Joseph Francis Executive Director

Transcription

1 Measuring Supply Chain Performance Joseph Francis Executive Director

2 A Bit of History: Bank Robber Slick Willie Sutton When asked why he robbed banks, Sutton simply replied "Because that's where the money is."

3 But SCM is Paramount in Times of Economic Uncertainty In 2007, US business logistics costs rose to an all time high of $1.4 trillion (10.1% of US nominal Gross Domestic Product ) 3 Supply chain generally accounts for between 60% and90% ofallcompany costs 1 A 2% improvement in process efficiency for supply chain processes has 3000% 5000% the impact of a 2% improvement in efficiency i for IT HR Finance 1 Sales Fortune-10 Company Supply-Chain Cost as % of Total Costs 2 GM 94% Ford 93% Conoco 90% Wal-Mart 90% Chevron 88% IBM 77% Exxon 75% GE 63% Citi 1 0% AIG 1 0% 1 Exclusive of Financial Services companies 2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries 3CSCMP19 th Annual State of the Logistics Industry

4 Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage % of Reve enue 14.0% 12.0% 10.0% 8.0% 6.0% 40% 4.0% 2.0% 0.0% 5.4% 9.2% 5.3% 12.3% Total Supply Chain Management Costs (% of Revenue) 5.5% 10.7% Automotive Industrial Chemical & Advanced Materials 4.2% 10.0% 4.8% 10.7% 34% 3.4% 9.1% 6.6% Best-in-Class Median 35% 3.5% 36% 3.6% 7.4% Computer Consumer Goods Pharmaceutical Semiconductor Telecommunications Equipment Best-in-class Companies Outperform Their Median Competitors with a 50% Cost Advantage Source: PRTM/The Performance Measurement Group

5 SCM Asset Returns: Superior Valuation 40-Point spread between SCOR Companies and Major US Indices

6 Supply Chain Council Resources The SCOR Framework

7 The Enterprise: Role of Supply Chain Product Management Su upplier proces sses Product Design DCOR Sales & Support CCOR Custo omer process ses Supply Chain SCOR

8 What is SCOR? SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management Organized around the five primary management processes of Plan, Source, Make, Deliver and Return Su upplier processe es Supply Chain Plan Source Make Deliver Return Return Cu ustomer process ses Developed by the industry for use as an industry open standard Any interested organization can participate in its continual development Process, arrow indicates material flow direction Process, no material flow Information flow 8

9 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 i of arbitrary scale Plan Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Return Return Return Return Return Return Return Return Suppliers Supplier Supplier Your Company Customer Customer s Customer Internal or External Internal or External

10 SCOR Processes Five Levels of Decomposition Level 1 Level 2 Level 3 Level 4 Level 5 Scope Configuration Activity Workflow Transactions Supply-Chain Source S1 Source Stocked Product S1.2 Receive Product EDI XML Differentiates Business Differentiates Complexity Names Tasks Sequences Steps Links 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 Supply Chain Balanced SCORcard Standard Strategic (Level 1) Metrics Cust tomer Internal Attribute Reliability Responsiveness Agility Cost Assets Metric (Strategic) Perfect Order Fulfillment Order Fulfillment Cycle Time Supply Chain Flexibility Supply Chain Adaptability Supply Chain Management Cost Cost of Goods Sold Cash to Cash Cycle Time Return on Supply Chain Fixed Assets Return on Working Capital upside and downside adaptability metrics

12 SCOR 10 Skills Baseline Capabilities Essential skills required dfor job non starter t gaps Critical Capabilities Difference between adequate and superior performance Performance Key incentives for process execution Credentialing Training and validation of capabilities

13 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 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)

14 The SCOR Reference Process Supply Chain Measurement

15 Configuring a Supply Chain Architecture Process Layer Focus Planning Horizon Scope Define Markets Define Products & Services Business Changes Configuration Define Strategy Define Governance Market Changes Activity Define Processes Define Practices Define Skills Performance Changes

