measuring supply chain performance (joe francis) · total supply chain management costs (% of...
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Measuring Supply Chain PerformanceMeasuring Supply Chain Performance
Joseph FrancisExecutive Director
A Bit of History: 1930‐1950
• Bank Robber “Slick Willie” Sutton
• When asked why he robbed banks Suttonrobbed banks, Sutton simply replied
• "Because that's where the money is."
DMSCA 2010 ‐ Supply Chain Measurement
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
Fortune-10 Company Supply-Chain Cost as % of Total Costs 2
GM 94%nominal Gross Domestic Product ) 3
• Supply‐chain generally accounts for between 60% and 90% of all company
GM 94%
Ford 93%
Conoco 90%
Wal-Mart 90%between 60% and 90% of all company costs1
• A 2% improvement in process efficiency for
Chevron 88%
IBM 77%
Exxon 75%A 2% improvement in process efficiency for supply‐chain processes has 3000% ‐ 5000% the impact of a 2% improvement in ffi i f IT HR Fi 1 S l
GE 63%
Citi1 0%
AIG1 0%efficiency for… IT… HR… Finance1… Sales…
1 Exclusive of Financial Services companies2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries3 CSCMP 19th Annual State of the Logistics Industry
DMSCA 2010 ‐ Supply Chain Measurement
3 CSCMP 19 Annual State of the Logistics Industry
Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage
Total Supply Chain Management Costs (% of Revenue)
14.0%
Best-in-ClassMedian
9.2%
12.3%
10.7%10.0%
10.7%
9.1%10.0%
12.0%
0%
enue
6.6%7.4%
4.8%5.5%5.3%
4.2%3 5% 3 6%
5.4%
3 4%4 0%
6.0%
8.0%
% o
f Rev
e
3.5% 3.6%3.4%
0.0%
2.0%
4.0%%
0.0%Automotive Industrial Chemical &
Advanced MaterialsComputer 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
DMSCA 2010 ‐ Supply Chain Measurement
SCM Asset Returns: Superior Valuation
40-Point spread between SCOR Companies and Major US Indices
DMSCA 2010 ‐ Supply Chain Measurement
The SCOR FrameworkSupply Chain Council Resources
The SCOR Framework
DMSCA 2010 ‐ Supply Chain Measurement
The Enterprise: Role of Supply Chain
sses
Custo
Product Management
uppl
ier p
roce
s
Product DesignDCOR™
omer process
Sales & SupportCCOR™
Suses
Supply Chain SCOR™
DMSCA 2010 ‐ Supply Chain Measurement
What is SCOR®? Cu
es Supply Chain
Cu
es Supply Chain
• SCOR is a supply chain process reference model containing over 200 process
ustomer pr
oces
se Supply Chain stomer pr
oces
se Supply ChainPlan
containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental processup
plie
r p processup
plie
r p
DeliverMakeSourcemanagement
• Organized around the five primary management sesSu
sesSu
P i di t t i l fl di ti
ReturnReturnprocesses of Plan, Source, Make, Deliver and Return
• Developed by the industry for Process, arrow indicates material flow directionProcess, no material flow Information flow
p y yuse as an industry open standard ‐ Any interested organization can participate in its continual development
8
in its continual development
DMSCA 2010 ‐ Supply Chain Measurement
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 ChainS t i t d t i ti i ti f bit l• Supports intra‐ and cross‐enterprise optimization of arbitrary scale
PlanPlan
D liS M k
Supplier Customer Customer’sSuppliers’
Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver
Your Company
Source
Return Return Return Return Return Return Return Return
Supplier Customer CustomerSuppliersSupplier
Internal or External Internal or External
ou Co pa y
DMSCA 2010 ‐ Supply Chain Measurement
SCOR Processes – Five Levels of Decomposition
Level 1 Level 2 Level 3 Level 4 Level 5
Scope Configuration Activity Workflow Transactionsp g y
S1Source
Stocked Product
Supply-ChainSource
S1.2Receive Product
EDIXML
Differentiates Business
Differentiates Complexity
Names Tasks Sequences Steps Links Transactions
Defines Scope Differentiates Links, Metrics, Job Details Details of Capabilities Tasks and
