Process Core Group

Asset Management: Working Capital

Caspar Hunsche — Sun Sep 30, 2007 11:38 pm

Author: Caspar Hunsche

Posted: Sun Sep 30, 2007 11:38 pm

SCOR 8.0 defines Return on Working Capital as a level 1 metric.

We would like to know how many companies actually measure this. And for those that do not, whether it is considered of no value or unmeasurable.

For completeness the definition and calculation:

Quote:

Definition: Return on working capital is a measurement which assesses the magnitude of investment relative to a company�s working capital position verses the revenue generated from a supply chain. Components include accounts receivable, accounts payable, inventory, supply chain revenue, cost of goods sold and supply chain management costs.

Calculation: Return on Working Capital = (Supply Chain Revenue � COGS � Supply Chain Management Costs) / (Inventory + Accounts Receivable � Accounts Payable)

Asset Management: Fixed Assets

Caspar Hunsche — Sun Sep 30, 2007 11:33 pm

Author: Caspar Hunsche

Posted: Sun Sep 30, 2007 11:33 pm

SCOR 8.0 defines Return on Supply Chain Fixed Assets as a level 1 metric.

We would like to know how many companies actually measure this. And for those that do not, whether it is considered of no value or unmeasurable.

For completeness the definition and calculation:

Quote:

Definition: Return on Supply Chain Fixed Assets measures the return an organization receives on its invested capital in supply chain fixed assets. This includes the fixed assets used in Plan, Source, Make, Deliver, and Return.

Calculation: Return on Supply Chain Fixed Assets = (Supply Chain Revenue � COGS � Supply Chain Management Costs) / Supply-Chain Fixed Assets

Reliability for Make-to-Stock

Caspar Hunsche — Sun Sep 30, 2007 11:05 pm

Author: Caspar Hunsche

Posted: Sun Sep 30, 2007 11:05 pm

In support of the above question:

Is Order Fulfillment Cycle Time (OCT) really a metric that is representative for certain Make-to-Stock businesses?

OCT measures the time between receipt of the order and receipt of the product at the customer. Some industries however may not find this valuable information. As an example: business critical replacement parts. This type of business is often measured using an uptime metric. Not meeting the agreed service level (SLA), for some industries this maybe 24 hrs for others 15 minutes, is not realistically measured by the average fullment time. OCT does not disclose the number or percentage of orders that did not meet the SLA.

SCOR 6 had a level 1 metric for this: Fill Rate.

Quote:

The percentage of ship-from-stock orders shipped within 24 hours of order receipt. For services, this metric is the proportion for services that are filled so that the service is completed within 24 hours

I use the 24 hour as an example (as this is common in on-line businesses - same-day shipment), but recommend for each supply chain you use the actual service level agreement.

Please note that voting is anonymous

Labor as a resource

Caspar Hunsche — Sun Sep 30, 2007 10:54 pm

Author: Caspar Hunsche

Posted: Sun Sep 30, 2007 10:54 pm

Gregory,

I am afraid I don't have enough information on what you are trying to achieve. Is your question 'where are labor requirements determined?' or 'what process determines the amount of resources required?' then the answer is Plan and scheduling processes determine these. (Scheduling processes ca be found as level 3 processes within Source, Make, Deliver or Return depending on the area of focus).

As an example:
The labor requirements for a Manufacturing-type process (i.e. Make in SCOR) are determine din Plan Make. Specific orders maybe assigned to the available resources in the (level 3) Schedule Production activities in M1, M2 or M3.

There is no seperate Enable Make process that evaluates the labor resources, 'obtains' additional resources or 'disposes' of excess resources based on the labor requirements to support the Production Plan. Although one could argue that labor resources are supply chain assets (EP5 or EM5).

Regards,
Caspar

Seeking inventory optimization and rationalization method

Caspar Hunsche — Sat Jul 21, 2007 7:31 pm

Author: Caspar Hunsche

Posted: Sat Jul 21, 2007 7:31 pm

Patricia,

Here's how you could organize your project (not knowing your company, organization or complexity of supply chains). I recommend 5 distinct phases:

Scope (select metrics and understand goals)
Capture (collect data and supply chains)
Analyze (analyze and brainstorm solutions)
Design (document solutions and migration)
Deploy (plan and launch the change)

Find inventory optimization specifics for each phase below.

1a. Select the metrics and understand the goals. If you haven't already done so; this is where you define your problem in terms of metrics. For example: Rather then saying "we need to reduce inventory", you need to translate that to very specific metrics and target levels. E.g. For A parts X days of supply, for B parts Y days of supply, for all others Z days of supply. I am not sure what inventory you carry. My first thought is that you have capacity (your transportation 'production' assets) and maybe replacement parts to service, maintain and repair these assets. You'll have to do this with your supply chain leadership.

1b. Collect inventory data and identify the key issue areas. This is all about prioritization. Identify the key supply chains, products and report their inventory levels (compared to the goals from step 1a). The rationale about selecting the biggest problem product is that if you solve that you solve a large part of your problem, and you'll find many of your learnings maybe transferable to other products. Thus getting the biggest result without trying so solve all problems in one enormous exercise. You will most likely select a set of products within one of your business units. Make sure you retain the knowledge on how the data is collected, you'll want to make this into standard reporting (in case you don't already have this).

