Supply-Chain Practice Maturity Model and Performance Assessment

Transcription

1 Supply-Chain Practice Maturity Model and Performance Assessment Presented by: Bob Moncrieff, Director, PRTM Mark Stonich, Principal, PRTM Date: November 6, 2001 The Performance Measurement Group, LLC Pittiglio Rabin Todd & McGrath

2 Introduction The purpose of today s webcast is to: Introduce PMG s supply-chain Performance Scorecard & Maturity Model Present initial results of PMG s inaugural Supply-Chain Practice and Information Technology Assessment Highlight preliminary findings of best-practice implementation and business performance correlation Review a real-world example of a practice and performance assessment that PRTM and PMG recently conducted Spur discussion, analysis, and action within your companies and industries 2

3 Agenda Supply-Chain Scorecard Background Introduction to PMG s Supply-Chain Maturity Model Dominant and Emerging Practices 5 min 5 min 15 min Preliminary Findings Discrete Electronics Equipment study 15 min Practice and Performance Assessment Case Study 15 min 3

4 The Supply-Chain Score Card consists of two elements Supply Chain Performance Versus Comparison Population 0% - 20% 20% - 40% 40% - 60% 60% - 80% 80% - 100% Maturity frameworks define the enabling practices that will drive performance improvement Key Perspectives Customerfacing Metrics: Metrics On-Time Delivery to Request % On-Time Delivery to Commit % Major Opportunity Disadvantage Median Advantage Bestin-Class Your Org. 68.8% 88.2% 87.1% 74.7% 95.0% 94.2% Order Fulfillment Lead Time Upside Production Flexibility Internal-facing Metrics: Total Supply-Chain Management Cost 9.0% 3.8% 3.9% Cash-to-Cash Cycle Time PLAN Strategy Demand Planning Supply Planning Demand/Supply Balancing & Decision-making SOURCE Strategy Commodity & Process Management Supplier Development / Management Organization & Infrastructure MAKE Manufacturing Strategy Production Scheduling Material Issue, Movement and Tracking Manufacturing Process Control DELIVER Enable Order Entry & Scheduling Warehousing, Transportation and Delivery Invoicing and Cash Collection OVERALL Supply Chain Strategy Supply Chain Performance Management Supply Chain Processes Supply Chain Organization DOMINANT PRACTICES Supply Chain Practice Assessment Stage 1: Stage 2: Internal Functional Focus Stage 3: External Stage 4: Cross- Enterprise Collaboration Inventory Days of Supply Net Asset Turns Performance measurements highlight where improved capability will deliver value to the business = Best in Class = Median = ABC Co. 4

5 The Supply-Chain Maturity ModelSM

6 Companies progress through stages of The Supply- Chain Maturity ModelSM Supply Chain Performance Stage 1: Functional Focus Discrete Supply- Chain processes and data flows well documented and understood Resources managed at department level and performance measured at functional level Stage 2: Internal Company-wide process and data model continuously measured at the company, process, and diagnostic levels Resources managed at both functional and cross-functional levels Stage 3: External Strategic partners throughout the global Supply Chain collaborate to: S tages of Operational C apability Identify joint business objectives and action plans Enforce common processes and data sharing Define, monitor, and react to performance metrics Stage 4: Cross-Enterprise Collaboration IT and ebusiness solutions enable a collaborative Supply- Chain strategy that: Aligns participating companies business objectives and associated processes Results in realtime planning, decisionmaking, and execution of supply -chain responses to customer requirements 6

7 The practices at each stage are defined in terms of the SCOR Model: Plan, Source, Make, Deliver, and Overall Plan Source Make Deliver Overall Each practice area is assessed across four operational elements Strategy D emand P lanning Supply Planning D emand/s upply B alancing & D ecis ion Making Strategy Commodity & P rocess Management S upplier Development/Management Organization & Infrastructure Manufacturing S trategy P roduction S cheduling Mate rial Is s ue, Move & T rac king Manufacturing P roces s Control Enable Order Entry & Scheduling Warehousing, Transportation & Delivery I nvoic ing & C as h C olle c tion S upply-c hain S trate gy S upply-c hain P e rformanc e Manage me nt S upply-c hain P roc e s s e s S upply-c hain O rganization S tages of Operational C apability S tage 1 S tage 2 S tage 3 S tage 4 F unctiona l Focus Inte rna l Inte gra tion External Inte gra tion Cross- E nterpris e Collaboration 7