16 Measurement and Benchmarking Qualitative Benchmarking Comparing best practices among organizations Maturity Assessments Quantitative Benchmarking Comparing levels l of measured performance Assessment of Performance Gaps Competitive Benchmarking Quantitative Benchmarking between companies Identifies superior relative performance

17 7 Steps of a Benchmarking Program Supply Chain Definition Supply ChainPrioritization Supply Chain Strategy Selecting Metrics Sourcing Data Creating a Balanced SCORcard Performing Benchmark

18 Supply Chain Definition Supply Chains are the Totality of processes spanning operations from supplier to end customer, focused on material, work and information flow We use a tool called the Supply Chain Definition Matrix to dfi define the supply chains hi within an enterprise The Supply Chain Definition (i/o Matrix) Matrix helps determine the number and size of supply chains Columns: Customers (Output) Rows: Products (Input) The intersection of each column and row if the goods or services flow to the customer is a supply chain

19 Example: Air Conditioning Company Columns are Retail/Commercial, and sub segmented Rows are the Major Product Lines Your Company Supply-Chain Definition Matrix Business t Families Lines of Product ditioners Air Con Big Box Retail Internet Direct Customer/Market/Channels Mom & Pop Stores Building Commercial Major Account Distrib Big Airco x x x Small Airco x x x Custom Industrial x x Standard Industrial x x

20 Supply Chain Prioritization We use a tool called the Supply Chain Prioritization Matrix to order the supply chains according to relevance Each supply chain can be ranked by a number of features We suggest: size (revenue, volume, and margin), complexity (# SKUs) strategic importance You can also look at them by Cash Consumption Risk Volume variability Etc.

21 Supply Chain Strategy We use a tool called the Supply Chain Strategy Matrix to Identify priority strategic features or attributes of supplychains. Each supply chain strategy is indicated by a collection of ranked features: Reliability Responsiveness Flexibility Cost Assets On time? Complete? Undamaged? From Customer Request to final acceptance How long to scale up? How expensive to scale down? Cost of Processes? Cost of Goods Sold? Working Capital? Return on Investments?

22 Supply Chain Strategy in 5 Minutes Build Strategy Model Lifecycle Likely Priority Buy 1. Assets 2. Cost Make ETO BTO BTS Start Middle Commodity EOL 1. Reliability 2. Response 1. Assets 2. Reliability 1. Flexibility 2. Response 1. Cost 2. Reliability 1. Cost 2. Assets 1. Assets 2. Cost

23 Supply Chain Strategy Matrix Extern nal Interna al Supply Chain Strategy Matrix Reliability Responsiveness Flexibility Cost Assets Big Airco Small Airco P P A A S Comm l S A A P P Each unique combination of ratings defines Your Supply Chain Strategy for the channel Think of the rating as a desired state, NOT where you want to improve the most

24 The SCORcard We use a tool called the Supply Chain SCORcard to Identify performance characteristics of supplychains. Each SCORcard is built from a subset of hundreds of SCOR metrics. For supply chain benchmarking we generally use only Level 1, 2 and 3 metrics The SCOR Manual provides all necessary definitions

25 Performance Metrics SCOR metrics: Standard Strategic (Level 1) Metrics I nternal Cust tomer Attribute Reliability Responsiveness Agility Cost Assets Metric (Strategic) Perfect Order Fulfillment Order Fulfillment Cycle Time Supply Chain Flexibility Supply Chain Adaptability Supply Chain Management Cost Cost of Goods Sold Cash to Cash Cycle Time Return on Supply Chain Fixed Assets Return on Working Capital upside and downside adaptability metrics

26 SCORcards in 5 Minutes Philosophy You need to have the most data where performance is most critical You need to have least data where performance is least critical For Every Superior Advantage Parity Select Level 1 Metric Level 1 Metric Level 1 Metric and Level 2 Metric Level 2 Metric and Level 3 Metric

