Google Company Value Chain by asn11969


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									                                                                                                                                                   SUPPLY CHAIN
                                                                                                                                                    at a glance
                                                                                                                                                    This article looks at the latest
                                                                                                                                                    additions to the SCOR model
                                                                                                                                                    — Customer Chain Operations
                                                                                                                                                    Reference and Design Chain
                                                                                                                                                    Operations Reference.

       How to make your supply
          chain more                                                                                                                    the four walls of the company and in-
                                                                                                                                        clude more than just supply chain

                                                                                                                                        processes. As a result, we’ve seen the
                                                                                                                                        evolution of the “value chain” concept.

                                                                                                                                        Is there really any difference be-
                                                                                                                                        tween a supply chain and a value chain?
                                                                                                                                        Google doesn’t shed much light on the
                                             The SCOR model has evolved to                                                              situation. Of the 10 most popular listings
                                             encompass a company’s entire value            confront seemingly incompatible issues.      (out of nearly 7 million), half use the two
                                             chain                                         As with most good business practices,        terms interchangeably. Of the remaining
                                                                                           the concepts aren’t new. Many of you         five, one references both supply chain
                                             by Peter Bolstorff                            remember when manufacturing was first        and product design, one defines value
                                                                                           presented with the challenge of reducing     chain in the context of a service business,
                                             Earlier this year I had the opportu-          costs while improving quality, or when       and three reference a 20-year-old book
                                             nity to facilitate a business executive fo-   the idea of pairing inventory reduction      by business academic Michael Porter
                                             rum focused on supply chain trends. The       with delivery reliability improvement        (Competitive Advantage: Creating and
                                             conversation was couched in the context       was first introduced to planning.            Sustaining Superior Performance).
                                             of “big business questions” that execu-          These days, we’re also learning to deal      The Michael Porter value chain frame-
                                             tives are being challenged with today,        with the increased pace of new product       work has two parts to it. The first part
                                             such as:                                      introduction paired with more efficient      contains five “primary” processes:
                                             ✎ Why am I not growing at the rate I          material acquisition; increased sales pro-   ■ Inbound Logistics (receiving, ware-
                                             want?                                         ductivity paired with more effective pre-    housing and inventory control of raw
                                             ✎ Why am I missing my gross margin            and post-sale customer service; more         materials and components);
                                             expectations?                                 flexible global distribution paired with     ■ Operations (value-creating activities
    What is SCOR?                            ✎ Why are my customers unhappy?               more efficient use of warehouse and          that transform raw materials and compo-
    The Supply Chain Operations Refer-       ✎ Where is my cash?                           transportation costs; and planning for       nents into finished salable products);
    ence model, developed by the Supply      ✎ Why are my overhead expenses grow-          both your supply chain and your cus-         ■ Outbound Logistics (order fulfill-
    Chain Council, provides a standard       ing faster than revenue?                      tomer’s supply chain paired with im-         ment, warehousing, transportation);
    methodology for managing supply chain    ✎ How do I achieve competitive advan-         proving your planning efficiency.            ■ Sales & Marketing (channel selec-
    projects centered on five areas: Plan,   tage?                                            With competitive global manufactur-       tion, advertising, pricing, sales);
    Source, Make, Deliver and Return.           To answer these questions, many of         ing and sophisticated information ex-        ■ Service (customer support, repair,
                                             the forum participants were forced to         change, the pairings have moved beyond       etc.).

L O G I S T I C S    T O D A Y                                                                                           JUN 2005                 19
                                SUPPLY CHAIN