PracticesAutomation
Sets Strategy First Tier Diagnostics
Second Tier Diagnostics
Industry or Company Specific
Technology Specificg g p y p p
Standard SCOR definitions Company/Industry definitions
DMSCA 2010 ‐ Supply Chain Measurement
Standard SCOR definitions Company/Industry definitions
Supply Chain Balanced SCORcard
Standard Strategic (Level 1) Metrics
Attribute Metric (Strategic)Attribute Metric (Strategic)
Reliability Perfect Order Fulfillment
Responsiveness Order Fulfillment Cycle Time
tom
er
Agility Supply Chain Flexibility
Supply Chain Adaptability†
Cost Supply Chain Management Cost
Cu
st
Cost of Goods Sold
Assets Cash‐to‐Cash Cycle Time
Return on Supply Chain Fixed AssetsInte
rnal
Return on Supply Chain Fixed Assets
Return on Working Capital
† upside and downside adaptability metrics
I
DMSCA 2010 ‐ Supply Chain Measurement
upside and downside adaptability metrics
SCOR 10 ‐ Skills
• Baseline Capabilities
E ti l kill i d f j b “ t t ”– Essential skills required for job – “non‐starter” gaps
• Critical Capabilities
– Difference between adequate and superior performance
• Performance
– Key incentives for process execution
• Credentialingg
– Training and validation of capabilities
DMSCA 2010 ‐ Supply Chain Measurement
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)
DMSCA 2010 ‐ Supply Chain Measurement
Supply Chain MeasurementThe SCOR Reference Process
Supply Chain Measurement
DMSCA 2010 ‐ Supply Chain Measurement
Configuring a Supply Chain Architecture
Process Layer Focus Planning Horizon
Scope Define MarketsDefine Products & Services Business Changes
Define StrategyConfiguration Define StrategyDefine Governance Market Changes
ActivityDefine ProcessesDefine PracticesDefine Skills
Performance Changes
DMSCA 2010 ‐ Supply Chain Measurement
Measurement and Benchmarking
• Qualitative Benchmarking– Comparing best practices among organizationsp g p g g– Maturity Assessments
• Quantitative BenchmarkingC i l l f d f– Comparing levels of measured performance
– Assessment of Performance Gaps
• Competitive Benchmarkingp g– Quantitative Benchmarking between companies– Identifies superior relative performance
DMSCA 2010 ‐ Supply Chain Measurement
7 Steps of a Benchmarking Program
• Supply Chain Definition• Supply Chain PrioritizationSupply Chain Prioritization• Supply Chain Strategy• Selecting Metrics• Sourcing Data• Creating a Balanced SCORcard™• Performing Benchmark
DMSCA 2010 ‐ Supply Chain Measurement
Supply‐Chain Definition
• Supply Chains are the Totality of processes spanning operations from supplier to end‐customer, focused on p pp ,material, work and information flow
• We use a tool called the Supply Chain Definition Matrix to d fi th l h i ithi t idefine the supply‐chains within an enterprise
• The Supply Chain Definition (i/o Matrix) Matrix helps determine the number and size of supply chainspp y
• 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
DMSCA 2010 ‐ Supply Chain Measurement
Example: Air Conditioning Company
• Columns are Retail/Commercial, and sub‐segmented• Rows are the Major Product Lines
Your Company
Customer/Market/Channels
Retail CommercialSupply-Chain Definition
MatrixBig Box Internet
Direct
Mom & Pop Stores
Building Major Account Distrib
Busine
ss ‐
t Fam
ilies
ditio
ners
Big Airco x x xSmall Airco x x xC
Line
s of
Prod
uct
Air C
on Custom Industrial x xStandard Industrial x x
DMSCA 2010 ‐ Supply Chain Measurement
Supply Chain Prioritization
• We use a tool called the Supply Chain Prioritization Matrix to order the supply‐chains according to relevancepp y g
• Each supply chain can be ranked by a number of features• We suggest:
– size (revenue, volume, and margin),– complexity (# SKUs)– strategic importanceg p
• You can also look at them by– Cash Consumption– Risk– Volume variability– Etc.
