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Supply Chain Performance Measurement Scor Application document sample
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SCOR: Open Standards for Supply Chain Management
Supply Chain Council, Inc.
What Keeps You Up at Night?
Stock Market Volatility, Oil Prices,
Labor, Political Instability, Security
Reducing Inventory/
Working Capital/ Asset Reducing Total Supply
Management Chain Costs
Supply Chain
Resiliency &
Competing in a
Sustainability:
Global Market
Risk Management
& Green
Providing Superior & Consistent
Customer Service While
Increasing Revenue & Margin
Business As Usual Has Been Cancelled…Now What?
2 SCC & SCOR HRdergi Conference 2010
Superior Supply Chain Management (SCM) has Long Been
a Source of Competitive Advantage
Total Supply Chain Management Costs (% of Revenue) Best-in-Class
Median
14.0%
12.3%
12.0% 10.7% 10.7%
10.0%
% of Revenue
10.0% 9.2% 9.1%
8.0% 7.4%
6.6%
5.4% 5.5%
6.0% 5.3%
4.8%
4.2%
3.4% 3.5% 3.6%
4.0%
2.0%
0.0% Automotive Industrial Chemical & Computer Consumer Goods Pharmaceutical Semiconductor Telecommunications
Advanced Materials Equipment
Best-in-class Companies’ Outperform Their Median Competitors with a
50% Cost Advantage
Source: PRTM/The Performance Measurement Group
3 SCC & SCOR HRdergi Conference 2010
But SCM is Paramount in Times of Economic Uncertainty
Fortune-10 Company
• In 2007, US business logistics costs rose to an all Supply-Chain Cost as
time high of $1.4 trillion (10.1% of US nominal % of Total Costs 2
Gross Domestic Product ) 3 GM 94%
Ford 93%
• Supply-chain generally accounts for between 60% Conoco 90%
and 90% of all company costs1 Wal-Mart 90%
• A 2% improvement in process efficiency for supply- Chevron 88%
chain processes has 3000% - 5000% the impact of a IBM 77%
2% improvement in efficiency for… IT… HR… Exxon 75%
Finance1… Sales… GE 63%
1 Exclusive of Financial Services companies
Citi1 0%
2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM
Benchmark data on SCM cost f or discrete & process industries
AIG1 0%
3 CSCMP 19th Annual State of the Logistics Industry
Focused initiatives in Supply Chain Management can result in 30-35% cost
reductions, liberation of working capital, and revenue increases of 3-5%!
4 SCC & SCOR HRdergi Conference 2010
And SCM Improvement Creates Shareholder Value
The Supply Chain All Financial & Shareholder
Impacts . . . Metrics . . . Value
• Improve customer service and Liberate
Working
response Capital
• Optimize inventory flow, Improve
utilization & productivity Capital
Reduce Efficiency
Fixed
• Best-in-class customer Capital
relationships Increase
• Differentiated service
Increase Shareholder
capabilities Revenue Value
and Margin
• Best-in-class strategic supplier Increase
partnerships Profit
• Leverage of outsourcing of Optimize
business processes Cost Model
• Unique supply chain models
Effective Supply Chain Management can increase a Return on
Capital Employed by 30% and More!
5 SCC & SCOR HRdergi Conference 2010
THE ROLE OF THE SCOR MODEL IN
OPTIMIZING SUPPLY CHAIN
PERFORMANCE
6 SCC & SCOR HRdergi Conference 2010
What is a Supply Chain?
7 SCC & SCOR HRdergi Conference 2010
What is a Supply Chain
Product Management
Customer processes
Supplier processes
Product Design Sales & Support
DCOR™ CCOR™
Supply Chain SCOR™
8 SCC & SCOR HRdergi Conference 2010
What is SCOR®?
