using scor to integrate your supplier's supplier into your

Using SCOR to Integrate Your Supplier’s Supplier Into Your

Supply Chain

Module 4:

Fall Conference

Dallas, TX

November 24, 1997

© Copyright 1997 The Supply-Chain Council15662–Module 4

The Supply Chain Operations Reference-model (SCOR) has been developed and endorsed by the Supply-Chain Council (SCC), an independent not-for-profit corporation, as the cross-industry standard for supply-chain management

SCOR is freely available to all who wish to use the standard reference model

The SCC was organized in 1996 by Pittiglio Rabin Todd & McGrath (PRTM) and Advanced Manufacturing Research (AMR), and initially included 69 voluntary member companies

Council membership is now open to all companies and organizations interested in applying and advancing state-of-the-art supply-chain management systems and practices

Member companies pay a modest annual fee to support Council activities

All who use the SCOR model are asked to acknowledge the SCC in all documents describing or depicting the SCOR model and its use

All who use SCOR are encouraged to join the SCC, both to further model development and to obtain the full benefits of membership

Further information regarding the Council and SCOR can be found at the Council’s Web site, www.supply-chain.com


Agenda

Imperative: Why are Companies “Integrating” their Supply Chains?

Benefits of Integrating Supply Chains

What does Integration Mean?

How to Initiate the Integration Effort

Case Study


Session objectives and take-away

Session objective– Discuss the imperative of integrating your supplier into

your supply chain– Discuss the benefits of integration– Demonstrate how to use SCOR to engage a supplier– Review an example of dual-company supply-chain

integration approach

Session take-away– Enable session participants to successfully engage their

suppliers in supply-chain integration

Imperative: Why are Companies “Integrating” their Supply Chains?



Historically, intercompany relationships consisted of one-way, sequential flow of material and information

“Walls” of separation prevented supply-chain optimization

Activities were not coordinated Communication flow was interrupted “Full-stream” decision-making was not possible

Customer Activities

ManufacturerActivities

Supplier Activities

DeliverMakeSource DeliverMakeSource DeliverMakeSource


Competition is driving intercompany integration…

“Establish flexibility to weather unpredictability”

Reliability

“Retain our customers and secure new ones”

Growth“Reduce our cost and

increase our margin”

Margin

“Develop products that meet customer needs”

Product Differentiation


…coupled with new “enablements” which make it easier

Electronic Commerce—EDI, provides “seamless” links of data

Joint Service Agreements—provides a relationship of “agreement”

Supplier value-added services promote collaboration– Vendor Managed Inventory– Consignment– Consumption-based replenishment– Schedule sharing– Pull mechanisms

ERP Systems—potential for better information


Supplier Activities

Manufacturing Activities

Leaders are increasing their market share through supplier integration

Partnering with suppliers has increased flexibility, and on-time delivery, yielding satisfied customers

Satisfied customers are responding by awarding more business to “predictable” manufacturers

Elimination of redundant supplier/manufacturer activities has yielded increased customers/market share

= Increased Market Share

=

Customer

Customer

Customer


Supplier Activities

Customer Activities


Supplier Activities

Satisfied Customers

Reliability

Growth Margin



Leaders are increasing their margins through supplier integration

Best-in-class companies work with their suppliers to co-develop products and jointly drive R&D costs down

Alliances with fewer suppliers and customers lower supply-chain management cost

– Inventory carrying cost– Material acquisition cost

Best-in-class companies lower operational cost by focusing in core competencies

VendorManaged InventoryPull Mechanisms

Consignment Inventory

Supplier CustomerSupplier Manages Customer’s Source

Joint Ownershipof Inventory

RapidReplenishment

RapidReplenishment

Customer

FGRAW WIP

Supplier

FGRAW WIP

Your Company

FGRAW WIP

Source

Plan

Make Make

Plan

Deliver

Reliability

Growth Margin



Leaders are stabilizing operations through supplier integration

Interdependent activities are coordinated

– Use of joint service agreements based on agreed goals

– Sequential dependencies identified and parallel activities implemented where appropriate