8 Sample practices for Source: Supplier Development/Management Stages of Operational Capability Stage 1 Stage 2 Stage 3 Stage 4 Cross- Enterprise Collaboration Each practice area is assessed across four operational elements Functional Focus Internal External Plan Strategy Demand Planning Supply Planning Demand/Supply Balancing & Decision Making Source Strategy Commodity & Process Management Supplier Development/Management Organization & Infrastructure Make Manufacturing Strategy Production Scheduling Stage Material 1 Issue, Move & Tracking Stage 2 Stage 3 Stage 4 Manufacturing Process Control Cross-Enterprise Deliver Functional Enable Focus Internal External Collaboration Arms-length and/or Order poorly Entry & Scheduling Commodity strategies Joint service/partnership Online, virtual management of defined supplier partnership determine supplier relationships. agreements for objectives and supply relationships for data Warehousing, Transportation & Delivery relationships. No formal supplier Formal supplier relationships incentives, performance targets, visibility, collaborative planning, Invoicing & Cash Collection relationship management are defined reflecting crossfunctional requirement for Terms and Conditions virtual workplace benefit sharing agreements, and performance tracking, and process Overall in place Supply Chain Strategy Supply Chain Performance buyer/supplier Management communication Little supplier segmentation Supply Chain Processes Supply Chain Organization 8

9 Dominant and Emerging Practices

10 The average participant is approaching Stage 2 Internal Average Stage for Dominant and Emerging Practices Projection Stage 1 Stage 2 Stage 3 Stage 4 Dominant Emerging Companies plan to advance one full stage or more by the end of 2002, achieving greater external integration 10

11 On average, Plan practices are currently the most advanced Plan Source Over 60% of companies have integrated planning processes while 60% have not yet integrated their sourcing practices Make Make practices mirror Source practices in their distribution Deliver Few companies have made major advances in integrating their deliver capabilities % of Population % of Population % of Population % of Population 60% 50% 40% 30% 20% 10% 0% 60% 50% 40% 30% 20% 10% 0% 60% 50% 40% 30% 20% 10% 0% 60% 50% 40% 30% 20% 10% 0% Stage 1 Stage 1 Stage 1 Stage 1 11 Stage 2 Stage 2 Stage 2 Stage 2 Plan Practices Distribution Stage 2 Stage 3 Stage 3 Source Practices Distribution Stage 2 Stage 3 Stage 3 Make Practices Distribution Stage 2 Stage 2 Stage 3 Stage 3 Stage 3 Deliver Practices Distribution Stage 3 Stage 4 Stage 4 Stage 4 Stage 4 Stage 4 Stage 4 Stage 4 Stage 4

12 But emerging practices focus more on Source and Deliver Plan Source Companies are targeting external planning integration % of Population 60% 50% 40% 30% 20% 10% 0% Stage 1 Stage 2 Plan Practices Distribution Stage 2 Stage 3 Stage 3 Stage 4 Stage 4 esourcing capabilities ( Stage 4 is targeted by 30 40% of respondents) Make Over 50% of companies are targeting advanced planning for manufacturing and automated controls Deliver Many companies are looking to establish advanced order management practices % of Population % of Population % of Population 60% 50% 40% 30% 20% 10% 0% 60% 50% 40% 30% 20% 10% 0% 60% 50% 40% 30% 20% 10% 0% Stage 1 Stage 1 Stage 1 12 Stage 2 Stage 2 Stage 2 Source Practices Distribution Stage 2 Stage 2 Stage 3 Stage 3 Stage 3 Make Practices Distribution Stage 3 Deliver Practices Distribution Stage 2 Stage 3 Stage 3 Stage 4 Stage 4 Stage 4 Stage 4 Stage 4 Stage 4

