuring a Supply Chain Architecture

Process Layer Focus Planning Horizon

Scope Define MarketsDefine Products & Services Business Changes

Define StrategyConfiguration Define StrategyDefine Governance Market Changes

ActivityDefine ProcessesDefine PracticesDefine Skills

Performance Changes


Measurement and Benchmarking

• Qualitative Benchmarking– Comparing best practices among organizationsp g p g g– Maturity Assessments

• Quantitative BenchmarkingC i l l f d f– Comparing levels of measured performance

– Assessment of Performance Gaps

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


7 Steps of a Benchmarking Program

• Supply Chain Definition• Supply Chain PrioritizationSupply 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 p pp ,material, work and information flow

• We use a tool called the Supply Chain Definition Matrix to d fi th l h i ithi t idefine the supply‐chains within an enterprise

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

• 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


Example: Air Conditioning Company

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

Your Company

Customer/Market/Channels

Retail CommercialSupply-Chain Definition

MatrixBig Box Internet

Direct

Mom & Pop Stores

Building Major Account Distrib

Busine

ss ‐

t Fam

ilies

ditio

ners

Big Airco x x xSmall Airco x x xC

Line

s of

Prod

uct

Air C

on Custom Industrial x xStandard Industrial x x


Supply Chain Prioritization

• We use a tool called the Supply Chain Prioritization Matrix to order the supply‐chains according to relevancepp y g

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

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

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


Supply Chain Strategy

• 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:ranked features:

Reliability On time? Complete? Undamaged?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 in 5 Minutes

Build Strategy Model Lifecycle Likely Priority

Buy 1. Assets2 Costy 2. Cost

Make ETO 1. Reliability2. Response1 A tBTO 1. Assets2. Reliability

BTS Start 1. Flexibility2 Response2. Response

Middle 1. Cost2. Reliability1 CostCommodity 1. Cost2. Assets

EOL 1. Assets2. Cost2. Cost


Supply‐Chain Strategy Matrix

Supply‐ChainStrategy Matrix Big Airco Small

Airco Comm’l • Each unique combination of ratings

nal

Reliability S defines Your Supply Chain Strategy for the channelP

P

Extern Responsiveness A

Flexibility A

• Think of the rating as a desired state, NOT h t tA

P

Flexibility A

al

Cost P

where you want to improve the most

A

A

Interna

Assets PS


The SCORcard

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

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

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

• The SCOR Manual provides all necessary definitions


Performance Metrics

• SCOR metrics: Standard Strategic (Level 1) Metrics

Attribute Metric (Strategic)Attribute Metric (Strategic)

Reliability Perfect Order Fulfillment

Responsiveness Order Fulfillment Cycle Time

tom

er

Agility Supply Chain Flexibility

Supply Chain Adaptability†

Cost Supply Chain Management Cost

Cu

st

Cost of Goods Sold

Assets Cash‐to‐Cash Cycle Time

Return on Supply Chain Fixed Assetsnte

rnal

† upside and downside adaptability metrics

Return on Supply Chain Fixed Assets

Return on Working Capital

I


upside and downside adaptability metrics

SCORcards in 5 Minutes

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

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

criticalcritical

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

and Level 2 Metric Level 2 Metricand Level 3 Metric


A Metrics Architecture

Supply‐ChainSCORcard S/A/P Level‐1 Metric Level‐2 Metric Level‐3 Metric Summary

Reliability S Perfect Order Fulfillment Perfect Order Fulfilment

Reliability % Orders Delivered in Full % Orders Delivered in Full

Reliability Delivery Item Accuracy Delivery Item Accuracy

Reliability Delivery Quantity Accuracy Delivery Quantity Accuracy

ternal

Delivery Quantity Accuracy Delivery Quantity Accuracy

Reliability Delivery Performance to Commit Date

Delivery Performance to Commit Date

Reliability Date Achievement Date Achievement

Reliability

Ext Reliability Location Achievement Location Achievement

Reliability Accurate Documentation Accurate Documentation

Reliability Shipping Documentation Accuracy

Shipping Documentation Accuracy

Reliability Billing Documentation Accuracy

Billing Documentation Accuracy

Reliability Perfect Condition Perfect Condition

Reliability % Orders Received Damage‐ % Orders Received Damage‐Reliability Free Free


Result: The Workflow Diagramai

l, in

c.st

erda

m)

S1.1Schedule Prod.

Q no)

Reta

(Am

s Deliveries

Customer P.O. Delivery Commit

C O C O

mp3

HQ

(Cup

ertin D2.2

Receive, Enter, Validate Order

D2.3Reserve Inv.

Calculate Date

S2.1Schedule Prod.

Deliveries

Inter-Company P.O.

C.O. C.O.

D1.3Reserve Inv.

Calculate Date3 Fa

ctor

y he

nzhe

n)

D1.2Receive, Enter, Validate Order Calculate Date

mp

(Sh Validate Order

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


Planning Data Gathering: Sources of Data

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

• Non‐Financial DataC– Customers• Delivery Performance• Total Cycle‐Time Performance

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

– Suppliers– 3PL Providers


Data Gathering Plan

• 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 StatusMetric 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…


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• 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 0Flexibility 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 IntegrationAsses

BusinessGaps

AssessBusinessMarket

ScopeAssess

BusinessPerformance

IdentifyProcessNeeds

CreateStrategy

IdentifyProcessNeeds

Configuration

DeployChanges

DefineAs-IsState

ConfigurationAssessProcess

Performance

CreateTo-Be

Programs

IdentifyProcessGaps

AnalyzeCreate

IdentifyProcessGaps

ActivitiesAnalyze

RootCause

CreateTo-Be

Projects

Create Identify


CreateTo-Be

IdentifySolutions

SUPPLY CHAIN COUNCIL, INC.SUPPLY CHAIN COUNCIL, INC.


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 operationsy p pp y p

• 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 ti ll d it t l d d t b b t h• 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


Typical Company Benefits

$200M Cost Improvements Single DivisionDivision

US$2.3B Savings supported with MMerger

$5B Working Capital

$66M Revenue/Inventory

€2M Improvements Single Division (Peroxides)


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%

L l h i 25% 50%Lower supply chain costs 25% - 50%

Improvement of fill rates 20% - 30%

Improved capacity realization 10% 20%Improved capacity realization 10% - 20%

1Stephens (2000) 1997 Comparative Study Pittsburg, USA


Many ThanksMany Thanks

jfrancis@supply‐chain.org

measuring supply chain performance (joe...

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