Improving Strategic Sourcing with SCOR at Access Business Group June, 2007 Improving Strategic Sourcing with SCOR at Access Business Group (ABG) The project undertaken by Access Business Group’s Strategic Procurement Department was focused on improving the sourcing processes of the supply chain. The objective of the project was threefold. First, improve internal and external visibility to performance data. Second, build robust internal processes to support data collection. Third, drive long-term continuous improvement by incorporating data into the sourcing process. While data collection and distribution is not unique, the project’s scope was exhaustive, covering initial tool selection, data collection and validation, creation of a communication vehicle, and the development and introduction of numerous internal and external processes. In addition to extensive internal analysis, external associations, companies, and institutions were evaluated to create the program. The use of competitive benchmarking, As Is/To Be analysis, and process mapping using the SCOR model helped ABG identify the opportunity, formulate a strategy, and ultimately build and launch a successful program. The scope includes the applicable elements of the Enable Source and Source components of the SCOR model, beginning with the initial rationale and concluding with the opportunities for transfer of knowledge to other external organizations. ABG successfully transformed the Sourcing and Supply Management process by creating a solid foundation based on process improvements and performance visibility. The project has been an enormous success measured by short- and long-term improvements. For this project Access Business Group was awarded by the Supply Chain Council with the 2006 Supply Chain Operational Excellence Award. The Company Access Business Group (ABG) is a division of Alticor, Inc. Alticor Inc., parent company of Amway, Quixtar and Access Business Group, operates in over 80 countries and territories with nearly 13,000 employees worldwide. It supports more than 3 million independent business owners, and generates sales in excess of $6.0 Billion annually. Access Business Group serves Quixtar and Amway with sourcing, quality assurance, product development, manufacturing, and logistics services. It manufactures and distributes several product lines including health, beauty, personal and home care products. Access Business Group operates facilities in Michigan, California, Washington, Brazil, Mexico, Europe and China. White Paper Page 2 Supply-Chain Council, Inc. Project Details Scope The project was undertaken by ABG’s Strategic Procurement department, whose mission is to create competitive advantage and improve profitability through people, processes, and Strategic Sourcing. The vision is to deliver lowest total cost across ABG's global expenditure. The project undertaken was focused on improving the Source and Enable Source processes of the supply chain. ABG’s Strategic Procurement department is responsible for sourcing nearly $500 million of direct materials annually. Because of the product diversity and specialized distribution channel, the raw materials and components used in the manufacturing process are generally unique, highly specialized and require long sourcing lead times. This project was focused on improving the visibility to information and improving performance of the Sourcing and Supply Management processes. By combining the relevant sourcing and supply chain data in a common reporting engine and by populating key performance indicators on automated dashboards, internal and external users are able to view, analyze and react to information rapidly. Deliverables The specific project deliverables were to integrate data from multiple sources utilizing a common business intelligence (BI) software application, and to develop automated, on-line reporting and summarized dashboard displays using the SCOR metric framework for Strategic Procurement, Sourcing Strategy Teams, and Suppliers. The project gives suppliers the tools to view open orders, planned orders, inventory consumption and payment information. Suppliers simply log in to review their performance via a secure external web-based Supplier Portal. Project participants The initial roll-out of the supply management program and interactive, web-based portal was focused on the top 60 direct material suppliers to ABG. This group of suppliers represents nearly 40% of the annual direct materials purchased. The project was led by the Strategic Sourcing team in the Procurement department, and was supported by several other supply chain functions across ABG. The core team included representatives from Procurement, R&D, Quality Assurance, Planning, and Transportation. In addition to the core team, representatives from Accounts Payable, Receiving, and Manufacturing participated as part of the extended team. Correlation with SCOR processes The scope of the project directly correlates with many SCOR processes, elements, and metrics. Within the Enable Source component (see box), this project addressed the following categories and elements: • Managing Sourcing Rules (ES1) by defining and communicating supplier requirements on the Supplier Portal. • Assessing Supplier Performance (ES2) by creating automated supplier performance dashboards. • Maintaining Source Data (ES3) by making source data available on the Supplier Portal for review and identification of errors. • Managing the Supplier Network (ES7) by creating and communicating a supplier segmentation model (Alliance, Preferred, Approved, etc.). Within the Source components, this project addressed several process elements