Pilla R 112810
Pilla R 112810
Contents:
References
SYNERGY OF SUPPLY CHAIN OPERATIONS REFERENCE MODEL
What is SCOR?
The Supply Chain Operations Reference model (SCOR) is the product of the
Supply Chain Council, Inc. (SCC), an independent, not-for-profit, global corporation with
membership open to all companies and organizations interested in applying and
advancing the state-of-the-art in supply chain management systems and practices. The
SCOR-model captures the Council’s consensus view of supply chain management. It is a
management tool, spanning from the supplier's supplier to the customer's customer.
While much of the underlying content of the Model has been used by
practitioners for many years, the SCOR-model provides a unique framework that links
business process, metrics, best practices and technology features into a unified
structure to support communication among supply chain partners and to improve the
effectiveness of supply chain management and related supply chain improvement
activities. Member companies pay a modest annual fee to support Council activities. All
who use the SCOR-model are asked to acknowledge the SCC in all documents describing
or depicting the SCOR-model and its use. The complete SCOR-model and other related
models of the SCC are accessible through the members’ section of the www.supply-
chain.org website. SCC members further model development by participating in project
development teams- SCOR and other related SCC Models are collaborative ongoing
projects that seek to represent current supply chain and related practice.
Process Modeling
Business Process Reengineering: It captures the “as-is” state of a process and
derives the “to-be” future state.
Benchmarking: Quantify the operational performance of similar companies and
establish internal targets based on “best-in-class” results.
Performance Measurements: Standard metrics to measure process performance
Best Practices Analysis: Characterize the management practices and software
solutions that result in “best-in-class” performance
Process Reference Model: contains Standard descriptions of management
processes; A framework of relationships among the standard processes;
Management practices that produce best-in-class performance and Standard
alignment to features and functionality.
SCOR spans all its customer interactions, from order entry through paid invoice, all
product (physical material and service) transactions, from your supplier’s supplier to
your customer’s customer, including equipment, supplies, spare parts, bulk product,
software, etc. and all market interactions, from the understanding of aggregate demand
to the fulfillment of each order
By describing supply chains using process modeling building blocks, the model can be
used to describe supply chains that are very simple or very complex using a common set
of definitions. As a result, disparate industries can be linked to describe the depth and
breadth of virtually any supply chain.
SCOR is based on five distinct management processes: Plan, Source, Make, Deliver, and
Return.
Plan - Processes that balance aggregate demand and supply to develop a course
of action which best meets sourcing, production, and delivery requirements.
Source - Processes that procure goods and services to meet planned or actual
demand.
Make - Processes that transform product to a finished state to meet planned or
actual demand.
Deliver - Processes that provide finished goods and services to meet planned or
actual demand, typically including order management, transportation
management, and distribution management.
Return - Processes associated with returning or receiving returned products for
any reason. These processes extend into post-delivery customer support.
With all reference models, there is a specific scope that the model addresses. SCOR is no
different and the model focuses on the following:
For example the Level 1 relates to the Make process. This means that the focus of the
analysis will be concentrated on those processes that relate to the added-value activities
that the model categorizes as Make processes.
Level 2 includes 3 sub-processes that are “children” of the Make “parent”. These
children have a special tag - a letter (M) and a number (1, 2, or 3). This is the syntax of
the SCOR model. The letter represents the initial of the process. The numbers identify
the “scenario”, or “configuration”. M1 equals a “Make build to stock” scenario (Products
or services are produced against a forecast). M2 equals a “Make build to order”
configuration (Products or services are produced against a real customer order in a just-
in-time fashion). M3 stands for “Make engineer to order” configuration (In this case a
blueprint of the final product is needed before any make activity can be performed).
The breakdown of the Level 2 process (Make build to order) into its Level 3 components
identified from M2-01 to M2-06. Once again this is the SCOR syntax: letter-number-dot-
serial number. The model suggests that to perform a “Make build to order” process,
there are 6 more detailed tasks that are usually performed. The model is not
prescriptive (not mandatory) that all 6 processes are to be executed, It only represents
what usually happens in the majority of organizations that compose the membership
base of the Supply Chain Council.
The Level 3 processes reach a level of detail that cannot exceed the boundaries
determined by the industry- agnostic and industry-standard nature of the SCOR model.
Therefore all the set of activities and processes that build - for instance - the M2.03
“Produce & test” process will be company-specific, and therefore fall outside the
model’s scope.
