Measuring Scm Benifits & Scor

Measuring SCM benefits and SCOR Model

Suhas Rane Director ( Planning & Admin.) NMIMS University, Mumbai [email protected] 98210 24029 Suhas Rane, [email protected],

98210 24029

Strategic Objectives of SCM

• • • • • •

Profit Growth Rate Market Share Product Quality Time to Market Customer Satisfaction

Suhas Rane, [email protected],

98210 24029

Why measure ? • If you can’t measure, you can’t control • If you can’t control, you can’t manage • If you can’t manage, you can’t improve Measurements are the keys

Suhas Rane, [email protected],

98210 24029

Key Supply Chain Metrics •Perfect Order •Demand Forecast Accuracy (DFA) •Cash-to-Cash Cycle Time •SCM Cost

Suhas Rane, [email protected],

98210 24029

Measurement Approaches • Balance Score Card – Financial, Customer, Internal Business & Innovative Perspectives • SCOR Model – Cycle Time, Cost, Quality & Asset Metrics •

Logistics Scoreboard – Financial, Productivity, Quality & Cycle Time Performance Suhas Rane, [email protected],

98210 24029

SCOR Model – What’s that? SCOR • Supply Chain Operations Reference Model • Developed by Supply Chain Council (SCC) SCC • Independent, not-for-profit corporation formed in 1996 • Started with 69 voluntary companies; now 1000+ members. • Objective: To develop a standard supply-chain process reference model enabling effective communication among the SCM partners, by - Using standard terminology - Using standard metrics to compare and measure their performances Suhas Rane, [email protected],

98210 24029

SCOR :

Integrates BPR, Benchmarking, and Process Measurement into a cross-functional framework.

Capture “as-is” process and derive “to-be” future state

Capture “as-is” process and derive “to-be” future state

Quantify performance of similar companies and establish internal targets

Business Process Reengineering

Benchmarkin g

Characterize the management practices and software solutions

Best Practices

Analysis Suhas Rane, [email protected],

Quantify performance of other cos. & Establish internal targets Characterize the mgmt. practices and software solutions Process Reference Model 98210 24029

Primary Use of SCOR: – To describe, measure and evaluate supply chain configurations.

SCOR contains: – Standard descriptions of management processes – Relationships among the standard processes – Standard metrics to measure process performance – Management practices that produce best-in-class performance

Suhas Rane, [email protected],

98210 24029

SCOR : Basic Management Processes Plan-Source-Make-Deliver-Return

Plan

Deliver

Supplier’s Supplier

Source Return

Make

Deliver Return

Supplier (Internal or External)

Source

Make

Return

Deliver

Source

Return

Your Company

Make

Return

Deliver

Source

Return

Customer (Internal or External)

Customer’s Customer

Plan-Source-Make-Deliver-Return provide the organizational structure of the SCOR-model Suhas Rane, [email protected],

98210 24029

Scope of Basic Management Processes •

Plan : Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production and delivery requirements) – Balance resources with requirements – Establish/communicate plans for the whole supply chain

•

Source : Processes that procure goods and services to meet planned or actual demand – Schedule deliveries (receive, verify, transfer)

•

Make : Processes that transform product to a finished state to meet planned or actual demand) – Schedule production

•

Deliver : Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management) – Warehouse management from receiving to ship product.

•

Return : Processes associated with returning or receiving returned products – Manage Return business rules

Suhas Rane, [email protected],

98210 24029

Three Levels of Process Detail Level

#

Description

Supply Chain Operations Reference Model

1

Plan

Top Level (Process Types)

Source Return

Make

Deliver

A company’s supply chain can be “configuredto-order” at Level 2 from the core “process categories.”

Configuration Level (Process Categories)

3

Process Element Level (Decompose Processes) P1.1

Identify, Prioritize, and Aggregate Supply-Chain Requirements

P1.2 Identify, Assess, and Aggregate Supply-Chain Requirements

Implementatio n Level (Decompose Process Elements)

Level 1 defines the scope and content for the SCOR model. Here basis of competition performance targets are set.

