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Measuring SCM benefits

and
SCOR Model

Suhas Rane
Director ( Planning & Admin.)
NMIMS University, Mumbai
ranesuhas@hotmail.com
98210 24029

Suhas Rane, ranesuhas@hotmail.com, 98210 24029


Strategic Objectives of SCM

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

Suhas Rane, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 98210 24029


Key Supply Chain Metrics

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

Suhas Rane, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 98210 24029


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

Capture “as-is” Capture “as-is”


process and process and
derive “to-be”
derive “to-be” future state
Quantify
future state
performance of
similar companies Quantify
and performance of
other cos. &
establish internal Establish internal
targets targets
Characterize the
management Characterize
practices and the mgmt.
software solutions practices and
software
solutions
Business Process Benchmarkin Best Practices Process Reference
g
Reengineering Analysis Model
Suhas Rane, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 98210 24029


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

Plan

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source

Return Return Return Return

Supplier’s Return Return


Customer’s
Supplier Customer
Supplier Customer
(Internal or (Internal or
Your Company External)
External)

Plan-Source-Make-Deliver-Return provide the organizational structure of the


SCOR-model

Suhas Rane, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 98210 24029


Three Levels of Process Detail
Level
# Description Schematic Comments

1 Level 1 defines the scope and content for the


Plan SCOR model. Here basis of competition
Top Level Source Make Deliver performance targets are set.
Supply Chain Operations Reference Model

(Process Types)
Return Return

2
A company’s supply chain can be “configured-
Configuration to-order” at Level 2 from the core “process
Level categories.”
(Process
Categories)

3 Level 3 defines a company’s ability to compete


Process
successfully in its chosen markets, and consists :
Element Level
(Decompose
•Process element definitions
Processes) •Process element information inputs, and outputs
P1.1
Identify, Prioritize, and Aggregate •Process performance metrics
•Best practices, where applicable
Supply-Chain Requirements
P1.3 P1.4
Balance Production Resources with Establish and
P1.2
Identify, Assess, and Aggregate
Supply-Chain Requirements Communicate
Supply-Chain Plans •System capabilities required to support best
Supply-Chain Requirements
practices
•Systems/tools

4 Companies implement specific SCM practices


Implementatio
at Level 4 to achieve competitive advantage
n Level
Not (Decompose
and to adapt to changing business conditions.
in Scope Process Suhas Rane, ranesuhas@hotmail.com, 98210 24029
Elements)
The Hierarchy of Supply Chain Metrics

What it is What it tells You

Demand Perfect Order Predictor


Forecast
Top Tier Demand Visibility

Responsiveness Performance Tradeoffs


Cost / Margins SCM Cost
Perfect Order

Cash flow Health


Customer versus

Mid Level Inventory


Cash-to-Cash Supplier Balance
Total DSO
DPO

Raw Direct
Supplier Material Purchasing Material
Supplier On Time Inventory Costs Costs
Ground
Quality Root Cause
Level Operational Effectiveness
Analysis
Surgical
Intervention

Production Plant Utilization Order Cycle


Schedule WIP & FG
Cost Time Perfect
Variance Inventory
Detail Order Detail

Suhas Rane, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 98210 24029


Top Ten

1. Dell
2. Proctor & Gamble
3. IBM
4. Nokia
5. Toyota
6. J&J
7. Samsung
8. Wal-Mart
9. Tesco
10. Johnson Controls

Suhas Rane, ranesuhas@hotmail.com, 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, ranesuhas@hotmail.com, 98210 24029


Thank You

Suhas Rane, ranesuhas@hotmail.com, 98210 24029

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