The Performance Measurements Pillar The SCOR model contains more than 150 key
indicators that measure the performance of supply chain operations. These
performance metrics derive from the experience and contribution of the Council
members. As with the process modeling system, SCOR metrics are organized in a
hierarchical structure. Level 1 metrics are at the most aggregated level, and are typically
used by top decision makers to measure the performance of the company's overall
supply chain. Level 1 Metrics are primary, high level measures that may cross multiple
SCOR processes. Level 1 Metrics do not necessarily relate to a SCOR Level 1 process
(PLAN, SOURCE, MAKE, DELIVER and RETURN).
The metrics are used in conjunction with performance attributes. The Performance
Attributes are characteristics of the supply chain that permit it to be analyzed and
evaluated against other supply chains with competing strategies. Just as you would
describe a physical object like a piece of lumber using standard characteristics (e.g.,
height, width, depth), a supply chain requires standard characteristics to be described.
Without these characteristics it is extremely difficult to compare an organization that
chooses to be the low-cost provider against an organization that chooses to compete on
reliability and performance.
Associated with the Performance Attributes are the Level 1 Metrics. These Level 1
Metrics are the calculations by which an implementing organization can measure how
successful they are in achieving their desired positioning within the competitive market
space.
The metrics in the Model are hierarchical, just as the process elements are hierarchical.
Level 1 Metrics are created from lower level calculations. (Level 1 Metrics are primary,
high level measures that may cross multiple SCOR processes. Level 1 Metrics do not
necessarily relate to a SCOR Level 1 process (PLAN, SOURCE, MAKE, DELIVER and
RETURN). Lower level calculations (Level 2 metrics) are generally associated with a
narrower subset of processes. For example, Delivery Performance is calculated as the
total number of products delivered on time and in full based on a commit date.
The Best Practices Pillar
Once the performance of the supply chain operations has been measured and
performance gaps identified, it becomes important to identify what activities should be
performed to close those gaps. Over 430 executable practices derived from the
experience of SCC members are available.
The SCOR model defines a best practice as a current, structured, proven and repeatable
method for making a positive impact on desired operational results.
I. Current - Must not be emerging (bleeding edge) and must not be antiquated
II. Structured - Has clearly stated Goal, Scope, Process, and Procedure
Examples of how SCOR and Supply Chain Council membership have helped companies
improve their supply chain.
Used SCOR to identify performance gaps in key metrics between current and
required to reach parity status
Used SCOR to identify process disconnects, drivers of inventory, and projects
required for improvement
Prioritized proposed projects based on potential impact and amounts of
effort/risk
Benefits Achieved:
The Challenge: The Company sustained significant growth in a 5 year period. That
growth, along with a conversion to a new ERP system created the “perfect storm” of
supply chain issues. Customers were complaining, which impacted new licensing
opportunities, future earnings growth, and shareholder value.
Suggested Solution:
Benefits Achieved:
Shareholder returns: $4.1 million; internal rate of return 300%; enterprise value
uplift = $12.1 million
New business start-up (company and supply chain startups) - create and deploy
supply chains
Benchmarking - competitive assessment of qualitative and quantitative
performance
Process Outsourcing - identifying and outsourcing non-value add processes
Technology Services
Evolving:
SCOR is typically used to identify measure, reorganize and improve supply chain
processes. This is accomplished by a cyclic process of:
Using SCOR, a cross-industry model designed to analyze supply chains and identify
improvement opportunities in both Material flow and Work & Information flow, as a
prelude to Six Sigma/Lean offers distinct advantages. For example, providing a
comprehensive analysis of a supply chain performance internally, while focusing on
achieving the expectations of the external customer (VOC) and identifying a selection of
projects will have the most impact on achieving strategic objectives and enabling
positive impacts to the bottom-line. Six Sigma/Lean professionals are discovering much
added value in using the SCOR model as a tool for locating and identifying potential
projects and measuring the project success at completion.
The SCOR model is a very powerful tool for creating supply chain visibility to identify the
opportunities for improvement that yield the greatest system effect for the relative
investment. Using the SCOR model for convergence enables continuous improvement
for practitioners to address their supply chains as complete systems, rather than
optimizing individual pieces for sub-optimal effects. SCOR also provides a common
language and metric system for both horizontal and vertical metric measurement and
roll-up. SCOR however, lacks the tactical techniques to effectively attack and repair the
prioritized disconnects. The next logical step is to transition activities to Six Sigma, Lean,
or Six Sigma and Lean Teams.