including: • Scheduling Product Deliveries (S2.1) and measuring supplier delivery performance. White Paper Page 3 Supply-Chain Council, Inc. The SCOR Enable processes Enable processes prepare, maintain, and manage information or relationships upon which planning and execution processes rely. There are 9 Enable Source processes: ES.1 Manage Sourcing Business Rules The process of defining requirements and establishing, maintaining and enforcing decision support criteria, in alignment with business strategy, goals and objectives. ES.2 Assess Supplier Performance The process of measuring actual supplier performance against internal and/or external standards. ES.3 Maintain Source Data The process of collecting, sorting, defining hierarchy and managing configuration control of supplier information and source data that are required to make sourcing and related planning and manufacturing decisions. ES.4 Manage Product Inventory The process of establishing and maintaining physical inventories and inventory information. ES.5 Manage Capital Assets The process of acquiring, maintaining and dispositioning an organization’s capital assets. ES.6 Manage Incoming Product The process of defining and maintaining the information that characterizes inbound logistics management of all supplier deliveries ES.7 Manage Supplier Network The process of defining and maintaining a unique network of suppliers to deliver a specific product set. ES.8 Manage Import/Export Requirements The process of identifying and complying with import/export regulatory documentation and process standards set by external entities (e.g., government). ES.9 Manage Supplier Agreements The management of existing purchase orders or supplier contracts. • Receiving Product (S2.2) by defining packing / shipping instructions and measuring compliance. White Paper Page 4 Supply-Chain Council, Inc. • Verifying Product (S2.3) by measuring compliance to incoming quality issues. Additionally, due to the process changes and improvements and by providing real-time access to forecast and open order reports, this project has allowed suppliers to improve their Plan and Deliver processes. Implementation Historically, strategic sourcing and supplier performance insight for business users in Procurement and Planning was accomplished by reviewing data in multiple systems. In many cases usable reports were not available because the systems lacked a well developed reporting engine. A complete view of the company’s performance and that of the suppliers did not exist. ABG had implemented a robust Strategic Sourcing discipline in 2000. Through the use of cross functional Sourcing Strategy Teams, ABG was able to realize significant purchase price reductions. The teams, however, lacked the tools and processes to effectively evaluate the total cost of ownership. This project was the finalization of the Supply Management and Supplier Performance components to complete the long-term vision. The project implementation phase of the project was nine months, with the full implementation beginning in the third quarter of 2005. The foundation of the project began with an ‘As Is’ evaluation of current ABG processes relating to supplier relationships and performance management. Improvement opportunities were identified around the management of suppliers. While a process existed, there was no formal, documented process and few tools to support the communication of requirements and the automation of reporting. Detailed interviews were conducted with internal stakeholders to identify opportunities for improvement. External benchmarking of best in class companies helped provide new concepts and created the foundation for the To Be analysis. With the information, the team developed an initial To Be vision, outlining the program steps and business requirements. Finally, a gap analysis helped identify the missing tools and process required for the implementation of a world class supply management program at ABG. This project was specifically focused on improving the Source and Enable Source processes of the supply chain. The items below were identified as key elements for project success. Enable Source Managing Sourcing Rules (ES1) The project team identified a need for consistent, standardized, and accurate communication of requirements to the supply base. No existing process was available prior to the project, and all current requirements were outdated. Previous supplier communications at ABG were provided through printed documents via multiple departments. Recent upgrades in systems at ABG created the opportunity to utilize a Portal technology as the method of distribution for Supplier Requirements. A vision was outlined to utilize the Supplier Portal as the primary contact point for ABG suppliers. The site would house all business requirements and supply management information, as well as providing the entry point into the scorecarding application. Assessing Supplier Performance (ES2) Existing measurement of suppliers at ABG was inconsistent and inaccurate. The As Is state was a manual process utilizing Excel based tools. No formal process existed for the creation or delivery of the metrics. A primary requirement for the project was to create an automated process for suppler evaluation, and to provide the results via the Supplier Portal. A reporting tool would also close the gap on internal reporting needs to support ABG Strategic Sourcing. Maintaining Source Data (ES3) White Paper Page 5 Supply-Chain Council, Inc. Previous supplier metrics were communicated manually to suppliers. Because ABG lacked an automated reporting tool, only a limited number of suppliers were able to receive the information. The