13 Overall: Practices for almost half of the respondents are still functionally focused While companies focus on developing their supply-chain strategy they are not reinforcing it with the same level of performance management, process improvement, and organizational alignment OVERALL Supply-Chain Strategy S upply-chain P erformance Management S upply-chain P rocesses S upply-chain Organization = Dom inant = E m erging OVERALL Average Stage Stage 1: Functional Focus Departmental focus Discrete SC processes are documented and data flows identified Stage 2: Internal Functional strategies aligned with formal SC strategic planning Cross-functional processes measured and improved using corporate scorecard Stage 3: External Collaborative SC strategies and measures established Crossorganizational data sharing Stage 4: Cross-Enterprise Collaboration Flexible IT architecture supports integration across business partners Enterprise-wide process and data model for all major development, supply chain, and customer management activities 13

14 Plan: These practices are the most advanced of the supply-chain elements As expected, supply planning activities seem more integrated than demand planning Strategic planning is also advanced, but not always integrated with tactical balancing activities Stage 1: Functional PLAN Focus Strategy Demand P lanning Supply Planning Demand/S upply Balancing & Decision Making = Dom inant = E m erging PLAN Average Stage Functional demand/supply planning No integrated processes and tools Stage 2: Internal Consistent, company wide demand/supply aggregation and planning Functional accountability Continuous improvement using historical performance 14 Stage 3: External Strategic partnerships with customers and suppliers Facilitated by direct, collaborative, electronic data exchange Governed by formal performance agreements Stage 4: Cross-Enterprise Collaboration Dynamic companywide demand forecasting and capacity planning Joint demand/supply decision-making using global data

15 Source: Practices show the most aggressive goals for maturity Commodity management is not well adopted, but a common focus area for the next 18 months SOURCE Strategy Commodity & P rocess Management S upplier Development/Management Orga niz a tion & Infra struc ture = Dom inant = E m erging SOURCE Average Stage Stage 1: Functional Focus Informal processes Supplier relationships poorly defined No integrated tools to access procurement data Stage 2: Internal Cross-functional commodity management teams Supplier relationships defined Common ERP systems used effectively 15 Stage 3: External Collaborative product development/ process improvement done with strategic commodity/supplier partners Consortia buying On-line data access for supply partners Stage 4: Cross-Enterprise Collaboration Integrated supply network eenabled systems automate/ optimize supply transactions

16 Make: Manufacturing process control practices are the most advanced Despite substantial focus on pull-based manufacturing, Build-to-Stock is still the predominant manufacturing strategy for respondents Many companies are targeting build and configure-to-order practices in the near future MAKE Manufacturing S trategy P roduction S cheduling Material Issue, Move, & Tracking Manufacturing P rocess Control = Dom inant = E m erging Stage 1: Functional Focus Manual material and production control driven by rudimentary MRP/MPS tools Build-to-Stock practices Stage 2: Internal ERP-based optimization of internal scheduling and inventories Stage 3: External Customer-driven, APS (linked to suppliers) Automated product quality control Demand pull manufacturing, real-time inventory control Stage 4: Cross-Enterprise Collaboration Multi-tier APS Electronic tracking of as-built configurations Instantaneous product configuration changes MAKE Average Stage 16

17 Deliver: Order Entry improvements are and will continue to be a focus ebusiness practices are promising significant integration of order entry and scheduling Invoicing and cash collection continues to be a labor intensive processes Stage 1: Functional DELIVER Focus Enable Order Entry & S cheduling Warehousing, Transportation, & Delivery Invoicing & Cash Collection = Dom inant = E m erging No formal standards for order management, channel rules, product delivery, or invoicing Significant manual intervention required Stage 2: Internal Formal outbound logistics processes Automated order management and invoicing Channel rules and delivery quality defined Variable order entry and scheduling across products Stage 3: External Product and delivery information is available throughout the supply chain Differentiated order/service level agreements formalized Stage 4: Cross-Enterprise Collaboration Optimized warehousing transportation, tracking, and delivery Real-time commitments to customer-specific order/service levels DELIVER Average Stage 17