DMSCA 2010 ‐ Supply Chain Measurement
Supply Chain Strategy
• We use a tool called the Supply Chain Strategy Matrix to Identify priority strategic features or attributes of supply‐chains.
• Each supply chain strategy is indicated by a collection of ranked features:ranked features:
Reliability On time? Complete? Undamaged?Reliability On time? Complete? Undamaged?Responsiveness From Customer Request to final acceptance
Flexibility How long to scale up? How expensive to scale down?Cost Cost of Processes? Cost of Goods Sold?
Assets Working Capital? Return on Investments?
DMSCA 2010 ‐ Supply Chain Measurement
Supply Chain Strategy in 5 Minutes
Build Strategy Model Lifecycle Likely Priority
Buy 1. Assets2 Costy 2. Cost
Make ETO 1. Reliability2. Response1 A tBTO 1. Assets2. Reliability
BTS Start 1. Flexibility2 Response2. Response
Middle 1. Cost2. Reliability1 CostCommodity 1. Cost2. Assets
EOL 1. Assets2. Cost2. Cost
DMSCA 2010 ‐ Supply Chain Measurement
Supply‐Chain Strategy Matrix
Supply‐ChainStrategy Matrix Big Airco Small
Airco Comm’l • Each unique combination of ratings
nal
Reliability S defines Your Supply Chain Strategy for the channelP
P
Extern Responsiveness A
Flexibility A
• Think of the rating as a desired state, NOT h t tA
P
Flexibility A
al
Cost P
where you want to improve the most
A
A
Interna
Assets PS
DMSCA 2010 ‐ Supply Chain Measurement
The SCORcard
• We use a tool called the Supply Chain SCORcard™ to Identify performanceto Identify performance characteristics of supply‐chains.
• Each SCORcard™ is built• Each SCORcard is built from a subset of hundreds of SCOR metrics.
• For supply‐chain• For supply chain benchmarking we generally use only Level 1, 2 and 3 metrics
• The SCOR Manual provides all necessary definitions
DMSCA 2010 ‐ Supply Chain Measurement
Performance Metrics
• SCOR metrics: Standard Strategic (Level 1) Metrics
Attribute Metric (Strategic)Attribute Metric (Strategic)
Reliability Perfect Order Fulfillment
Responsiveness Order Fulfillment Cycle Time
tom
er
Agility Supply Chain Flexibility
Supply Chain Adaptability†
Cost Supply Chain Management Cost
Cu
st
Cost of Goods Sold
Assets Cash‐to‐Cash Cycle Time
Return on Supply Chain Fixed Assetsnte
rnal
† upside and downside adaptability metrics
Return on Supply Chain Fixed Assets
Return on Working Capital
I
DMSCA 2010 ‐ Supply Chain Measurement
upside and downside adaptability metrics
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
criticalcritical
For Every Superior Advantage ParityFor Every Superior Advantage ParitySelect Level 1 Metric Level 1 Metric Level 1 Metric
and Level 2 Metric Level 2 Metricand Level 3 Metric
DMSCA 2010 ‐ Supply Chain Measurement
A Metrics Architecture
Supply‐ChainSCORcard 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
ternal
Delivery Quantity Accuracy Delivery Quantity Accuracy
Reliability Delivery Performance to Commit Date
Delivery Performance to Commit Date
Reliability Date Achievement Date Achievement
Reliability
Ext Reliability Location Achievement Location Achievement
Reliability Accurate Documentation Accurate Documentation
Reliability Shipping Documentation Accuracy
Shipping Documentation Accuracy
Reliability Billing Documentation Accuracy
Billing Documentation Accuracy
Reliability Perfect Condition Perfect Condition
Reliability % Orders Received Damage‐ % Orders Received Damage‐Reliability Free Free
DMSCA 2010 ‐ Supply Chain Measurement
Result: The Workflow Diagramai
l, in
c.st
erda
m)
S1.1Schedule Prod.