Communication flows accurately and freely

– Efficient communication of key inputs and outputs

– Across functional and company boundaries Decision-making is effective

– Informed with the required information

– Timely and predictable

– Empowerment to make decisions at the appropriate level

Material Flow

Supplier Mfg. Customer

Information Flow

Customer Activities

Supplier Activities

Mfg Activities

Material Flow

Information Flow

Reliability

Growth Margin



Leaders are realizing product differentiation through supplier integration

Manufacturers are leveraging their suppliers to develop differentiated products and services

– Customized raw materials

– Technical assistance

– Joint development programs

Early involvement by suppliers has proven instrumental in product and service differentiation

Best-in-class companies have reduced R&D cycle times by forging partnerships with suppliers

Survival Is Increasingly Dependent on a Willingness to Integrate With Suppliers

Survival Is Increasingly Dependent on a Willingness to Integrate With Suppliers

Reliability

Growth Margin


Benefits of Integrating Supply Chains



Quantifiable time and quality benefits can be dollarized and carried to the bottom line

Delivery Performance

Inventory Reduction

Fulfillment Cycle Time

Forecast Accuracy

Overall Productivity

Lower Supply-Chain Costs

Fill Rates

Improved Capacity Realization

16% – 28% Improvement








Typical Quantified Benefits from Integratingthe Supply Chain

Source: 1997 PRTM ISC Benchmark Study


Supplier involvement is linked directly to time, quality, and cost improvements

Time is now a competitive weapon– Reduced development cycle-times– Higher responsiveness due to reduced source/make

cycle times

Quality is “assured” vs. “controlled”– Better product designs– Better fit for use– Higher product and process yields

Cost is jointly managed down– Development cost significantly reduced

– Cost of “quality” is less (material acquisition cost)– Inventory carrying cost drastically reduced

S S


Integrating the supply chain creates a win-win environment

Improved working environment

Mutual awareness of business needs and improvements

Improved speed and consistency in decision-making

Common supply-chain “language” that facilitates communications

Creation of a true virtual “chain of chains”

Improved customer satisfaction due to improved responsiveness

What does Integration Mean?



Planning links suppliers’ and customers’ supply-chain management processes

Each intersection of two execution processes (Source-Make-Deliver) is a “link” in the supply chain

Planning processes manage these customer-supplier relationships

Customerand Supplier

Supply Chain



Plan Plan PlanPlan

Source Make Deliver

“Manages relationship” with supplier

Manages source/make relationship

Manages make/deliver relationship

“Manages relationship” with customer


Supply-chain integration is based on “sharing”

Shared objectives– A clear understanding and

mutual respect for each other’s objective

Shared expertise– Leveraging each other’s

skill sets, processes and core competencies

Shared knowledge– Leveraging models,

frameworks, benchmarking and best practices

Shared information– Synchronization of

activities (schedules, demand, inventory, marketing data, sales data, design and technology plans)

Shared experiences– Communicating

experiences which may save time and cost

Shared responsibility– Inventory – Cycle

times

– Quality – Cost


Supplier integration requires joint planning, schedule sharing, and rapid replenishment

Plan

Source Make Deliver

Plan

Source Make Deliver

Supplier Customer

Joint Planning

Rapid-Replenishment

Manufacturing Schedule Sharing

Issue Resolution


Integration can mean new process, new infrastructure or new systems and tools

Practices

Results

The integration technique may be different for each effort



The integration technique may be different for each effort – Continued

Practices

Results



Practices

Results

The integration technique may be different for each effort – Continued

How to Initiate the Integration Effort



“Integration” changes focus from internal to external process management

Intra-company (Inward Focus)

Each business optimizes inside its own supply chain

Problems tend to be limited to internal solutions

Intra-company relationshipsare built

Inter-company (Outward Focus)

Links the output activities of one company to the input activities of another

Processes are integrated by macro level planning

Allows for maximum reduction in cost and interval

Migration from intra- to intercompany assumes you have optimized internally first

Plan

Make DeliverSource MakeSource DeliverMakeSourceDeliver SourceDeliver

Supplier Customer Customer’sCustomer

Suppliers’Supplier

(internal or external) (internal or external)Your Company

Outward Focus Inward Focus Outward Focus


There are three stages to integrate your supplier into your supply chain

Stage 1Overall Supply-Chain Process

Stage 2Supply-Chain Configurations

Stage 3Intra-/Intercompany Process

Improvement

Educate the suppliers—assumes internal

optimization has occurred

Gain an understanding of how the two

configurations “interlock”