18 Most companies are moving towards complete internal integration and expect to shift to external by next year Dominant and emerging practices of the survey population Plan Source Make Deliver Overall Strategy Demand Planning Supply Planning Demand/Supply Balancing & Decision Making Strategy Commodity & Process Management Supplier Development/Management Organization & Infrastructure Manufacturing Strategy Production Scheduling Material Issue, Move & Tracking Manufacturing Process Control Enable Order Entry & Scheduling Warehousing, Transportation & Delivery Invoicing & Cash Collection Supply-Chain Strategy Supply-Chain Performance Management Supply-Chain Processes Supply-Chain Organization = Dom inant = E m erging Stages of Operational Capability Stage 1 Stage 2 Stage 3 Stage 4 Cross- Functional Internal External Enterprise Focus Collaboration

19 Anticipated 2002 practice improvements are optimistic Participants expect to move from internal to external integration practices by the end of 2002 Most companies are in the beginning stages of maturity despite the focus on supplychain improvements in the last five years Companies have placed more focus on the operational elements of Plan, Deliver, Source, and Make (in that order) than on the overall strategies that govern them Overall Strategy needs more attention Plan and Deliver practices will continue to be the focus of our respondents, more so than Source and Make 19

20 Preliminary Findings: Discrete Electronic Equipment Sector

21 Population segmentation The population was segmented into two groups for performance comparison: Less Mature ( Stage 2 & Below) Companies that have not yet achieved internal integration of their supply-chain processes More Mature (Mature Stage 2 & Above) Companies that have achieved internal integration and are pursuing external linkages Dominant Stage of Study Population 35% Stage 2 and Below Mature Stage 2 and Above 30% 25% 20% 15% 10% 5% 0% Stage 1 2 Stage 2 3 Stage 3 4 Stage 4 % of Respondents 21

22 Mature companies have better delivery performance but still can improve Companies at Stage 2 and below have a harder time meeting market demand 10% lower On Time Delivery to Request average than the Mature Stage 2 and Above companies The same disadvantage applies to their Delivery to Commit performance On average, Deliver to Commit is 7% better than Deliver to Request performance averages 10% to 14% lower than best-in-class in either case On Tim e Delivery Perform ance 100% 75% 74.0% 96.6% 98.4% 88.6% 82.3% 79.7% % On Tim e 50% 25% 2 and B elow M ature 2 and A bove Population B IC 0% O TD to R equest 22 O TD to C om m it

23 Upside Production Flexibility presents a substantial opportunity for companies at all maturity levels The principal constraint is Key Components and Material Availability, as opposed to Internal Manufacturing Capacity or Direct Labor Availability Mature Stage 2 and above companies have a full one-week advantage but are well behind Best-in-Class by 9 10 days Upside Production Flexibility Prim ary Constraint and Below Days Mature 2 and Above Population B IC 0 K ey C om ponents or M aterialavailability 23

24 Higher levels of integration lead to lower Total Supply- Chain Management Cost TotalSupply-C hain M anagem ent Cost % of Revenue 14% 12% 10% 8% 6% 4% 12.3% 0.5% 0.4% 2.6% 5.1% 9.6% 0.7% 0.3% 1.7% 2.6% SC IT Cost SC Finance & Planning C ost In v e n to ry C a rry ing Cost MaterialAcquistion O rder M anagem ent C ost 2% 3.7% 4.3% More Mature companies spend almost 3%-of-revenue less than their functionally focused counterparts (22% advantage) 0% 2 and Below M ature 2 and A bove They have 50% lower Material Acquisition Costs Spend significantly more on supply-chain-related IT yielding cost savings as well as performance improvements But spend more on Order Management Costs 24

25 More integrated supply-chain practices lead to lower costs and higher profitability Practice maturity increases the efficiencies of material, labor, and overhead spending Costs Profitability 75% 70.1% 58.6% 9% 6.8% 8.7% % of Revenue 50% 25% % of Revenue 6% 3% 0% COGS as % of Revenue 0% EBIT as % of Revenue = 2 & Below = Mature 2 & Above 25

26 and achieves a higher rate of sales growth Substantially higher sales growth highlights the positive impact that integrated supply-chain practices have on customer adoption and loyalty Better supply-chain flexibility and responsiveness is rewarded through growing revenues S ales Growth ( ) 25% 24% 20% 15% 10% 5% 6% 0% Sales Growth = 2 & Below = Mature 2 & Above 26