Return

2

4

Not in Scope

Comments

Schematic

P1.3

P1.4

Balance Production Resources with Supply-Chain Requirements

Establish and Communicate Supply-Chain Plans

Level 3 defines a company’s ability to compete successfully in its chosen markets, and consists : •Process element definitions •Process element information inputs, and outputs •Process performance metrics •Best practices, where applicable •System capabilities required to support best practices •Systems/tools Companies implement specific SCM practices at Level 4 to achieve competitive advantage and to adapt to changing business conditions.

Suhas Rane, [email protected],

98210 24029

The Hierarchy of Supply Chain Metrics What it is

Top Tier

Demand Visibility

What it tells You Demand Forecast

Responsiveness Cost / Margins

Perfect Order

Perfect Order Predictor

Performance Tradeoffs

SCM Cost

Cash flow Health Customer versus

Mid Level

Cash-to-Cash

DPO

Supplier

Ground Level

Operational Effectiveness

Cost Detail

Supplier On Time

Inventory Total

Raw Material Inventory

Supplier Balance

DSO

Purchasing Costs

Direct Material Costs Root Cause Analysis Surgical Intervention

Quality

Production Schedule Variance

Plant Utilization

WIP & FG Inventory

Order Cycle Time

Suhas Rane, [email protected],

Perfect Order Detail

98210 24029

Perfect Order : An order that is complete, accurate, on time, and in perfect condition Conditions that prevent a Perfect Order include: • Orders Not Delivered On Time - Due to stock out/manufacturing delay - Due to late shipment - Due to in-transit/ delivery delays • Order Not Meeting Customer Requirements - Due to inaccurate shipment - Due to poor quality of finished goods - Due to damage to finished goods in transit Suhas Rane, [email protected],

98210 24029

Key Performance Indicators • Delivery Order Fill Rate

–

%age of ship-from-stock orders shipped within 24 hrs.

• On Time Delivery (or Delivery Performance) – Orders delivered on or before the committed date to customer.

• Order Fulfillment Lead Time – Time from order receipt date to shipment date

Suhas Rane, [email protected],

98210 24029

Key Performance Indicators • Supply Chain Responsiveness – Ability of complete supply chain to react according to the changes in the marketplace

• Production Flexibility – No. of days needed to absorb an unplanned 20% growth in demand

Suhas Rane, [email protected],

98210 24029

Demand Forecast Accuracy (DFA) Difference between forecasted and actual demand Specifically, this is the inverse of the mean absolute percent error (MAPE) between forecasted and actual demand

Suhas Rane, [email protected],

98210 24029

Cash-to-Cash Cycle Time Time between – company spending cash to buy raw materials to company receives cash from its customers Includes the following metrics: – Ship to customer Delivery: Time from shipment of F G to delivery at customer’s address – R M Receipt to Payment – Also called Days Payables Outstanding (DPO) 3. Inventory Days – Av. days of inventory on hand 4. Days Sales Outstanding (DSO) – Av. collection period from invoicing to cash receipt Suhas Rane, [email protected],

98210 24029

Supply Chain Management Cost

Includes –

– – – – –

Direct purchasing - Operating cost Manufacturing - Operating cost Transportation Cost Warehouse/ DC - Operating cost Inventory Holding cost Customer Service - Operating cost

Suhas Rane, [email protected],

98210 24029

Survey of Top Performers • Performance Measurement Group PRTM Management Consultants, UK • Survey of 110 firms in America, Europe & Asia • • Industries covered : Chemicals, Computers, Defense, Telecom, Consumer packaged goods

Suhas Rane, [email protected],

98210 24029

Top Ten 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Dell Proctor & Gamble IBM Nokia Toyota J&J Samsung Wal-Mart Tesco Johnson Controls Suhas Rane, [email protected],

98210 24029

Findings of Survey • Best-in-class operate within 40 days of inventory throughout the supply chain • Leading cos. have cut SCM cost to 4-5 % of Sales • Cash-to-cash cycle time is less than 30 days • Best-in-class Production Flexibility has dipped below 2 weeks

Suhas Rane, [email protected],

98210 24029

Thank You

Suhas Rane, [email protected],

98210 24029