• SCOR is a supply chain
process reference model
Customer processes
Customer processes
Supply Chain
Supplier processes
containing over 200 process
elements, 550 metrics, and Plan
500 best practices including
risk and environmental
management Source Make Deliver
• Organized around the five
primary management
processes of Plan, Source, Return Return
Make, Deliver and Return
• Developed by the industry for
Process, arrow indicates material flow direction
use as an industry open Process, no material flow Information flow
standard - Any interested
organization can participate
in its continual development
9
9 SCC & SCOR HRdergi Conference 2010
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 Chain
• Supports intra- and cross-enterprise optimization of arbitrary scale
Plan
Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source
Return Return Return Return Return
Return
Return Return
Customer’s
Suppliers’ Supplier Your Company Customer
Customer
Supplier
Internal or External Internal or External
10 SCC & SCOR HRdergi Conference 2010
SCOR Processes – Five Levels of Decomposition
Level 1 Level 2 Level 3 Level 4 Level 5
Scope Configuration Activity Workflow Transactions
S1 EDI
Supply-Chain S1.2
Source XML
Source Receive Product
Stocked Product
Differentiates Differentiates Names Tasks Sequences Steps Links
Business Complexity Transactions
Defines Scope Differentiates Links, Metrics, Job Details Details of
Capabilities Tasks and Automation
Practices
Sets Strategy First Tier Second Tier Industry or Technology
Diagnostics Diagnostics Company Specific Specific
Standard SCOR definitions Company/Industry definitions
11 SCC & SCOR HRdergi Conference 2010
Supply Chain Balanced SCORcard
Standard Strategic (Level 1) Metrics
Attribute Metric (Strategic)
Reliability Perfect Order Fulfillment
Customer
Responsiveness Order Fulfillment Cycle Time
Agility Supply Chain Flexibility
Supply Chain Adaptability†
Cost Supply Chain Management Cost
Cost of Goods Sold
Internal
Assets Cash-to-Cash Cycle Time
Return on Supply Chain Fixed Assets
Return on Working Capital
† upside and downside adaptability metrics
12 SCC & SCOR HRdergi Conference 2010
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
It helps companies:
•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)
13 SCC & SCOR HRdergi Conference 2010
SCOR®: CASE IN POINT
14 SCC & SCOR HRdergi Conference 2010
ADVA Optical Networking
The Challenge The Solution
• €370.2M Revenue Enterprise1 • Using SCOR, ADVA identified performance gaps
• Rapid growth in demand for storage, voice & in key metrics between current and required to
data transport reach parity status
• Focus on capturing this growth while • Also using SCOR, identified process
maintaining profitability disconnects, drivers of inventory and projects
• Needed to identify inventory drivers and required for improvement
optimize inventory levels to enable ADVA to • Grouped and prioritized proposed projects
reach inventory reduction targets whilst based on potential impact and amount of
improving customer satisfaction in Order effort/risk
Fulfillment Cycle Time (OFCT) and On-time • Agreed to project list including:
Delivery (OTD) – New S&OP Process
• Created a transformation plan that would – Supplier scorecards and quarterly business
allow ADVA to proactively plan, drive and reviews with suppliers,
manage the inventory levels and better – Information transparency and others
achieve the balance of cost and service
Benefits Achieved
• Gross inventory reduced from €59 million to
€38 million in 10 months
• Inventory days of supply reduced 47% from
1Hoovers.com
initial scorecard
15 SCC & SCOR HRdergi Conference 2010
Core Value1
• Improvement of operating results of an average of 3% in
the initial SCOR implementation phase by means of cost
reduction and improvement in customer services
• Increase in profitability (between 2x and 6x) with regards
to project investments costs within first 12 months of
implementation
• Reduction in IT costs through minimizing system
customization and making better use of standard
functionality
• Continuous actualization of process change portfolio by
continuous conversion of Supply Chain improvements with
the objective of increasing annual profits by 1% to 3%
1Poluha (2007) Application of the SCOR Model in Supply Chain Management New York, USA
16 SCC & SCOR HRdergi Conference 2010
Douglas Pharmaceuticals Limited
The Challenge The Solution
• Significant growth from 2003 to 2007 • “Turning point” for organization – DIY not
– 300% increase in new product development always best
– 122% growth in production volume • Board mandated review at its April 2007
– 61% growth in employees meeting
• Created the “perfect storm” of supply chain • Process established to evaluate options
issues • SCE program initiated using SCOR