27 Driving Performance: The ABC Case Study

28 Introduction to ABC company Case study The following case study is based on a PMG and PRTM client that recently conducted a performance and practice assessment ABC rapidly collected and entered metric and practice-related data PMG developed custom benchmarking populations and conducted the data analysis PRTM interpreted the results and supported development of an action plan Client confidentiality has been maintained by modifying various data and practice elements basic findings and key concepts have remained intact and are intended to provide multiple takeaways and spur discussion ABC company s industry characteristics: Long manufacturing cycle times include many complex steps that are geographically dispersed High inventory dollar values throughout the manufacturing process Highly variable demand Excess overall industry capacity 28

29 ABC s 2001 Supply Chain Performance Scorecard Overall, ABC has median to less-than-median performance across supply chain metrics Key Perspectives Metrics Supply-Chain Performance Versus Comparison Population 0% 20% Major Opportunity SC Performance Scorecard Data as of October % 40% Disadvantage 40% 60% Median 60% 80% Advantage 80% 100% Bestin-Class Your Org. Customerfacing Metrics: On-Time Delivery to Request % 66.7% 84.5% 70.0% 3 On-Time Delivery to Commit % 88.5% 95.9% 89.1% Order Fulfillment Lead Time Upside Production Flexibility Internal-facing Metrics: Total Supply-Chain Management Cost 7.5% 4.1% 7.9% Inventory Days of Supply Cash-to-Cash Cycle Time Net Asset Turns = ABC Company = Key Discussion Areas 29

30 Dominant practices illustrate functional-to-integrated performance, which is supported by metrics SC Performance Scorecard Dominant Practice and IT Assessment: Cross-Industry Composite Data as of October 2001 PLAN Strategy D em and P lanning S upply P lanning D em and/s upply B alancing & D ecision-m aking SOURCE Strategy C om m odity & P rocess M anagem ent S upplier D evelopm ent / M anagem ent O rganization & Infrastructure M AKE M anufacturing S trategy P roduction S cheduling M a te rialissue, M ovem ent and Tracking M anufacturing P rocess C ontrol DELIV E R E nable O rder E ntry & S cheduling W arehousing, Transportation and D elive ry Invoicing and C ash C ollection OVERALL Supply-C hain S trategy S upply-c hain P erform ance M anagem ent S upply-c hain P rocesses S upply-c hain O rganization Stage 1: Functional Focus Stage 2: Internal Stage 3: External Stage 4:Cross- Enterprise Collaboration = Best-in-Class = Median =ABC = Key Discussion Areas 30

31 Cash-to-cash cycle time is 5% higher than median, but a 44% decrease is needed for BIC performance Two of the main components of Cash-to-Cash Cycle Time are being pushed in opposite directions by exceptionally good and poor practices Solid invoicing and collection practices keep Days Sales Outstanding to a minimum Poor planning and overall supply-chain practices combine to force high inventory levels Cash-to-Cash Cycle Time Calendar Days Note: Cash-to-Cash Cycle Time represents the sum of the Days Sales Outstanding and Inventory Days Of Supply minus the Average Supplier Payment Period Best-in-Class Median ABC Company 31

32 ABC s Days Sales Outstanding performance is at Best-in-Class levels 1 ABC s invoicing and cash collection practices have translated directly into best-in-class Days Sales Outstanding performance Direct relationship between practice and metric Easily measured Impacted by management attention Calendar Days Days Sales Outstanding Best in Class Median ABC Company Dominant Practice Assessment Stage 1: Functional Focus Stage 2: Internal Stage 3: External Stage 4: Cross- Enterprise Collaboration DELIVER Enable Order Entry & Scheduling Warehousing, Transportation, and Delivery Invoicing and Cash Collection 32

33 ABC s inventory levels are 31% higher than Best-in- Class levels and 19% higher than median High inventory levels are constraining Cash-to-Cash Cycle Times and contributing to higher Supply-Chain Management Costs 2 but are necessary to maintain adequate delivery performance 150 Total Inventory Days of Supply Calendar Days Best-in-Class Median ABC Company Note: Inventory Days of Supply: The calendar days of supply represented by the fiveperiod average inventory level relative to the average daily cost-of-goods sold 33