Business Intelligence software available not only provided automated reporting, but also contained functionality for creating internal and external dashboards. The To Be vision was to provide the supplier scorecard information via a dashboard, thereby reducing the time required for internal delivery of the report and also increasing the availability of the data for suppliers. Managing the Supplier Network (ES7) A requirement for improved internal management of suppliers and sourcing activities was identified via the gap analysis. Current processes resulted in significant growth of the supply base, and decreased leverage opportunities. No central process for supplier identification and selection existed, and often the selection was outside the control of Strategic Procurement. To establish a uniform approach to supplier selection, the team developed a segmentation model that outlined specific requirements and expectations for the business relationship. Source The Enable elements addressed above support the ongoing measurement and management of source activities. Details for the Source components that directly align with the project scope are outlined below. Scheduling Product Deliveries (S2.1) To measure improvements in product deliveries, the team established delivery metrics based on the requested date at time of order and promised delivery date from the supplier. New processes were established internally to review applicable reports and correct discrepancies before receipt. The reduction of errors improved the overall delivery process from time of order through payment of supplier. Receiving Product (S2.2) As part of the development of a web based supplier portal, the team worked to define all packing and shipping requirements for ABG Suppliers. The requirements were communicated to the supply base and compliance was measured via the Supplier Performance Dashboard. Verifying Product (S2.3) While incoming issues were currently being tracked by the ABG Quality department, the results were not effectively communicated. As part of the supplier dashboard, the team provided a quality metric to measure the performance of a supplier over time. Project Challenges, Resolutions, and Solutions Challenge: Alignment and buy-in throughout ABG was critical for project success. The new tools, metrics, and processes required support from a variety of functional areas. Traditional ‘silo’ mentality was encountered due to visibility of data, fear of increased resource requirements and blame generation. Solution: The team identified early on the need for cross functional support, and created a Supply Management team with members from all stakeholder departments. The team was used as a means of quickly updating various departments with the project status. As the project progressed, the team created a communication plan and targeted each department for wide scale training of project concepts. Challenge: Data integrity issues were identified. The project required data collection from six unique systems, including a recently implemented ERP system. The variation between systems and the lack of data input processes caused challenges with accurate reporting. Solution: This challenge was addressed on several fronts. First, the project team set out to identify the data integrity issues. As an example, the intervention on the On Time Delivery (OTD) metric is described. White Paper Page 6 Supply-Chain Council, Inc. Once all the data from the system was mapped (programmed) and reports created, the resulting average OTD performance was lower than anticipated. The team’s first step was to challenge the data that was mapped into the BI software. Extreme care was taken to validate that the mapping was completed properly. With this review, several irregularities were found. Through an As Is analysis, it was found also that many traditional processes that were utilized in the legacy systems where carried over to the new ERP application. The team charted all known processes that were creating the incorrect OTD scores. To ensure continuity in the maintenance of data integrity, an extended team from Planning and Procurement was utilized to re-train internal stakeholders and to incorporate the new processes into individual personal objectives. Challenge: Training internal & external stakeholders on supply management program and reporting tools. Solution: For internal users, the challenge was compounded by the fact that the audience was broad and required various levels of training. For the program to be successful, knowledge of the program across the entire organization was critical. Training was initiated at two levels for internal users. The "Basic" training summarized the program components and the proposed impact and was conducted in a large group setting. The second level was "In-depth,” hands on training in small groups of 8 or less. For External Users (Suppliers), three modes of training were utilized: • The top 60 suppliers were invited to a supplier conference and trained using a series of breakout sessions covering different elements of the Supply Management program. • Conducted one-on-one training with suppliers during on-site visits to ABG. • Developed training documents to facilitate self-paced training for the suppliers. Cost and Performance Improvement Benefits Targets Business Intelligence Project Plan • Goal to complete project milestones – on-time and on-budget. Training • Goal set to train all Strategic Procurement staff, identified internal stakeholders, and Top 60 suppliers by program launch. Supplier Portal • Goal set to have a functional, updated Supplier Portal by project launch. Operational Efficiency • Goal