For the selected products, you will need to collect process knowledge. (i.e. what causes inventory build-up).

2a. Drill down to locations and item numbers. This is about where inventory occurs and understanding which products within the group of products have the biggest problems. This basic reporting/number crunching. Hopefully your systems will allow you to slice and dice the inventory numbers in different ways. In the next step you will use these to map out the processes that generate inventory.

2b. Describe the processes that create inventory and consume inventory: Plan, Source, Make, Deliver and Return. Walk through the processes related to planning (forecasting anticipated demand for the product), sourcing (this is the process of calling of and receiving products from vendors) and the order taking and delivery of products (this is the process of receiving orders and fulfilling those from inventory). In the next step you'll analyze your findings.

Next review your learnings

3a. Analyze the processes. Carefully review how the current processes may generate excessive inventory (or shortages for that matter). Examples of issues that may cause inventory (or shortages) are:

Temporarily invisible inventory (may cause double-ordering)
Inventory (temporarily) reported in two locations (may cause delayed ordering)
Large number of inventory adjustments (ups and downs)
Fixed plans (once send as planned demand, you have to take it)
Plans not communicated (lack of visibility to expected demand drops, promotions or discontinuation plans)
Plans too often communicated (incorporating demand swings and inaccuracies)
Products not reserved (upon order booking)
Products not released (after order cancellation)
Lack of alignment of inventory management with what is sold (sell what you have, buy/make what you need - in your business this maybe communication of major upgrades, overhaul, etc)
Wrongly categorized products (non critical high value parts in stock, critical parts special ordered).

3b. Brainstorm and prioritize solutions. For each of the findings identify how you would solve the problem. Consider information sharing (communication), information access (visibility), automation, best practices, product reclassification, etc. Best practices may give you things like CPFR, VMI, etc. Evaluate (read guestimate) the impact, effort, risk and alternatives of your solutions. Select top 10-25 that balance out to highest impact, least risk and effort.

Next you need to develop the detailed solution.

4. Document your future processes, automation and rules. In order for the process to change you need to be able to instruct people on either how they need to do their work different, how the software tool should work (in case of automation), how the rules change, or how the classification needs to change (and equally important: why). Without going through a proper walkthrough of the future process, the actors, the rules and automation your change will be slow, different than expected, or not happen at all. Finally obtain agreement for each of the changes.

Finally you need to prepare how you will reach this new desired process and make sure it happens as you designed it.

5a. Create a project/change management plan. Determine how you will role out the changes, who needs to drive, participate, approve, teach, learn, and be informed on the project, create timelines with dependencies to other projects, obtain budgets, staff the project, prioritize resources and launch the project(s). Consider that you may have to sell of existing inventories to lower the inventories to desired levels faster.

5b. Monitor change. Monitor the projects and make sure deliverables are in line with the design you created in step 4. Measure the inventory levels at the beginning, during and after completion of the projects. Once you see results of your projects, evaluate whether the projects can be expanded into other products/business units. Start at step 1b. and find the new worst performer.

DCOR SCOR and Supplier Management

Caspar Hunsche — Sat Jul 21, 2007 5:46 pm

Author: Caspar Hunsche

Posted: Sat Jul 21, 2007 5:46 pm

Quote:

"Guideline #5, Supplier qualification and contracting is a design-chain process." If that's the case, how are the design chain processes associated with supplier qualification and contracting different from the supply chain processes described in ES.7 - Manage Supplier Network? Is it fair to say that these processes should be represented in one model or the other but not in both?

Your assumptions are correct. A process should only exist in one framework and only one unique process element should exist to describe it. What you address here is an example of synchronization challenges caused by the continuous development of the reference models. A little history will explain.

Before DCOR and CCOR were adopted many activities at the boundaries of the supply chain as defined by SCOR needed to have some placeholders. We kind of abused the Enable processes for this. One of these examples is the ES.7 Manage Supplier Network. Some (historically) considered ES.7 the process that re-configures the total supplier network. We now know that those a really DCOR processes. With the adoption of DCOR we are shifting the meaning of the Enable processes from 'the buckets that fit all' to better defined enablers.

The definition of ES.7 should probably more like: ES.7 Manage Supplier Network - The process to address vendor/supplier performance issues with the vendor or supplier. This may include supplier non-conformance tracking, on-site audits, and re-certification.

The ES.7 process would be triggered by the ES.2 Assess Supplier Performance process. ES.2 measures the performance of a vendor/supplier, if the performance is not meeting contractual agreements and/or required standards ES.7 would be the logical step: work with the vendor/supplier to address this. If the outcome of this is unsatisfactory then alternative measures need to be taken: replace the vendor/supplier or renegotiate the contract: the A2 process is triggered.