The Six Sigma methodology is very effective at establishing a systematic procedure for
problem solving and root cause detection. The strengths of Six Sigma complement and
fill the gaps that a high-level architecture such as the SCOR model is limited by Six
Sigma. However, is in turn complemented by the SCOR model’s ability to identify high-
impact projects, prioritized across the supply chain. Six-Sigma is strengthened from a
potentially narrow exercise with separate efforts to a coordinated enterprise
improvement effort through SCOR.
The lean methodology is very effective at identifying waste at the process level, and
making relevant flows smoother to reduce inefficiencies. The process-centric focus of
lean complements the SCOR framework by providing the necessary tools to drill-down
into specific and detailed issues. The SCOR framework supports lean by identifying
opportunities across the supply chain to focus kaizen and value stream events that have
the greatest impact on overall system performance. SCOR metrics also provide a
systematic way to measure improvements and ensure that changes made have the
desired effect, and continue to work the way they were designed. SCOR, together with
these methodologies, emerges stronger and even more effective.
Six-Sigma:
Its goal is to achieve the world’s most admired and largest company with #1 in customer
satisfaction. It created Quality and Productivity Division.
Results: After having a 2 year SS experience the ATM withdrawals losses of Bank of
America are reduced; Reduced counterfeit losses in nationwide cash vaults by 54%;
customers are delighted; increased stock value by the year 2002 end BOA named as Best
Bank in US & Euro money’s Worlds Most Improved Bank.
Define: Identify, evaluate and select projects for improvement, Set goals and
Form teams.
Measure: Collect data on size of the selected problem, identify key customer
requirements and determine key product and process characteristic.
Analyze: Analyze data, establish and confirm the “ vital few “ determinants of the
performance and validate hypothesis
Improve: Improvement strategy, develop ideas to remove root causes, design and
carry out experiments, optimize the process and final solutions.
Timely delivery needs level 1 CTQ; on time delivery to schedule needs level 2 CTQ and
delivery within +/- 1 hour of schedule delivery time needs level 3 CTQ. Its main goal is
to reduce number of delayed deliveries and better meet customer requirement of timely
delivery within scheduled delivery time.
Performance Standards:
Project Y measure: Process starts when an order is received, Ends when goods are
received & signed for at customer’s desk. Process measurement – Deviation from
scheduled delivery time in minutes.
No. of defect opportunities per unit: 1 opportunity for a defect per scheduled
delivery of freight.
SIPOC
Improvements:
To make improvements some measurements and analysis were made like Driver and
Distance identified as key factors influencing delivery performance. Driver selected for
focus. Potential root causes as to why Driver influenced the time: Size of the vehicle,
Type of engine, Type of tires and fuel capacity
Experiments designed and conducted using truck type and tire size. It was found out
that larger tires took longer time at certain routes where area was cramped and time
lost in maneuvering. High incidence of tire failures since tight turns led to stress on tires
thus increasing number of flat tires. Team modified planning of dispatch process by
routing smaller trucks at more restrictive areas.
Difficulty in identifying the right project and defining the scope; Difficulty in applying
statistical parameters to Voice of the Customers; Trouble with setting the right goals
So measurements were made for inefficient data gathering; Lack of measures and Lack
of speed in execution and challenges of identifying best practices were analyzed for
developments. Improvements were made to remove the root causes and controlled.
“Define“is ranked most important step but gets the lowest resource allocation. Project
scoping and its definition is critical to its success/ failure and “Measure” is considered
most difficult step and also gets the highest resources
Although Six Sigma has been proven highly triumphant in many industries and
functional applications, one of the critical weaknesses of Six Sigma is the lack of a
fundamental methodology for leveraging strategic and operational opportunities to
motor the selection and execution of projects which has higher importance. This
weakness becomes more obvious to a company as the Six Sigma program matures and
the “low hanging fruit” or the more apparent improvement opportunities have been
resolved. The Six Sigma relies upon the existence of deep-seated process capability and
some level of organizational maturity around the process. In highly jumbled, wasteful or
poorly controlled process environments it is more difficult to identify and apply the
defect and variation reduction techniques on critical bottlenecks they are essentially
buried in inefficiency.
It is a principle driven, tool based philosophy that focuses on eliminating waste so that
all activities/steps add value from the customer’s perspective. It is all about continuous
waste elimination.
What is Waste?