                                  The second part contains four “support” type                                dimensions: Strategy, Product Flow, Work Flow
                                processes:                                                                    and Information Flow. As with the SCOR model, a
                                ■ Firm Infrastructure (finance, legal, quality                                company must align all four dimensions in an im-
                                management);                                                                  provement effort.
                                ■ Procurement (purchasing);                                                      Figure 1 attempts to put the four frameworks to-
                                ■ Human Resources (recruiting, development,                                   gether in a high level process relationship map. As il-
                                compensation);                                                                lustrated in the diagram, each process relates to its
                                ■ Technology Development (research and develop-                               markets, other macro processes in your company, and
                                ment, process automation, and other technology                                to customers through key inputs and outputs. The pic-
                                development).                                                                 ture is far from perfect; the process relationships are
                                                                                                              far more complex and dynamic than the series of in-
                                If you Google “supply chain,” the most popular                                puts and outputs suggest. In fact, I’m 100% positive
                                website is that of the Supply Chain Council (SCC).                            there will be many revisions to this diagram over time,
                                The SCC’s SCOR model framework defines part of                                but it’s a good place to start.
                                the value chain as the integration of Plan, Source,
                                Make, Deliver, Return and Enable processes. SCOR                          Integrated Macro Processes
                                by itself has helped hundreds of companies define                         “Integrated” in this case describes how the macro level
                                their supply chains, measure them and drive perform-                      value chain processes interact in plan full, directive
                                ance improvement.                                                         and yet adaptive ways that satisfy your customer re-
                                   While the level of detail lends itself to analytical                   quirements and help your company grow profitably.
                                work, the difficulty with using just SCOR alone is that                   “Integrated” does not imply that the processes are seri-
                                there are several high level process gaps in contrast to                  ally executed. We know that at any given moment of
                                the Porter model. For example,
                                SCOR does not address the primary
                                processes of Sales & Marketing and
                                                                                                                                                                 Channel Strategy
                                some aspects of Service. Addition-                 Market Research                  Market Chain                                 Product Portfolio
                                ally, SCOR does not address the sup-
                                port processes of Firm Infrastructure,                                 Market Requirements                 Desirable Products
                                Human Resources and Technology
                                Development.                                                                                                                   Engineering Change
                                   Recognizing this, the SCC and its
                                                                                   Specifications                    Design Chain                                 Requirements,
                                member companies (Hewlett-
                                Packard Co. in particular) have intro-                                Product Life Cycle Plans              Product Changes
                                duced two new frameworks that help
                                                                               Purchase Order, Plans,                                                         Customer Order, Plans,
                                piece together more of the detailed
                                mosaic of enterprise value chains:
                                                                                   Requirements                     Supply Chain                                   Requirements

                                ■ The Customer Chain Operations
                                                                                                            Order Status                  Customer Agreements
                                Reference (CCOR) model defines
                                the customer part of the value chain
                                                                                   Channel Plans,                                                                    Customer
                                as the integration of Plan, Relate,                Requirements                  Customer Chain                                     Relationship
                                Sell, Contract, Service and Enable
                                processes.                                        Markets                                    Your Company                               Customers
                                ■ The Design Chain Operations
                                Reference (DCOR) model defines               Figure 1. Macro Level Value Chain Process Relationship Map
                                the design part of the value chain as
                                the integration of Plan, Research,
                                Design, Integrate, Amend and En-
                                                                                                                                                                Channel Strategy
                                able processes.
                                   The Marketing component is still
                                                                                  Market Research                  Market Chain                                  Product Portfolio

                                on the development block. The gap                                     Market Requirements                  Desirable Products
                                between the SCC process frame-                                                          Design Chain
                                works and Porter now just includes                                                                                             Engineering Change
                                some aspects of Firm Infrastructure                Specifications        Plan Research Design Integrate Amend                     Requirements,
                                and Human Resources.
                                                                                                          Product Life Cycle Plans     Product Changes
                                Let’s look now at how companies                                                             Supply Chain
                                can use the SCC frameworks to            Purchase Order, Plans,                                                     Customer Order, Plans,
                                                                             Requirements       Plan        Source     Make Deliver         Return      Requirements
                                measure the performance of their
                                value chains.
                                   A value chain, as defined by SCC,                               Order Status                 Customer Agreements
                                                                                                            Customer Chain
                                is the integrated macro processes of
                                Marketing, Design, Supply and                Channel Plans,                                                               Customer
                                                                             Requirements       Plan        Relate       Sell   Contract Service         Relationship
                                Customer. A value chain spans from
                                markets (of supply and demand) to
                                                                            Markets                                Your Company                              Customers
                                your company to your customer (ulti-
                                mate buyer of your products).
                                                                      Figure 2. Value Chain Level 1 Process Relationship Map
                                   A value chain is comprised of four