• Converted to new ERP in August 2006 • 17 week SCE program between May and
• “Burning Platform”: September 2007
– Customer DIFOT (Export) Down to 20%
– Product Lead Times Up to 8 months
– New Product Introduction Lead Times Up to 9 months
– Stock Turns Down to 2.1x
– YTD Sales Down 30%
• Available Spare Capacity Unknown
• Customer complaints impact new licensing
opportunities and future earnings growth
• Impact on 2007/8 earnings and shareholder
value:
– EBIT (15.9%)
– Enterprise Value ($25.2M)
17 SCC & SCOR HRdergi Conference 2010
Douglas Pharmaceuticals Limited – continued
The Solution Benefits Achieved
• Benchmarking and Defect Analysis:
– Established emphasis on reliability and supply
chain cost Metric Improvement
– Confirmed size and relative importance of
current performance gaps Sales per 20%
– Provided early direction on root causes employee
– Generated basis for calculating opportunity
COGS % 10%
cost
– Created immediate visibility over supply chain Inventory days 20%
performance
of supply
– Built confidence to move onto Phase Two
• 24 problem areas impacting reliability and Cash to cash 15%
cycle (days)
COG
• Portfolio of 50 improvements addressed key Shareholder $4.1 million
problem areas returns IRR 300%
• “Drive Chain” now forms basis of an EV Uplift= $12.1m
enterprise wide transformation program
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Typical Potential Improvements 1
Area Improvement
Raw materials purchase cost 25%
Cost of Distribution 35%
Total resource deployed 50%
Manufacturing space 50%
Investment in Tooling 50%
Order cycle time 60%
New product development cycle 60%
Inventory 70%
Paperwork and Documentation 80%
Quality Defects 100%
1Hughes & Michels (1998) Transform your supply chain. Releasing value in business. London, UK
19 SCC & SCOR HRdergi Conference 2010
SAAB AB
Challenge The Saab Common Solution
• US$3.1B Aerospace Technology Enterprise1 • One backbone system (today based on ERP
• Three strategic business segments: and/or Best of Breed)
aeronautics, defense and security solutions, • Cross-functional collaboration and common
systems and products trust
• Challenged to execute profitable and • Increased Interoperability
customer adapted logistics intensive • Align SCM Strategy with Corporate Strategy
businesses • Key Enablers
– The degree of coordination of logistics – Common Supply Chain Frameworks and
operations highly impact Saabs cost Roadmaps
level for logistics
– Standardization
– Coordination enables CEL processes to
ensure delivery to customers demands – Codification
• Needed to build competitive operations, – Information Systems
planning, logistics, and support
• To do so, wanted to move to a full lifecycle-
based support concept
1Hoovers.com
20 SCC & SCOR HRdergi Conference 2010
SAAB Coordinated Effective Logistics (CEL)
Solution Benefits Achieved
• Step by step approach - no “big bang” • Creating a Saab Common Logistics and Supply
• Multiple supply chains and methods Chain Management Framework
– Delivering incremental capabilities
• Lack of structured methods and processes
– Using SCOR Methodology, Processes and
• Knowledge tied to individuals Metrics hierarchy
• Lack of information sharing • Initial business cases have identified savings of
73 FTEs and a total of US$15M
• Use of the SCOR model
– Common definitions and process mapping
– Sustainable and structured methodology
being used as framework for realization of all
logistics and SCM activities within Project CEL
throughout all of its phases; from cradle to
the grave
• Project management
• Change management
• Engineering technique
21 SCC & SCOR HRdergi Conference 2010
Raytheon IDS
The Challenge The Solution
• US$4.7B subdivision of US$23.1B Defense • SCOR/Six-Sigma program assessing all supply
Services Provider1 chain processes within IDS, with focus all SCOR
• Rapid growth but antiquated processes and process areas
procurement focus in supply chain left IDS • 8550 people within Raytheon IDS, and 7600
facing non-competitive operating costs supplier partners went through transformation
• No skills within existing team to background for accomplishing five key challenges:
– Improving world-class performance
and skills for transformational change
– Connecting every employee to the business
required
– Creating purposeful, collaborative partnerships
– Accelerating top-line, double-digit growth
– Achieving predictable, best-in-class bottom-line
performance
Benefits Achieved
• 37 Percent reduction in headcount but
increase of college-educated population to
66%
• 75% reduction in transactional processing for
material acquisition
• 25% improvement in SC Cost-to-Sales
1Hoovers.com
• $57M in bottom-line savings
• 98% supplier conformance to contract
22 SCC & SCOR HRdergi Conference 2010