34 High inventory levels do allow ABC to maintain reasonable delivery performance Stage 1 Plan and Overall practices are preventing ABC company from reaching its full supply-chain potential During 2000, customers requested shorter lead-times than were feasible Functionally focused Supply-Chain Performance Management practices contribute to median performance Percent On Time to Request Date 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Percent On-time Delivery Performance to Request Date 84.5% 66.7% 70.0% 3 0% Best-in-Class Median ABC Company Dominant Practice Assessment PLAN Strategy Demand Planning Supply Planning Demand/Supply Balancing & Decision-making OVERALL Supply-Chain Strategy Supply-Chain Performance Management Supply-Chain Processes Supply-Chain Organization Stage 1: Functional Focus Stage 2: Internal Note: Delivery Performance to Request percentage of orders shipped on time to the customer s requested date 34 Stage 3: External Stage 4: Cross- Enterprise Collaboration

35 Poor Plan and Overall practices also impact Order Fulfillment Lead-times Long order fulfilment lead times result from a build-to-stock strategy and frequent manufacturing schedule changes during production to meet customer demands Frequent changes result in thrashing inside of the factory 4 A configure-to-order manufacturing strategy would break the cycle of poor practices and allow ABC to regain control of their production environment Calendar days Order Fulfillment Lead-time Best-in-Class Median ABC Company Note: Order Fulfillment Lead Time calculated as the calendar days between order receipt from the customer to order delivered to customer 35

36 ABC should focus improvements on selected areas Rather than broad improvement efforts, ABC can pinpoint practices that will yield necessary improvements Focus on targeted trouble areas of Plan, Make, and Overall (yellow areas) SC Performance Scorecard Emerging Practice and IT Assessment PLAN Strategy D em and P lanning S upply P lanning D em and/s upply B alancing & D ecision-m aking SOURCE Strategy C om m odity & P rocess M anagem ent S upplier D evelopm ent / M anagem ent O rganization & Infrastructure M AKE M anufacturing S trategy P roduction S cheduling M a te rialissue, M ovem ent and Tracking M anufacturing P rocess C ontrol DELIV E R E nable O rder E ntry & S cheduling W arehousing, Transportation and D elive ry Invoicing and C ash C ollection OVERALL Supply-C hain S trategy S upply-c hain P erform ance M anagem ent S upply-c hain P rocesses S upply-c hain O rganization Stage 1: Functional Focus Stage 2: Internal Stage 3: External = Best-in-Class = Median =ABC Company Stage 4:Cross- Enterprise Collaboration 36

37 Conclusions

38 Conclusions Don t underestimate the effort required to advance It is critical that companies determine their strategic intent in leveraging their supply chain, and that they establish the necessary practices to drive improvements Internal and cross-enterprise collaboration is key Better internal and external supply-chain integration = better supply chain and overall business performance Continue to invest in new supply-chain practices and technologies The value of ebusiness and technology solutions enabled by investments in information technology is starting to be realized Understand your practice maturity to focus improvements in the right areas Combine practice assessments with performance benchmarks to drive targeted improvement initiatives 38

39 Q & A

40 Thank you for attending today s webcast! Please feel free to contact us with any questions, comments, or ideas PMG Customer Accounts Brent Small [email protected] PRTM Bob Moncrieff [email protected] PRTM Mark Stonich [email protected] Or visit our websites and sign-up on line!!!

41 Appendix

42 Overall supply-chain performance metrics are defined as follows and directly support SCOR definitions Delivery performance: Percentage of orders shipped on-time to the original customer request date and to the original commit-to date Order fulfillment lead-time: Calendar days from when an order is received until it is shipped complete Upside production flexibility: Calendar days required to increase output commensurate with a sustained 20% increase in demand; considering three factors materials, plant, and labor Supply-chain management costs: Costs as a percentage of revenue for the following five areas order management, material acquisition, inventory carrying cost, supply-chain finance and planning, and information technology Inventory days of supply: The average of five periods of inventory relative to the daily rate of sales Cash-to-cash cycle time: The sum of Inventory DOS and the days of receivables minus the days of payables Net asset turns: The ratio of revenues to assets 42