Implement with help of a Joint Service Agreement

(JSA)

• Identify target supplier accounts

• Provide “SCOR” education to supplier

• Share “your” supply-chain configuration

• Explain benefits of “interlocking” supply chains

• Setup a session to help your supplier configure their supply chain

• Bring them to a similar level of understanding of supply-chain configurations and how to use it

• Connect your configurations with theirs

• Discuss redundancies• Discuss mutual benefits• Develop plan to address

redundancies and optimize benefits

• Develop a JSA to capture “new” responsibilities of both parties

• Implement the JSA

JSA


Stage 1: Educate the supplier on the overall Supply-Chain process

Identify target supplier accounts

Provide “SCOR” education to supplier

Share “your” supply-chain configuration

Explain benefits of “interlocking” supply chains


Stage 2: Understand each other’s Supply-Chain configurations

Setup a session to help your supplier configure their supply chain

Bring them to a similar level of understanding of supply-chain configurations and how to use it

Connect your configurations with theirs

Supplier Customer


Stage 3: Implement intra-/intercompany process improvements with the help of a JSA

Discuss redundancies Discuss mutual benefits Develop plan to address redundancies and optimize

benefits Develop a JSA to capture “new” responsibilities of

both parties Implement the JSA

JSA


Review with your supplier “their” critical suppliers – Discuss issues, concerns, possibilities

Encourage your supplier to educate their supplier

Link the entire supply-chain and begin additional discussions to improve entire supply chain

Integrating your supplier’s supplier should follow a similar but collaborative approach

Educate their Supplier on SCOR

Share ConfigurationsDrive Intercompany

Process Improvements

SupplierSuppliers Supplier

Your Company

SupplierSuppliers Supplier

Your Company

JSA

Case Study



To illustrate, we will walk through an integration effort between two companies

ABC is a primary customer of XYZ– Two manufacturing plants

XYZ is a supplier of injection molded plastics– Produces plastics products in two manufacturing facilities

• Savannah plant produces products to stock• Houston plant produces a major intermediate to stock

– Both manufacturing facilities purchase and receive their materials independently

– After final production, all products are shipped from the Savannah plant


Stage 1: ABC educates the supplier on SCOR, and shows them their configuration

Cu

sto

mer

s

Su

pp

lier

s

P1 Plan Supply ChainPlan

P2 Plan Source P3 Plan Make P4 Plan Deliver

Source Make Deliver

S1 Source Purchased Materials

S2 Source Make-to-Order Products

M1 Make-to-Stock - Process

M2 Make-to-Order - Process

M3 Make-to-Order - Discrete

M4 Make-to-Stock - Discrete

M5 Engineer-to-Order - Discrete

S3 Source Engineer-to-Order Products

S0 Source Infrastructure M0 Make Infrastructure D0 Deliver Infrastructure

D1 Deliver Stocked Products

D2 Deliver Make-to-Order Products

D3 Deliver Engineer-to-Order Products

P0 Plan Infrastructure


Stage 1: ABC discusses its current SCOR processes and the threads that link them

XYZ

P2 P3

S1

S3

P4 Sub-

Assembly

D3

M1, M2

ABC Supply-Chain Configuration

S3D1

D2

M1

D2 S1

S1

S1

P2 P3

D1

P4

ABC


Stage 1: ABC identifies supply-chain redundancies

Customers

P2 P3

S3

P4 Sub-

Assembly

D3

M1, M2

S3

D2

D2 S1

S1

S1

P2 P3

D1

P4

ABC has two distinct internal supply chains without significant

integration

D1 S1 M1

XYZ


Stage 1: ABC identifies where it can leverage savings from vendors

Independent sourcing from common supplier

Customers

P2 P3

S3

P4 Sub-

Assembly

M1, M2

D2

D2 S1

S1

S1

P2 P3

D1

P4

S1 D3 S3D1 M1

XYZ ABC


Stage 1: ABC identifies supply-chain improvement opportunities

Customers

P2 P3

S3

P4 Sub-

Assembly

D3

M1, M2

S3

D2

D2 S1

S1

S1

P2 P3

D1

P4

Planning is not rolled-up across the supply chain

D1 S1 M1

XYZ ABC


Stage 1: ABC creates and shares “to-be” supply-chain configuration sketch

Customers

S3

Sub-Assembly

D3 S3

D3

D2 S1

S1

P4

D2 S1 M1

P3

P1

P4

D1

S1

P2

M1, M2

XYZ ABC


Stage 1: ABC helps XYZ understand its standard processes and the “threads” that link these processes