Activities that add no value, add cost and time; Symptoms: need to find root causes and
eliminate them. There are 7 types of waste:
II. Waiting
III. Transporting
V. Unnecessary motion
VI. Defects
It strives for higher customer satisfaction, shorter lead time, higher flexibility, higher
quality, Lower costs and higher employee satisfaction. It reduces the cycle time, Cost,
Defects, Inventory, Space and Waste and thereby increasing Productivity, Customer
satisfaction, Profit, Customer responsiveness, Capacity, Quality, Cash flow and On time
delivery.
Five principles:
1. Specify Value: Define value from the customer’s perspective and express value
in terms of a specific product. Ask how your current products/services and
processes disappoint your customer’s value expectation like price, quality,
reliable delivery, rapid response to changing needs, fundamental definition of
the product. It is a capability provided to a customer at the right time at an
appropriate price, as defined in each case by the customer.
2. Map the Value Stream: Map all of the steps – value added and non-value added
– that bring a product of service to the customer. “Whenever there is a product
or service for a customer, there is a value stream. The challenge lies in seeing it.”
Identify all of the steps currently required to move products from order to
delivery. Challenge every step: Why is this necessary? Would the customer think
the product is worth less if this step could be left out? Many steps are only
necessary because of the way firms are organized and previous decisions about
assets and technologies. All activities, both value added and non-value added,
required to bring a product (or provide a capability) from raw material
(initialization) into the hands of the customer
4. Implement Pull: Nothing is done by the upstream process until the downstream
customer signals the need. Through lead time compression & correct value
specification, let customers get exactly what’s wanted exactly when it’s wanted:
At the pull of the customer/next process and Using signals (kanbans)
Common S tool used in operations: Sort, Set in order, Shine, Standardize and
Sustain/Systemize. It is the first step in Lean transformation.
• Searching
• Finding
• Selecting
• Transporting
• Waiting
Success can be achieved by
Companies which have been experienced in the application of Lean and Six Sigma
techniques have for some time recognized the compatibility and power of combining
these approaches under the umbrella of a single business improvement program. There
is a natural linkage between Lean and Six Sigma both at the program-level as well as the
project execution level (see Table below). The strength of the Six Sigma program
communications, roles and responsibilities definition, top-to-bottom organization
training and development, project tracking and financial accountability improve the
effectiveness of Lean efforts and the speed at which they can be deployed. Six Sigma
tools and methodology provide Lean the means to resolve critical process bottlenecks
that impede flow – by eliminating process variability and minimizing process defects.
Design for Six Sigma (DFSS) tools insures that products are “designed” to be robust to
known sources of process variation and defects. Likewise, Lean provides Six Sigma the
necessary methodology and tools to eliminate non-value added process waste and
improve process flow. Lean, in effect, “surfaces the rocks” or bottlenecks that are
inherent in a given process. These become ideal targets for Six Sigma.
The net effect of Lean and Six Sigma assimilation is tremendously powerful program
that drives rapid, focused execution of projects and tremendous gains in product and
process improvement – i.e., results. The results of an integrated Lean and Six Sigma
program are controlled, sustainable, and validated financially to impact the bottom-line.
There is an inherent benefit in the program which is the rapid growth of product and
process enhancement skills – and their use – throughout the organization. The challenge
that the company faces is leveraging an integrated Lean and Six Sigma program,
however, is the lack of a specific methodology to align business goals and strategic
improvement opportunities with the selection of projects and the skilled resources to
execute them. This challenge is particularly critical in an organization with complex
Supply Chains and significant product line diversity.
A SCOR project begins by educating management and developing a SCOR sponsor and
design team. The design team will do the project work as outlined in phases 1-3 above.
Next, a scope for the project must be determined that can range from multiple supply
chains to only a portion of one supply chain. The company’s strategic and tactical needs
will help answer the scope question.
Phase I: As shown above, the design team develops a SCOR card, listing competitors,
and collecting competitive data. This phase is crucial because it answers the first two
competitiveness questions “How is competitiveness defined for the business?” and
“What are the performance gaps between our company and our competitors?”
Phase II: A detailed analysis of material flow will identify improvement opportunities
that will help close competitive gaps.
Phase III: Material flow is followed by Work & Information flow where the efficiency of
major transaction types is evaluated. Transactions usually included, for example, are
Purchase Orders, Sales Orders, Work Orders, and Planning Events. The outcome is a
portfolio of improvement opportunities that feeds implementation teams, including
Lean Six Sigma teams.
