An article in the CSCMP Supply Chain Quarterly presents an approach to apply the SCOR model to improve supply chain performance of a consumer products company. The SCOR model defines supply chain in terms of five integrated processes: PLAN, SOURCE, MAKE, DELIVER, and RETURN as shown in the following figure:
The article illustrates the following six step Supply Chain Excellence process:
(I) Educate for support
First, a company needs to choose and educate an executive sponsor and a core steering team for the project. A clear understanding of the project methodology, deliverables,and expected benefits is needed. This helps in taking an informed decision of whether to pursue the project. Once the company leadership has decided to move the project forward, the budget, timeline, resources, and project leadership can be assembled and approved. For the case company reported in the article, the project cost was $80,000 and the potential annualized profit improvement was between US $7.5 million and US $15 million (on US $500 million in annual revenues).
(II) Discover the opportunity
Next, the project needs to identify and define the total number of supply chains served by the company, and then prioritize them based on revenue, inventory level, gross profit, number of stock-keeping units (SKUs), and unit volume. It is important consider the Pareto principle (80/20) at this stage.
The following supply chain definition matrix was developed by the project team:
Building on the customer segmentation strategy adopted by the firm, the project team identified eight customer groups: six individual key accounts plus two larger customer channels. Team members used their highest-level product groups to categorize their products. Counting each "X" noted in the definition matrix as an individual supply chain, the project team defined 26 supply chains within their division. After collecting data for each one, they prioritized the supply chains and concluded that the analytical scope would focus on the five supply chains represented by Products A, C, D, and E for Customers A and E.
(III) Analyze the basis for competition
As a next step the project team used the SCOR metrics scheme to develop a scorecard to measure benefits and manage ongoing supply chain performance. The divisional scorecard is as follows:
The divisional scorecard indicated that even when both customer and company had agreed on a "commit" date for order shipment, the company's performance was below parity—that is, worse than average—and it was far below the competitive target (highlighted in yellow). The scorecard showed that the division did not have a very good measurement system in place for suppliers' delivery performance. Suppliers and the manufacturing plants were not very flexible in response to unplanned demand spikes. Finally, the total supply chain management cost provided the division with an initial idea of the financial impact of its "one size fits all" cost-to-serve model.
(IV) Design material flow
The following figure illustrates Janet's division's actual material flow of products A, C, D, and E from suppliers to customer A's and customer E's "ship to" locations. It also includes the SCOR Level 2 process classifications. S1, M1, and D1 indicate that the location is sourcing, making, and delivering stocked product. S2, M2, and D2 indicate that the location is sourcing, making, and delivering to order.
Using the map plus the defect analysis for each scorecard metric, the project team identified five major problems:
a) There was a strategy mismatch between raw material suppliers and all four of the company's manufacturing sites. The suppliers were delivering primarily to order, while the factories were expected to make some products to stock. The extended lead times identified in the scorecard were causing excess raw material inventory in the plants and hampering the flexibility needed for adjusting to big swings in the forecast.
b) The quality-assurance cycle time for the product added to lead times; reduced supply chain flexibility for responding to unplanned demand spikes; and increased both warehouse expense and inventory carrying costs in all four manufacturing plants, and in some cases, the four distribution centers.
c) Unique product designs were limiting flexibility and therefore the company's ability to use more common and available components. This affected raw material inventory and raw material warehousing expenses.
d) Storage of commonly used, semi-finished materials and components was not planned or stocked in aggregate because each plant managed its own supply.
e) Production rejects were contributing to storage issues and problems with slow-moving and obsolete inventory.
(V) Design work and information flow
Three tools were used to identify process and transactional flow issues: (i) The "staple yourself to an order" interview to analyze overall efficiency by following the step-by-step progress of an order; (ii) The SCOR Level 3 process diagram, which allows the project team to study the process components of a supply chain. A team uses this method to examine how the seemingly disparate processes fit together, noting disconnects, missing steps, and other problems; (iii) The leading practice assessment that attempts to rate the maturity of a company's supply chain processes using descriptions of minimum standards and leading practices. A team conducts the assessment by comparing the company's own practices to an industry standard, noting gaps and areas for improvement.
Using the results from these tools these results the team compiled an overall process-performance summary. The following figure illustrates project team's process-performance summary for analysis of sales orders under the SCOR Deliver processes.
The contents of the nine columns include:
The contents of each of the nine columns includes the following:
- ERP system transactions.
- The corresponding SCOR Level 3 elements.
- Events in the system that help measure the elapsed time.
- Process efficiency—the event time (from the eighth column) divided by the average elapsed time (in the ninth column).
- Yield—estimates the percentage of transactions that are perfect, meaning they require no rework.
- The maturity of the process, using a leading-practice-assessment tool. In this case, the team picked the Council of Supply Chain Management's (CSCMP) Supply Chain Management Process Standards for Deliver Processes.
- Transaction volume—the number of transactions analyzed as part of the data collection.
- Event time—the amount of time required to perform the step, excluding wait time.
- Average elapsed time—the amount of time from the beginning to the end of a task, including wait time.
Using an agreed-upon grading scale, the team determined which processes were ineffective or missing (shown in pink), in need of a focused optimization effort (marked in yellow), or good enough to be left in the continuous improvement category (green).
The following figure is the corresponding SCOR Level 3 process map for the D1—Deliver Stocked Product strategy. The team assembled similar process-performance summaries and maps for D2—Deliver Make-to-Order Product and for four other major transactions, including forecasts, work orders, purchase orders, and stock-replenishment orders.
The team generated following additional observations by looking at the supply chain from a transactional point of view:
(i) The organization was using the principles of sales and operations planning (S&OP) to run day-to-day and week-to-week order commitments and consequently didn't address longer-term issues regarding demand and supply balancing.
(ii) While "available to promise" (ATP) was effective for the D1—Deliver Stocked Product strategy, it did not do a good job of checking availability of and allocating component material for the D2—Deliver Make-to-Order Product strategy.
(iii) It was necessary to set ATP checking, allocation, and rescheduling rules to support the new customer-segmentation strategy.
(iv) There were opportunities to dramatically improve productivity in warehouse operations.
(v) Cross-functional planning, scheduling, and manufacturing was absolutely necessary.
(VI) Implement planning and project portfolio development
The first five steps took 15 weeks to complete. The project team selected 11 projects as shown in the following figure:
Each project needed a leader, a design team, a steering team champion, and a system-support team. The group used a nine month implementation timeline, in which the first two months were devoted to detailed design and configuration of processes and necessary systems. The next two months focused on process and system pilots, and the following two months focused on process and system refinements and a second round of pilots. The remaining three months were devoted to implementation.
The assessment of the project after a year indicated the following obstacles:
(i) Some of the project timelines slipped, system enhancements were late, and the leadership team found it more difficult to transition from old functional habits to new, process-oriented ones.
(ii) The financial team had to learn how to manage the benefits of the entire project portfolio rather than judge success or failure on the basis of a single project.
(iii) The entire leadership team needed to learn how to manage using the scorecard.
Despite those difficulties the results after 12 months were as follows:
(i) The division managed to cut US $2.6 million in costs while improving delivery and cycle-time performance.
(ii) Perfect-order fulfillment improved from 50 percent to 87.5 percent.
(iii) Suppliers' order-fulfillment cycle time declined from 30 days to 15 days.
Source: Peter Bolstorff. 2008. From Chaos to Control. CSCMP Supply Chain Quarterly, Q2/2008.