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%
Lower supply chain costs 25% - 50%
Improvement of fill rates 20% - 30%
Improved capacity realization 10% - 20%
1Stephens (2000) 1997 Comparative Study Pittsburg, USA
23 SCC & SCOR HRdergi Conference 2010
SASOL Supply Chain Optimization
The Challenge The Solution
• US$16B annual South African Petrochemical • The SASOL Supply Chain Optimization Journey
Concern 1 • Awareness – identified SCOR as a tool (2004)
• Embarked on Supply Chain Optimization to • Embarked on SCOR pilot project – tackling
identify synergies and improvement problem area to show benefits and understand
opportunities across multiple business units process
• Complex changing political environment and • First in-house project (to build internal success)
introduction of substantial Managerial class • Approval for permanent Center of Excellence
without deep experience (CoE) competency
• Prioritization of supply chain projects (project
demand exceeds supply)
• Project 2, 3, 4…..X
• Embraced “The SCOR Way” (2007)
Benefits Achieved
• Ongoing CoE for supply chain optimization
• Sample project generated IRR of 139% over the
project lifetime
1Hoovers.com
• Estimated US$1B cost improvements over 3
year period
24 SCC & SCOR HRdergi Conference 2010
Even More Companies
$200M Cost Improvements Single
Division
US$2.3B Savings supported with
Merger
$5B Working Capital
$66M Revenue/Inventory
€2M Improvements Single Division
(Peroxides)
25 SCC & SCOR HRdergi Conference 2010
Even More Companies
40-Point spread
between SCOR
Companies and Major
US Indices
26 SCC & SCOR HRdergi Conference 2010
SUPPLY CHAIN COUNCIL, INC.
27 SCC & SCOR HRdergi Conference 2010
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 operations
• 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 continually advances its tools and educates members about how
companies are capitalizing on those tools
– With membership open to all interested organizations
28 SCC & SCOR HRdergi Conference 2010
Global Scope With Over 800 Member Organizations
Member Distribution
Australia/Ne South Africa
w Zealand
China Latin
America
Southeast
North Asia
America
Japan Member Affiliation
Europe Government
SME
End User
Enabling Technology
Consultant
Also developing
chapters in India and Non-Profit/Academic
the Middle East
0% 10% 20% 30% 40% 50%
29 SCC & SCOR HRdergi Conference 2010
Industry Membership Scope
30 SCC & SCOR HRdergi Conference 2010
SCC Benefits Companies
• Accelerates application of the SCOR open standard to all
supply chain management practices
• Provides resources in addition to SCOR for characterizing
and measuring supply chain comparative performance
• Supports knowledge networks of successful applications
among participating companies
• Facilitates continuous improvement of the SCOR open
standard to keep it relevant and applicable across industry
31 SCC & SCOR HRdergi Conference 2010
SCC Benefits Individuals
• Provides comprehensive training in the framework and its
application in supply chain management
• Provides professional credentials in the application of the
SCOR standard
• Provides research forums for individuals to learn and
participate in advanced supply chain management practice
• Supports event and virtual networking with accomplished
professionals
32 SCC & SCOR HRdergi Conference 2010
SCC Benefits Academia
• Supports access to the only universal supply chain
management foundation and language for students
• Provides credentialing through SCOR-S certification
program to accelerate student placement in industry
• Is the global language of supply chain research, cited in
over 3000 academic papers and programs
• Facilitates access to thousands of companies for research
and collaboration worldwide
33 SCC & SCOR HRdergi Conference 2010
SCC Benefits Software and Consulting
• Provides uniform standards and practices for consulting
skills and software capabilities across industry
• Facilitates the development of a global market for software
and services focused on universal standards
• Creates the ability for “off the shelf” business services
methodology for small and large organizations
• Provides uniform credentialing for skills of service providers
in supply chain improvement programs
34 SCC & SCOR HRdergi Conference 2010
Call to Action - Possibilities
• National
– Development of a Turkish Language version of SCOR
– Turkish Industry based benchmarking database
– Training and Education in SCOR for Turkish Industry
• Industry
– Looking at value SCC and SCOR may bring to your company
– Participation in European Leadership Team
• Individual
– SCOR briefing materials
– Discussion with SCM Company Leadership
– Education and Evangelism
35 SCC & SCOR HRdergi Conference 2010
Many Thanks
For this presentation
www.supply-chain.org/event/136
info@supply-chain.org
