How do SCOR Practitioners utilize the Geographic Map?

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Photo Feb 27, 11 14 15 AMAs part of the team that was involved in the development of SCOR 1.0, and in subsequently using the model in 120-plus projects over the past 17 years, I have the great fortune to see how companies have evolved their use of SCOR to improve their supply chain performance.

One of the most frequent questions (and observations) centers around the SCOR Level 2 processes, including the thread diagram and the geographic map.

SCOR Level 2 processes attempt to define the process strategies for each location in a project scope. For example, a manufacturing location may have Source (both stocked and to-order), Make (only stocked), and Deliver (only stocked). This is commonly notated S1, S2, M1, and D1. After each location is defined, a team then defines the material flow path(s).

The combination of the process and material flow definitions generates a thread diagram (process view) and geographic map (material flow view). These two tools originally were intended to generate strategic and analytic discussion around supply chain flexibility, network strategy and order lead times.

In the past three years, the use of the SCOR Level 2 processes have still provided the platform for strategic supply chain discussions but the thread diagram and geographic map have been replaced by different analytical tools that utilize both product and location data.

  1. Many companies use Excel to summarize the defect analysis for upside supply chain flexibility by product. A pivot table can easily illustrate the stacked lead time for each SKU using both planned and actual lead time at each level of the bill of materials. A SCOR Level 2 process is defined for both current and future state and is noted for each component. “What if” scenarios are generated through substituting lead times associated with changing supply locations.
  2. Supply chain optimization tools like IBM’s ILOG LogicNet utilize transportation data and can generate accurate geographic flows that incorporate cost and inventory data. Once a supply chain model is set up, decisions regarding manufacturing, supplier and distribution locations are less risky and more data-based than conceptual geographic maps.

Effective change mangement in supply chain transformation

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stack of boxes_stockimages_freedigitalphotosPerfect data structure plus flawless process design plus capable suppliers plus flexible customers equals world class supply chain performance. Right? Wrong. Several recent projects reminded me of the fallacy of this equation. So what is missing? The short answer is people – inclusive of individuals, organization, and culture. Newton’s first law provides an excellent frame to highlight effective change management factors that drive sustained supply chain transformation.

Newton’s first law paraphrased for our purpose says that if you don’t apply a force to individuals, organization, and culture, they will stay the same; supply chains perform the same and/or continue to atrophy. And, when responding to the same force, an individual will change faster than an organization and an organization will change faster than the overall culture. Or thought about another way, changing culture at the same rate as changing a person takes a lot more force. So, what can four successful supply chain transformation initiatives tell us about effective force factors?

  1. Force must be initiated by top leadership at the organization level.  This seems to be the most effective starting point for supply chain transformation and is consistent with other significant strategic initiatives.
  2. Force needs to be amplified by clearly communicating a reason for change.  The reason must be more compelling for the organization than staying the same and is often called ‘the burning platform’. Customer service levels, risk management, supply capacity, accelerated growth, or system installations are common reasons that can rally an organization.
  3. Force is needs to be further amplified by effectively engaging a core group of influential individuals.  Through experience, a cross-functional project team focused on identifying and eliminating barriers to performance builds shared vision and becomes the primary driver of change throughout the organization; a true ‘tipping point’ in affecting the entire culture.
  4. Sustained transformational behavior requires a balanced scorecard focused on balancing internal and external performance requirements.  This also provides a feedback loop helping adapt behavior with the competitive environment.

Image courtesy of Stockimages/FreeDigitalPhotos.net

10 top trends among supply chains around the world

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From The Chief Supply Chain Officer Report 2012 by SCM World

Here are 10 quick and meaningful findings from the 2012 Chief Supply Chain Officer Report, released recently by SCM World.

The report represents responses from nearly 1,400 supply chain executives across a full spectrum and is well worth downloading. To access the entire 51-page report directly, click here. It’s free but registration is required.

  1. Reducing operating costs is still the primary mission for supply chain managers.
  2. An increasing number of companies are now focused on aligning SCM in support of business strategy.
  3. As a function of business strategy, the most important contribution of good supply chain management, according to respondents, is by enhancing customer service / loyalty.
  4. Other areas where SCM is most often considered to provide high value are improved supplier relationships, shortened product-development cycles, and business expansion.
  5. The influence of consumers through e-commerce is increasing the complexity and need for agility in major supply chains. And the closer to the end-user you are, the greater the demands will be on your supply chain.
  6. The number of SKUs that consumer-facing supply chains must be able to handle is only going to increase over time, as companies try to monetize the long-tail of consumer preferences.
  7. There is no consensus at this time whether distribution systems are trending toward larger, centralized operations or smaller, localized models.
  8. If you produce consumer products and aren’t already operating a direct-to-consumer channel, there’s a better than 50-50 chance that eventually you will.
  9. For all the noise it makes, social media isn’t yet having much effect on supply chains or business strategy. That finding is consistent with findings among marketers who, at this point, don’t feel that social media advertising is meeting expectations.
  10. Board-level support for sustainability investments is still largely dominated by a desire to curry favor with consumers – as opposed to achieving long-term control over costs and supply lines. However, those more substantive objectives are gaining quickly in terms of attention from the board.