Q no)
Reta
(Am
s Deliveries
Customer P.O. Delivery Commit
C O C O
mp3
HQ
(Cup
ertin D2.2
Receive, Enter, Validate Order
D2.3Reserve Inv.
Calculate Date
S2.1Schedule Prod.
Deliveries
Inter-Company P.O.
C.O. C.O.
D1.3Reserve Inv.
Calculate Date3 Fa
ctor
y he
nzhe
n)
D1.2Receive, Enter, Validate Order Calculate Date
mp
(Sh Validate Order
C.O. = Customer Order, Inv. = Inventory, P.O. = Purchase Order, Prod. = Product
DMSCA 2010 ‐ Supply Chain Measurement
Planning Data Gathering: Sources of Data
• Financial Data– 10‐K data, Company Annual Reports, Cost Center Reports, p y p , p– Must be Verified by Financial Team (Controller)
• Non‐Financial DataC– Customers• Delivery Performance• Total Cycle‐Time Performance
– IT Systems• Process‐to‐Process Transactions• Planning System Parameters (Lead Times)
– Suppliers– 3PL Providers
DMSCA 2010 ‐ Supply Chain Measurement
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 StatusMetric Process Owner Due Date Status
On-Time Delivery D1.16 Logistics 2/2/2008 Complete
Undamaged D1.17 3PL Provider 2/15/2008 50% Collected
Order Fulfillment Cycle Time
D1.1 – D1.17 Deliver Team 2/22/2008 Not started
Etc…
DMSCA 2010 ‐ Supply Chain Measurement
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 and Performance Goals• Aligns Strategy, Performance, and Performance Goals
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 0Flexibility 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
DMSCA 2010 ‐ Supply Chain Measurement
Continuous Top Down Supply Chain IntegrationAsses
BusinessGaps
AssessBusinessMarket
ScopeAssess
BusinessPerformance
IdentifyProcessNeeds
CreateStrategy
IdentifyProcessNeeds
Configuration
DeployChanges
DefineAs-IsState
ConfigurationAssessProcess
Performance
CreateTo-Be
Programs
IdentifyProcessGaps
AnalyzeCreate
IdentifyProcessGaps
ActivitiesAnalyze
RootCause
CreateTo-Be
Projects
Create Identify
DMSCA 2010 ‐ Supply Chain Measurement
CreateTo-Be
IdentifySolutions
SUPPLY CHAIN COUNCIL, INC.SUPPLY CHAIN COUNCIL, INC.
DMSCA 2010 ‐ Supply Chain Measurement
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 operationsy p pp y p
• 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 ti ll d it t l d d t b b t h• SCC continually advances its tools and educates members about how companies are capitalizing on those tools
– With membership open to all interested organizations
DMSCA 2010 ‐ Supply Chain Measurement
Industry Membership Scope
DMSCA 2010 ‐ Supply Chain Measurement
Typical Company Benefits
$200M Cost Improvements Single DivisionDivision
US$2.3B Savings supported with MMerger
$5B Working Capital
$66M Revenue/Inventory
€2M Improvements Single Division (Peroxides)
DMSCA 2010 ‐ Supply Chain Measurement
Comparative Data1
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%
L l h i 25% 50%Lower supply chain costs 25% - 50%
Improvement of fill rates 20% - 30%
Improved capacity realization 10% 20%Improved capacity realization 10% - 20%
1Stephens (2000) 1997 Comparative Study Pittsburg, USA
DMSCA 2010 ‐ Supply Chain Measurement
Many ThanksMany Thanks
jfrancis@supply‐chain.org