20   JUN 2005                                                                                                        L O G I S T I C S       T O D A Y
SUPPLY CHAIN                                                           Table 1 Driver Transactions
                                                                       Supply Chain:
                                                                       Plan..............Forecast and Replenishment Order
the day, new channels are targeted, new       or importance            Source ........Purchase Order                                Internal Process,    task to end with lag) and yield (com-
products are introduced, sales people win     (key account),           Make............Work (Process) Order                         Financial and        pleted transactions without rework).
and lose contracts, suppliers miss deliv-     and/or interme-          Deliver ........Sales Order                                  Employee)            Table 1 is a first pass at supply chain and
eries, customers change their orders, and     diary source             Return ..........Return Authorization                        against its goals    customer chain driver transactions.
warranty claims are acted upon.               (wholesaler or                                                                        as established in
   Figure 2 portrays the parallel nature of   distributor). For       Customer Chain:                                               its vision and       The concept of value chain is not
the value chain, illustrating the SCOR        example, if             Plan..............Territory Sales Forecast and Quota          strategy. Each of    new. Neither was supply chain in 1996,
Level One processes. The “so what?” of        “why is my rev-         Relate ..........Customer Profile                             the macro            when SCOR was introduced to provide
this diagram is the ability to describe the   enue not grow-          Sell ..............Quote/Proposals                            processes in the     common definition, metrics and practices
complexity of your value chain using          ing at the ex-          Contract ......Profitable Contracts                           value chain          with the goal of companies using the
simple common language and, more im-          pected rate?” is        Service ........Service Request                               framework con-       framework to improve supply chain per-
portantly, through analysis determine         still the big busi-                                                                   tributes relevant    formance across industries and trading
which processes are working well, which       ness question at hand, we may focus the                    measures for Customer, Process and Fi-          partners.
ones need improvement, and which ones         question at demand sources segmented                       nancial.                                           We are at another stage of evolution
are completely broke or absent.               by geography, channel, and/or customer                        Product flow has to do with the effi-        where companies’ big business questions
   For example, if “why is my revenue         (e.g., Latin America, Discount and Vari-                   ciency and effectiveness of managing            are forcing us to think outside of the sup-
not growing at the expected rate?” is the     ety Retail, Wal-Mart and Carrefour). So                    products to markets and customers. Each         ply chain box. With the introduction of
big business question at hand, this value     we now may know which processes,                           of the macro value chain processes adds         the CCOR and DCOR processes, the
chain framework provides a better con-        markets and customers need improve-                        a little different twist. For example,          SCC has positioned itself to support
text to get the answer right then simply      ment.                                                      Design effectiveness of product to mar-         value chain performance improvement
pointing the finger at Sales. What you                                                                   ket flow could be measured and analyzed         through common process definition,
don’t see here is that underneath each        Value Chain Dimensions                                     through new product development cycle           metrics framework and best practices. In
Level One process are two more layers         There are four dimensions to a value                       time. Supply effectiveness could be             the next article we’ll look at how to use
of process detail, definitions, suggested     chain: strategy, product flow, work flow                   measured and analyzed by inventory              the value chain framework described
metrics and leading practices.                and information flow.                                      days of supply. Analytical techniques           here to drive value chain excellence. LT
                                                 Strategy is founded on the key value                    such as value stream mapping, network
Value Chain Span                              chain performance measures and the                         analysis, and/or inventory optimization         Peter Bolstorff is president and CEO of SCE
A value chain spans from markets to cus-      competitive priority necessary to grow                     provide value in assessing process effi-        Limited (, which supports
tomers. Markets refer to potential de-        profitably. One common model of organ-                     ciency.                                         “do-it-yourself” supply chain performance
mand and both potential and actual sup-       izing your key performance indicators is                      Work and information flow focus on           through education, coaching and process
ply. A market may be geographic in            the Balanced Scorecard,                                                      the productivity of driver    expertise. He has been involved with the
nature (e.g., North America or Latin          an approach to strategic                                                     transactions. Driver trans-   development of the SCOR model since its
America) or it may refer to a commodity,      management developed
                                                                                      resources                            actions are the primary       inception. He is the co-author (with Robert
channel, or Special Industry Code (SIC)       in the early 1990s by aca-                                                   transactions on which         Rosenbaum) of Supply Chain Excellence: A
                                                                                      Balanced Scorecard Institute
(e.g., Aerospace & Defense Parts Manu-        demics Robert Kaplan                                                         both work processes and       Handbook for Dramatic Improvement Using the
facturing or Discount & Variety Retail)       and David Norton. The                                                        technology center. Pro-       SCOR Model (Amacom, 2003). He can be reached
or it may refer to an existing supply base.   basic idea is that an or-                                                    ductivity is measured by      at
                                                                                      Supply Chain Council (SCC)
   Customers, on the other hand, refer to     ganization must measure                                                      event time (time on task
actual demand. Customers may be               its performance from a                                                       without lag), elapsed
grouped by channel (retail), relative size    balanced view (Customer,                                                     (time from beginning of

  22   JUN 2005                                                                                                                      L O G I S T I C S    T O D A Y

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