 

SCOR: Why it’s important and how to use it

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No matter how large or small your company, if you’re interested in gaining control of your supply chain one of the best resources may be the Supply Chain Council‘s Supply Chain Operations Reference model – known as SCOR.

It was designed as a scalable method for developing common definitions across your supply chain, and of managing all of your supply chain’s components for control and mastery of costs, customer service and other key performance indicators.

Over the years, SCOR has been used in more than 2,500 companies, according to the Supply Chain Council. It has been revised, expanded and battle tested as a proven, repeatable and scalable framework for supply chain management. It also happens to form the basis of SCE Ltd.’s own Supply Chain Excellence method for identifying, prioritizing and executing opportunities to improve your supply chain.

Here’s a presentation on how SCOR may apply to your business and how to get the most out of it.

 

Is your supply chain organization global, effective, and leadership driven?

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The shareholder value of companies that achieve excellence in supply chain management is double that of both the Dow Jones Industrial average and S&P 500, as tracked by the Supply Chain Council.  A 10-year longitudinal study of companies achieving competitive advantage identified seven common drivers to supply chain excellence. The first of these is organizational commitment.

Organizational commitment is characterized by

  • A symbiotic relationship between business strategy and supply chain strategy
  • Senior executives who have experienced the business implications of poor supply chain performance
  • Supply chain organizations that are both responsive to business unit needs and focused on global process effectiveness
  • Clearly articulated organizational goals that start with the customer in mind
  • Fast response to supply chain disruptions

Does your company have an organizational commitment to excellence in supply chain management? Which of these characteristics does it most need to improve upon?

Using SCOR to improve your supply chain through benchmarking

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SCOR – the Supply Chain Operations Reference model – was built by the non-profit Supply Chain Council as a repeatable method of managing the supply chain. It has been used by more than 2,500 companies in thousands of projects. It is the foundation for SCE Ltd.’s own Supply Chain Excellence methodology for supply chain improvement, and SCE’s Peter Bolstorff was involved in the development of SCOR.

Here is a useful Slideshare presentation from the Supply Chain Council on benchmarking through SCOR.

 

About 40% of U.S. food supply is wasted due to supply chain inefficiencies

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According to a recent issue paper from the National Resources Defense Council, the United States loses up to 40% of its food supply to supply chain waste.

The report, titled Wasted: How America is Losing Up To 40 Percent of its Food From Farm to Fork to Landfill, states:

Getting food from the farm to our fork eats up 10 percent of the total U.S. energy budget, uses 50 percent of U.S.
land, and swallows 80 percent of all freshwater consumed in the United States.

The NRDC report contains this graphic, outlining origins of waste in the food supply chain. The original is available here: http://www.nrdc.org/food/files/wasted-food-IP.pdf

But, it continues, nearly $165 billion in food goes uneaten each year – representing the largest component of the solid municipal waste stream and accounting for “almost 25 percent of U.S. methane emissions.”

The report focuses on inefficiencies that exist throughout the food supply chain, including farming, post-harvest and packing, processing, distribution, retail, food service, households and disposal.

The largest share of losses occur after food has been placed in consumers’ hands, the report notes. But fruits and vegetables, especially, are lost at high rates throughout the supply chain.

In the distribution link of the supply chain, the greatest losses are attributed to rejected shipments – often a result of faulty planning and forecasting, according to the issue paper.

Waste at retail is closely related to merchandising practices at stores. Among the suggestions offered in the report, according to a summary by the Environmental Leader, is for grocers to stop overstocking vegetable bins that improve the presentation of fresh produce.

Reducing supply chain waste by 15% could feed 25 million people, the report states.

To see the entire report, click here.

The 7 Principles of Highly Effective Sales & Operations Planning

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Peter Bolstorff

In August 2012, SCE’s Peter Bolstorff joined the 2012 Agility Webinar Series hosted by Steelwedge Software Inc., with a presentation titled 7 Principles of Highly Effective Sales & Operations Planning.

The premise of the hour-long webcast, which is available for viewing on demand, is that successful supply chain planning is not just a function of “doing more” leading practices. The best supply chain planning organizations have picked appropriate leading practices as dictated by the markets they serve – integrating those practices with their chosen technology platform to achieve competitive advantage.

In introducing the webcast, Steelwedge wrote:

Sales and operations planning (S&OP) is a foundational leading practice that cuts across all industries, according to Bolstorff. Actionable research from his project experience suggests that, in addition to S&OP, the best supply chain planning organizations have adopted seven principles:

  1. Systematic management of “master data”
  2. Synchronized S&OP, tactical planning, and execution processes and horizons
  3. Mature collaborative processes for  key customers and suppliers alike – reconciling forecast,
    orders, and yearly volume
  4. Data-oriented understanding of the inputs to the forecast
  5. Intense focus on “point-of-sale” or “sell through” data (versus sales orders and “sell in”)
  6. Disciplined product lifecycle management process
  7. A continuous improvement approach to understanding consumer or user behavior

For examples of these principles from some of the best demand-driven organizations feel free to play the webcast and/or download the slides.