27 A Metrics Architecture Supply Chain SCORcard S/A/P Level 1 Metric Level 2 Metric Level 3 Metric Summary Reliability S Perfect Order Fulfillment Perfect Order Fulfilment Reliability % Orders Delivered in Full % Orders Delivered in Full Reliability Delivery Item Accuracy Delivery Item Accuracy Reliability Delivery Quantity Accuracy Delivery Quantity Accuracy Reliability Delivery Performance to Commit Date Delivery Performance to Commit Date Ext ternal Reliability Date Achievement Date Achievement Reliability Location Achievement Location Achievement Reliability Accurate Documentation Accurate Documentation Reliability Reliability Shipping Documentation Accuracy Billing Documentation Accuracy Shipping Documentation Accuracy Billing Documentation Accuracy Reliability Perfect Condition Perfect Condition Reliability % Orders Received Damage % Orders Received Damage Free Free

28 Result: The Workflow Diagram Reta ail, inc. (Ams sterdam) Customer P.O. S1.1 Schedule Prod. Deliveries Delivery Commit mp3 HQ (Cupertin no) D2.2 Receive, Enter, Validate Order CO C.O. D2.3 Reserve Inv. Calculate Date CO C.O. Inter-Company P.O. S2.1 Schedule Prod. Deliveries mp 3 Factory (Sh henzhen) D1.2 Receive, Enter, Validate Order D1.3 Reserve Inv. Calculate Date C.O. = Customer Order, Inv. = Inventory, P.O. = Purchase Order, Prod. = Product

29 Planning Data Gathering: Sources of Data Financial Data 10 K data, Company Annual Reports, Cost Center Reports Must be Verified by Financial Team (Controller) Non Financial Data Customers Delivery Performance Total Cycle Time Performance IT Systems Process to Process Transactions Planning System Parameters (Lead Times) Suppliers 3PL Providers

30 Data Gathering Plan Look at who owns the data Consider where the transactions may be Organize to alert data owners to gather data Collect and assess Data Quality Use SCOR Metrics Definition as a guide Metric Process Owner Due Date Status On-Time Delivery D1.16 Logistics 2/2/2008 Complete Undamaged D1.17 3PL Provider 2/15/ % Collected Order Fulfillment Cycle Time D1.1 D1.17 Deliver Team 2/22/2008 Not started Etc

31 Interpreting the Data Used for choosing target performance Critical to understand Performance in a particular Demographic Can be internal (competing against other supply chains in same company) Aligns Strategy, Performance, andperformancegoals Attribute SAP Metric (level 1) You Parity Adv Superior Gap Reliability S Perfect Order Fulfillment 97% 92% 95% 98% 1% Response A Order Fulfillment Cycle Time 14 days 8 days 6 days 4 days 8 Days Flexibility P Ups. Supply Chain Flexibility 62 days 80 days 60 days 40 days 0 Cost P Supply Chain Mgmt Cost 12.2% 10.8% 10.4% 10.2% 1.4% Assets A Cash to Cash Cycle Time 35 days 45 days 33 days 20 days 2 Days

32 Continuous Top Down Supply Chain Integration Assess Business Market Asses Business Gaps Scope Assess Business Performance Create Strategy Identify Process Needs Deploy Changes Define As-Is State Configuration Create To-Be Programs Assess Process Performance Identify Process Gaps Gaps Activities Create To-Be Projects Analyze Root Cause Create To-Be Identify Solutions

33 SUPPLY CHAIN COUNCIL, INC.

34 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 thow companies are capitalizing on those tools With membership open to all interested organizations

35 Industry Membership Scope

36 Typical Company Benefits $200M Cost Improvements Single Division US$2.3B Savings supported with Merger $5B Working Capital $66M Revenue/Inventory 2M Improvements Single Division (Peroxides)

37 Comparative Data 1 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% 1 Stephens (2000) 1997 Comparative Study Pittsburg, USA

38 Many Thanks chain.org