In conclusion, using SCOR as a prelude to Lean Six Sigma offers several advantages:
SCOR aligns improvement efforts with the supply chain, not organizations.
SCOR enables the selection of projects, which will have the most impact on
achieving strategic objectives and improving the P&L.
Six-Sigma strengths: Planned methodology for diagnosing and executing defect and
variation reduction projects in any process. Devoted roles, responsibilities, and program
infrastructure with Top-to-Bottom Organization training and development. Highly
structured problem solving approach (DMAIC) with Level 1-4+ variation and defect
reduction techniques. Concurrent training/projects – applied skills development.
Customer and data driven decision making with unique methodologies for product
development, operations, and transactional applications. Rigid project tracking and
financial accountability for results.
Lean strengths: Planned methodology for diagnosing and executing waste elimination
projects in any process. Typically focused on a factory/cell/ process level scope and
Focus on workplace organization (5S) and preventative techniques (TPM) with Level 4+
material, work and information flow analysis. Concurrent training / projects – applied
skills development; Best-in-class operating practices at a factory and cell level. Standard
Work Development, Visual Controls and Cell Management Tools for Control of new
processes. Very effective at rapidly reducing cost – through waste elimination.
Lean weakness: Few tools for focusing Lean efforts on strategic and operational process
priorities. Inadequate program, infrastructure and training to drive breakthrough
improvement. Poor capability for addressing support system issues and transactional
processes. Inadequate analysis of financial expectations and accountability for bottom-
line results.
Case Studies:
Challenge: Rapid growth in demand for storage, voice & data transport; Focus on
capturing this growth while maintaining profitability; needed to identify inventory
drivers and optimize inventory levels to enable ADVA to reach inventory reduction
targets whilst improving customer satisfaction in Order Fulfillment Cycle Time (OFCT)
and On-time Delivery (OTD); Created a transformation plan that would allow ADVA to
proactively plan, drive and manage the inventory levels and better achieve the balance
of cost and service.
Solution: Using SCOR, ADVA identified performance gaps in key metrics between
current and required to reach parity status; also using SCOR, identified process
disconnects, drivers of inventory and projects required for improvement; Grouped and
prioritized proposed projects based on potential impact and amount of effort/risk
Agreed to project list including: New S&OP process, Supplier scorecards and quarterly
business reviews with suppliers, Information transparency and others
Benefits Achieved
Gross inventory reduced from €59 million to €38 million in 10 months
Inventory days of supply reduced 47% from initial score card
Challenge: Significant growth from 2003 to 2007, 300% increase in new product
development, 122% growth in production volume, 61% growth in employees.
Burning Platform”: Customer DIFOT (Export) Down to 20%, Product Lead Times Up to 8
months, New Product Introduction Lead Times Up to 9 months, Stock Turns Down to
2.1x and YTD Sales Down 30%. Available spare capacity is unknown. Customer
complaints impact new licensing opportunities and future earnings growth. Impact on
2007/8 earnings and shareholder value: EBIT (15.9%) and Enterprise Value ($25.2M).
Solution: Turning point for organization “DIY not always best”, Board mandated
review at its April 2007 meeting, Process established to evaluate options, SCE program
initiated using SCOR and 17 week SCE program between May and September 2007.
Benchmarking and Defect Analysis: Established emphasis on reliability and supply chain
cost, Confirmed size and relative importance of current performance gaps, provided
early direction on root causes, generated basis for calculating opportunity cost, created
immediate visibility over supply chain performance and built confidence to move onto
Phase 2
24 problem areas impacting reliability and COG Portfolio of 50 improvements addressed
key problem areas. “Drive Chain” now forms basis of an enterprise wide transformation
program
Benefits Achieved: Sales per employee increased by 20%, COGS by 10%, Inventory
days of supply by 20%, Cash to cash cycle by 15% and Share Holder returns are $4.1
million; IRR 300%; EV Uplift= $12.1m.
3) SAAB AB
4) Raytheon IDS
www.pragmatek.com
Supply Chain Council Forums
Breyfogle, Forrest W. III, “Implementing Six Sigma – Smarter Solutions Using
Statistical Methods, 2nd Edition”, Wiley, 2003.
Nave, Dave, How to Compare Six Sigma, Lean and the Theory of Constraints.
Quality Progress, March 2002.
Supply Chain Council, Supply Chain Operations Reference Model, version 7.0,
www.scc.org