established to reduce the time associated with internal report development and analysis. Investment The project required the purchase of software licenses for internal and external (supplier) users, a server upgrade, internal IT resources to conduct the mapping, and Professional Services to assist in the implementation of the software. The total investment for this project was $600,000 with a total projected first year benefit of over $1 million. ABG confirms to be on track to achieve this goal. Results The KPI’s below summarize the performance of the top 60 suppliers that are the subject of the program. White Paper Page 7 Supply-Chain Council, Inc. Improvements in all key metrics have been realized since the inception of the program: • On-time Delivery To Request has improved by 4.0 % since Q3, 2005 • Order Fulfillment / Fill Rate has improved by 4.2 % since Q3, 2005 • Invoice Accuracy has improved by 4.6 % since Q3, 2005 • Incoming Quality has improved by 0.9 % since Q3, 2005 Additional benefits Support of the Organizational Objectives • Data Integration and Analysis - Enabled visibility by combining the relevant data in a common reporting engine, and by populating key performance indicators on automated dashboards to view, analyze and react to information in near-real time. • Sourcing Strategy Team Performance Improvement – Provides a complete view of Supplier and ABG performance for Sourcing Strategy Teams, the Strategic Procurement department, and continuous improvement teams. The performance indicators in use are: o Spend Analysis – Enables cross-functional sourcing teams by supporting analysis, reporting, and tracking to goals o Cost Savings – Supports cost control by providing the measurement tool and reporting engine on cost savings, cost avoidances, and cycle time reduction o Supplier Segmentation – Increased adherence to supplier segmentation model • Supplier Performance Improvement – Enabled improved visibility to performance against key supplier performance indicators (e.g., Quality, On-Time and In Full, Invoice Accuracy, Lead time). • Extension of Supply Chain Information to the Supply Base – automation of information flow to the supply base through an internet based application. o Open Orders, Forecasts, & Inventory Levels o Quality o Delivery Performance o Invoice Match o VMI/Consignment activities Knowledge Transfer The internal knowledge transfer began with a detailed Communication Plan for Supply Management internal stakeholders. The Supply Management Program, by the time of its introduction, was well- known by ABG executives. At appropriate intervals (usually monthly), executive management was kept abreast of roll-out progress, as well as functional and financial improvements yielded by the program. At the beginning of the project, the team began to execute its Supply Management communication plan with 12 participating and/or affected departments. Departments included every primary functional area, ranging from front-end (R&D) to back-end (Transportation & Logistics). As the project progressed, the team conducted a second round of departmental communication, focusing on specific components of the project plan. In order to support the communication activities, the team created several support materials to facilitate the promotion of the Program. 1. Supply Management Brochure - The brochure provided high-level descriptions of the Program’s main components: o Strategic Sourcing o Sourcing Management o Sourcing Strategy Teams o Supply Management 2. Supplier Performance Handbook and User Guide - The hand-out describes each metric, the acceptable target ranges, and the applicable formulas. 3. Supplier Analytics User Guide - It describes how to navigate to the supplier dashboard, what reports are available, and how to execute them properly. White Paper Page 8 Supply-Chain Council, Inc. 4. One-on-One Training Sessions - At the completion of the departmental communication plan, the project team assigned resources to target one-on-one training with expected high-frequency users: o Buyers and Buyer Assistants o R&D Scientists o Quality Scientists o Planning Specialists o Sourcing Strategy Team Members The training sessions focused on program process components, as well as detailed tutoring and practice with the Supplier Analytics reporting software. 5. Supplier Conference - Representatives from 60 key suppliers were called to the Ada, Michigan campus for an in-depth review of the Supplier Management Program. The project team prepared a full day of activities for suppliers, including presentations from ABG Management, plant tours, overviews of the Supply Management program, and detailed breakout sessions on specific program elements. 6. Supplier Portal - During the Supplier Conference, the 60 supplier attendees were granted secure access to the ABG Supplier Portal (www.supplier.alticor.com/abg ). Secure access to the Supplier Analytics Reporting software is only one aspect of the Portal. The website’s free content is available for all ABG suppliers. 