Suppliers

XYZCoatings

XYZFinal

Production

XYZ IntermediateProduction

Add-ItChemicals

P2 P3

M1

D1 S1

P2 P4P3

M2 D1

D6S1

D3

S1

P1

P4

P1

Supplier’sSupplier

Customer’sCustomer

S3

D1

XYZ ABC


Stage 1: ABC helps XYZ understand integration opportunities such as planning

Suppliers

XYZCoatings

XYZFinal

Production


Add-ItChemicals

P2 P3

M1

D1 S1

P2 P4P3

M2 D1

D6S1

D3

S1

P1

P4

P1



S3

D1

XYZ has two distinct internal supply-chain “threads,” indicating significant redundant

planning activity

XYZ ABC


Stage 1: ABC and XYZ discuss where new perspectives can help improve XYZ’s performance

Suppliers

XYZCoatings

XYZFinal

Production


Ad-ItChemicals

P2 P3

M1

D1 S1

P2 P4P3

M2 D1

D6S1

D3

S1

P1

P4

P1



S3

D1

The final production plant views the intermediate plant as any other supplier

Each plant sources independently even though they share a key supplier

XYZ ABC


Stage 1: XYZ determines where internal schedule integration can provide benefit

Suppliers Customers

XYZCoatings XYZ

FinalProduction


Add-ItChemicals

P2 P3

M1

D1 S1

P2 P4P3

M2 D1

D6S1

D3

S1

P1

P4

P1



S3

D1

Both plants manufacture to stock

The production schedule within the final production plant does not drive the production schedule in the intermediate plant


Stage 1: XYZ uses its performance scorecard to identify quantitative gaps

Supply-Chain Performance Versus Custom Populat ion

0% – 20% 20% – 40% 40% – 60% 60% – 80% 80% – 100%

KeyPerspectives

Level 1 MetricsMajor

OpportunityDisadvantage Average

or Median AdvantageBest-

in-Class

Delivery Performance to Request 69% 93%

DeliveryPerformance/

Quality

Order Fulfillment Lead Time (BTO) 69 days 36 days 22 days

Perfect Order Fulfillment 65.7% 86% 92.4%

Flexibility &Supply-Chain Response Time 270 days 92 days

Responsiveness Upside Production Flexibility 42 days 10 days

CostSupply-Chain Management Cost 12.8% 10.2% 8.6%

Warranty Cost as % of Revenue 2.1% 1.5% 0.31%

Value Added per Employee $121K 72 days $154K

Assets Total Inventory Days of Supply 84 days 65 days 55 days

Cash-to-Cash Cycle Time 99.1 days 35.6 days

Net Asset Turns 1.9 turns 2.5 turns 4.2 turns

Example company performance

XYZ balanced “SCORcard”


Stage 1: After identifying opportunities, a “to-be” XYZ supply chain is configured

XYZCoatings

Suppliers

Add-ItChemicals

D1

D1

S3

P2 P3

S1

S1

P1

S1 M3

M4

P4

XYZFinal

Production

XYZIntermediateProduction

D1

D3

D2

Reconfiguration is a collaborative effort

XYZ ABC


Stage 2: ABC and XYZ work together to compare configurations

Customers

S3

Sub-Assembly

D3 S3

D3

D2 S1

S1

P4

D2 S1 M1

P3

P1

P4

D1

S1

P2

M1, M2

XYZ

XYZCoatings

Suppliers

Add-ItChemicals

D1

D1

S3

P2 P3

S1

S1

P1

S1 M3

M4

P4

XYZFinal

Production

XYZIntermediateProduction

D1

D3

D2

XYZ ABC

XYZ ABC


Stage 2: ABC and XYZ use SCOR to identify appropriate best practices for integration

Process Element:Schedule Material Deliveries

Process Number: S1.1

Process Element DefinitionScheduling and managing the execution of the individual deliveries of material against an existing contract orpurchase order. The requirements for material releases are determined based on the detailed sourcing plan orother types of material pull signals.