Questions from the Tokyo 2007 DCOR Class

Caspar Hunsche — Sat Jul 21, 2007 5:45 am

Author: Caspar Hunsche

Posted: Sat Jul 21, 2007 5:45 am

Quote:

Design chain flexibility; 'Product Design Change Cycle Time' is the level 1 metric for 'Design Chain Flexibility', but it is defined as the change after design has been released to operations. Don't you agree there should be a better 'Design Chain Flexibility' level 1 metric, which measures the flexibility before design is released to operations, to measure design requirement changes before the design is released to operations?

I agree that design chain flexibility could use a better metric. The DCOR team reviewed the option to make Upside or downside flexibility the level 1 metric. The problem is that like with supply chain flexibility this is difficult to measure. The DCOR team considered measurability an important requirement in selecting metrics and thus decided to select the Amend related product design change cycle time.

For your design chain scorecard you can of course always select design chain upside or downside flexibility.

Questions from the Tokyo 2007 DCOR Class

Caspar Hunsche — Sat Jul 21, 2007 2:52 am

Author: Caspar Hunsche

Posted: Sat Jul 21, 2007 2:52 am

Quote:

Is quality management included in the Enable processes of DCOR? We believe Quality has strong impact to DCOR.

My counter question is what is quality management? I recognize two types of quality management:

Quality of the designs (i.e. products and operational processes)
Quality of the design chain processes

The quality of the designs (post release) is monitored and addressed through the Amend processes. If a a pre-defined threshold is reached the Amend processes will activate a product refresh (a.k.a. a revision) or some other decision regarding the product.

The enable processes in DCOR are monitoring the performance of the Design Chain processes themselves: Is the design chain operating within cost objective, are designs released on-time and complete, are design cycles short enough to meet market requirements, and so on.

I would therefore respond that quality management is definitely included in DCOR: both in Enable and Amend processes.

SCORmark: Benchmark your Supply Chains

Admin — Fri Jun 29, 2007 10:35 am

Author: Admin

Posted: Fri Jun 29, 2007 10:35 am

The Supply Chain Council has announced a new member benefit: SCORmark. SCORmark is a benchmark program based on SCOR metrics offered through APQC.

Quote:

"The SCORmark product was built to improve the business value of the Supply-Chain Council membership. It supports and integrates seamlessly into the analyze phase of the SCOR model resulting in a benchmark report highlighting where an organization stands against selected peer groups," said SCC Board Chair Thomas Phelps. �Through the use of the SCORmark product, our members are now able to use the defined metrics in the SCOR model to set corporate strategy and accurately analyze performance gaps.�

You can find the announcement presentation from Supply Chain World North America here.

Where can I find benchmark data for SCOR metrics?

Caspar Hunsche — Fri Jun 29, 2007 7:33 am

Author: Caspar Hunsche

Posted: Fri Jun 29, 2007 7:33 am

There are several sources for your consideration, each one has pros and cons. Here's the list I know of today (primarily focused on North America):

SCORmark. This is a member benefit for SCOR users. The SCC and APQC are providing this service to SCC members (for free). You need to provide data on your supply chain to get data from others. Pros: Pure SCOR metrics, Confidentiality (APQC wrote the gold standard for benchmarking confidentiality), Affordable (you provide the resources to collect the data) and Reliable (all submissions are thoroughly validated by APQC analysts). Cons: New (may require some time to get sufficient data for industries that have lower participation in the council) and most important: SCOR member only (no data submitted by non-SCOR members).
PMG. PRTM provides SCOR based benchmarking services through it's Performance Management Group subsidary. Pros: Pure SCOR metrics, Confidentiality, Established and Reliable. Cons: Can be expensive (PMG consultants collect the data from your company)
AMR. AMR provides a similar offering to PRTMs PMG.
Industry sources. Many industries (for example retail) have their own benchmarking organizations. As a rule these organizations have their own set of metrics and therefore you cannot benchmark outside your industry if you want to. Check the organizations carefully for references, some only have few members, no real data or are new to benchmarking. Pros: Industry specific, can be Well-established, can be Affordable. Cons: Industry specific (non-SCOR), data may be unreliable.
Consulting companies. Any consulting company can setup a benchmarking effort for you. This generally works better than contacting your competitors and as for their data, but can be time-consuming and expensive.

Here's my recommendation for testing SCOR metrics and benchmarking without a major investment: Benchmark several of your internal supply chains. Collect the data for the level 1 metrics for multiple supply chains, compare them and decide next steps. You may find some interesting differences in performance between the supply chains. If you are an SCC member then you can consider submitting the data (to SCORmark) for each supply chain and get industry specific benchmarking data in return.

JIT - Just-In-Time

Admin — Wed Mar 07, 2007 5:23 pm

Author: Admin

Posted: Wed Mar 07, 2007 5:23 pm

Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs. The process is driven by a series of signals, or Kanban, that tell production processes to make the next part. Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency.

Source: Wikipedia

DRP II - Distribution Resources Planning

Admin — Wed Mar 07, 2007 5:17 pm

Author: Admin

Posted: Wed Mar 07, 2007 5:17 pm

Distribution Resources Planning (DRP) is defined as a method for the effective planning of orders and delivery resources within a supply chain. DRP systems enable the user to set certain inventory control parameters (like a safety stock) and calculate the time-phased inventory and delivery requirements.

Source: Wikipedia