7. Other Organizations - The best candidates for adoption of an ABG-style Supply Management Program might have these attributes: o High ratio of supplier raw/component/service purchases to sales revenue o Multiple suppliers in similar commodity/service areas o High reliance/dependence on the supply base for technical innovation o Low confidence in leverage abilities due to incomplete or faulty supply spend and performance data o Unavailable or incongruent Sourcing or Supply Management strategies Conclusion The project was not initiated to simply collect and distribute data and metrics, but rather to transform the processes relating to sourcing and supply management activities. Through such processes ABG is able to support critical strategic decisions with timely and accurate data. Using the SCOR elements as a basis for consistent analysis, ABG aligned internal goals and objectives with external expectations. ABG created sustainable sourcing efficiencies from the building blocks of SCOR’s Enable Source: managing sourcing rules, assessing supplier performance, maintaining source data, and managing the supplier network. Through SCOR’s Source process analysis other improvements in deliveries, receiving processes, and quality have already been realized, and consistent, clear communication of expectations to the supply base is now occurring. The tightly integrated teamwork and the constant exchange of information and open communication through SCOR, as the commonly accepted standard, have proven to be the key elements of the past and future success of this project. White Paper Page 9 Supply-Chain Council, Inc. About the Supply Chain Council About the Authors The Supply-Chain Council (SCC) is a global, not-for-profit trade association open to all types of organizations. It sponsors and supports educational programs including conferences, retreats, benchmarking studies, and development of the Supply-Chain Operations Reference-model (SCOR), the process reference model designed to improve users' efficiency and productivity. The Council is Name dedicated to improving the supply chain efficiency of its practitioner members. The Council's current goals include the following: Continuously working to provide the SCOR-model in current and widely applicable form, Expanding knowledge about the SCOR-model around the globe, Sponsoring events that provide supply chain management education and networking for members and nonmembers alike, Promoting research and thought leadership in the supply chain management area, Supporting educators in their dissemination of SCOR related materials and knowledge, Providing awards to organizations demonstrating supply chain excellence The Supply-Chain Council was organized in 1996 by Pittiglio Rabin Todd & McGrath (PRTM) and AMR Research, and initially included 69 voluntary member companies. The Council now has closer to 1,000 corporate members world-wide and has established international chapters in Europe, Japan, Australia/New Zealand, South East Asia, and Southern Africa with additional requests for regional chapters pending. The Supply-Chain Council's membership is primarily practitioners representing a broad cross section of industries, including manufacturers, services, distributors, and retailers. SCOR® is a registered trademark by the Supply Chain Council. This white paper document is for informational purpose only and does not constitute a real or implied endorsement of any particular product or company. Supply-Chain Council, Inc. 1400 Eye Street, NW Suite 1050 Washington, DC 20005 Tel: +1 202 962 0440 Fax: +1 202 962 3939 www.supply-chain.org www.supplychainworld.org email@example.com White Paper Page 10 Supply-Chain Council, Inc. About the Authors Luke Nieuwenhuis Manager, Supply Chain Planning Luke Nieuwenhuis is a Manager in Supply Chain Planning with responsibility for Supply Chain Analysis and the Cosmetics Supply Chain Planning Teams Prior to joining Access Business Group, Luke held the position of Manager of Supply Chain Planning at Meijer, Inc., a regional supercenter retailer. Luke received a Bachelor of Science degree in Authors left to right: John Emrich, Mike Bollman, Luke Nieuwenhuis, (not pictured: Chris Alder) Geology and a Bachelor of Arts degree in International Business from Calvin College. He received a Master of Business Administration degree in Supply Chain Management and Finance from Michigan State University. Mike Bollman Manager, Transportation Mike Bollman is a Manager in Global Transportation with responsibility for Carrier Procurement and Parcel Transportation. Prior to his current role, Mike was a Senior Analyst in the Strategic Procurement Department where he helped develop and launch the Access Business Group Supply Management Program. Mike has held previous positions with Herman Miller, Pactiv Corporation, and International Paper. He received a Master of Business Administration and a Bachelor of Science degree in Packaging from Michigan State University. John Emrich Senior Analyst, Strategic Procurement John Emrich is a Sr. Sourcing Analyst in Strategic Procurement. John’s responsibilities include: development, launch and integration of Access Business Group’s Supply Management program into their Strategic Sourcing process. In 2006, John received his Green Belt certification in Access Business Group’s Six Sigma program. John has held previous positions with Gordon Food Service and L. Perrigo companies. He received a Bachelor of Science degree in Chemistry from Michigan State University. White Paper Page 11 Supply-Chain Council, Inc. Chris Alder Analyst, Strategic Procurement Chris Alder is an Analyst within the Strategic Procurement department with responsibility for developing and supporting sourcing and supplier management programs. Prior to joining the Access Business Group, Chris was the Quality Assurance Manager for DPI Automotive, a Grand Rapids area leader in automotive interior finishes. He received his Bachelors of Mechanical Engineering from the University of Detroit-Mercy, and holds several Quality and Operations-related professional certifications. Chris is currently working on his MBA at Davenport University. Enrico Camerinelli Supply Chain Council Chief Knowledge Manager White Paper Page 12 Supply-Chain Council, Inc.
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