Best Practices Software FeaturesRequired

Software ApplicationSuppliers

Utilize EDI transactions to reducecycle time and costs

EDI interface for 830, 850, 856 and862 transactions

All major ERP vendors: SAP, Oracle,JD Edwards, Baan, QAD, SSA, etc.

VMI agreements allow suppliers tomanage (replenish) inventory

Vendor managed inventories withscheduling interfaces to externalvendor systems

Oracle, Manugistics, Logility, SAP

Mechanical (Kanban) pull signals areused to notify suppliers of the need todeliver material

Electronic Kanban support Discrete ERP vendors: SAP, Oracle,Baan, JD Edwards, QAD, SSA

Consignment agreements are usedto reduce assets and cycle time whileincreasing the availability of criticalitems

Consignment inventory management Typically custom programming

Advanced ship notices allow for tightsynchronization between source andmake processes

Blanket order support withscheduling interfaces to externalvendor systems

All major ERP vendors: SAP, Oracle,JD Edwards, Baan, QAD, SSA, etc.


Stage 2: ABC and XYZ also use SCOR to identify appropriate integration metrics

Process Element:Schedule Material Deliveries

Process Number: S1.1

Process Element DefinitionScheduling and managing the execution of the individual deliveries of material againstan existing contract or purchase order. The requirements for material releases aredetermined based on the detailed sourcing plan or other types of material pull signals.

PerformanceAttributes

Metric

Cycle Time Total Source Lead Time

% of EDI Transactions

Cost Materials Management as a % of Materials AcquisitionsCosts

Service/Quality % defective

Assets Raw Material Days of Supply (DOS)

Metrics tell you where to start


Stage 3: Discuss opportunities to integrate ABC — XYZ supply chain

Integrate planning processes between the two entities

Synchronize the manufacturing strategies– With integrated planning can a “pull-based,” make-to-order

flow be implemented across the supply chain?

Create Joint Service Agreements (JSAs) between the two entities


Stage 3: Use SCOR to orchestrate improvement discussions with supply-chain partners

The results of these discussions are an agreed-to set of supply-chain practices, derived from benchmark performance and industry best practices

Process Elements N

Process Elements 2

Process Elements 3

Process Elements 1Current

PracticesBest

PracticesCurrent

PerformanceDesired

Performance

“Supplier” “Customer”

Process Elements N

Process Elements 2

Process Elements 3

Process Elements 1Current

PracticesBest

PracticesCurrent

PerformanceDesired

Performance


Stage 3: Discuss mutual benefits

Common goals– Reduced inventories– Consistent production = better on-time delivery– Lower costs

Efficient tool for communicating and reacting to changes within either entity’s supply chain


Stage 3: Build the plan to address opportunities

Benchmark

Validate Opportunities

Build Value Proposition

Negotiate JSA

Investigate Tools

Pilot

InterimReview

Pilot

Roll-Out


Stage 3: Build the Joint Services Agreement

Agree to performance metrics and targets for the supplier/customer relationships

Identify and implement mutual Best Practices– Understand common practices performed at each company– Identify redundancies– Eliminate redundancies and share benefits

Document a Joint Services Agreement

Pilot, refine and ready program for roll-out

Next Steps



What you can do to get started

New to SCOR SCOR Veteran

• Create your configuration

• Benchmark

• Identify internal opportunities

• Engage you supplier in integration efforts (Stage 1, 2, 3)

• Discuss roles between you and your supplier

• Set specific cost sharing and benefit goals

• Motivate your supplier to use SCOR to integrate with their supplier(s)


Summary

Engage supplier in a three-stage integration effort– Stage 1—educate supplier– Stage 2—understand each other’s configurations– Stage 3—plan improvement implementation

Extend to Supplier’s Supplier – Encourage upstream suppliers to use SCOR – Encourage upstream suppliers to benchmark their

supply chain– Embrace the chain of chains as a competitive weapon

Conclusion

Module 4:

Fall Conference

Dallas, TX

November 24, 1997

using scor to integrate your supplier's supplier into your

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