Click image to play video

Click image to view the slides in PDF format

A case study of a July sales and operations planning cycle

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Image courtesy of: FreeDigitalPhotos.net

Sales and operations planning (S&OP) has been around a long time.  With the economic challenges in recent years, the process has seen a resurgence of importance with companies striving to balance demand and supply while maintaining appropriate inventory levels and hitting projected revenue and profits.  This post summarizes highlights of an effective process from the July cycle.

Demand Plan

  • June 22 – Update product life status for active and end-of-life items; revise new product timing and volume assumptions
  • June 26 – Finalize trade and account marketing input and update promotional and event calendars
  • June 28 – Finalize account plans based on weekly collaboration (CPFR) activities
  • July 2 – Perform month end activities
  • July 3, 5, 6 – Generate and validate statistical forecast; analyze and report forecast performance; identify demand shaping opportunities for excess inventory; and assemble proposed demand plan incorporating inputs
  • July 9 – Conduct demand review and finalize demand plan

Supply Plan

  • July 3, 5, 6 – Analyze and report delivery, inventory, and supply chain cost performance; identify and communicate excess inventory
  • July 9 – Run MRP resource capacity planning
  • July 10 – Analyze supplier, product, resource and labor load
  • July 11 – Develop supply plan including new product timing and volume plans
  • July 12, 13 – Develop supply contingency scenarios with probabilities and financial impacts; reconcile with master schedule in near term
  • July 16 – Conduct monthly supply and contingency review

Reconciliation and Sr. Leadership Review

  • July 9 – Participate in demand review; develop revenue projection
  • July 16 – Participate in supply review; develop gross margin projection
  • July 17 – Validate price and standard cost assumptions and assemble profit and lost projection
  • July 18, 19 – Update ‘risks and opportunities ledger’ for gap between newest sales and operations plan and the budget
  • July 20 – Publish reconciliation and senior leadership review agenda and content summary
  • July 23 – Conduct monthly reconciliation and senior leadership review

The 5 biggest factors in your supply chain cost

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Image courtesy of FreeDigitalPhotos.net

In theory, obtaining your true supply chain cost is easy. The Supply Chain Council provides a comprehensive definition of supply chain cost using the processes defined in the SCOR (Supply Chain Operations Reference) model.

Unfortunately, company financial statements are not always aligned to the SCOR hierarchy, making the reporting of supply chain cost more of an event than a regular continuous improvement enabler. Using the 80-20 rule from past projects, this post summarizes the five biggest cost drivers affecting your supply cost. They are:

  1. Warehouse and Distribution Cost
  2. Transportation Cost (Inbound + Inter-company + Outbound)
  3. Inventory Cost (Active Inventory at Cost of Capital + Obsolete Inventory at Write-off Value)
  4. Supply Chain Personnel (Order Management + Planning + Sourcing)
  5. Cost of Goods (Material + Direct Labor + Indirect Labor) at Standard + Variance

Warehouse and Distribution Cost. Includes all cost centers related to warehouse and distribution activity.  Ideally, costs can be segmented by location. There are two common benchmark formulas: cost as a % of sales, and labor productivity (i.e. picks per labor hour).

Transportation Cost. Includes cost centers for outbound, inbound, and inter-company transportation. Ideally, costs can be segmented by mode, route, customer, supplier, and by plant. There are two common benchmark formulas: cost as a % of sales, and cost per pound.

Inventory Cost. Total inventory is defined by finance using standard protocol and reported on the balance sheet. At a detail level, this category typically includes cost centers for active inventory and planned inventory write-offs. Ideally, costs can be segmented by inventory class (i.e. A, B, C, D); inventory type (i.e. raw material, work-in-process, finished goods); storage location; and inventory life-cycle stage (i.e. new product, active, excess and obsolete). Cost of capital is calculated by finance and applied as necessary when comparing trade-offs between cost improvement v. inventory reduction. The most common benchmark formula is calculated by either inventory turns or days of supply.

Supply Chain Personnel. Includes cost centers associated with sales order management; supply chain planning, including demand and supply; and sourcing, including strategic and tactical. It excludes planning and sourcing personnel accounted for in cost of goods sold. Ideally, costs are segmented by channel and/or product. The most common benchmark formulas are in the form of transaction productivity (i.e. items per planner, sale orders per customer service associate, purchase orders per purchasing agent, etc.)

Cost of Goods. This category is defined by finance using standard protocol and reported on the income statement. It typically includes cost centers for material, direct labor and indirect labor. Depending on accounting method, these can be reported either at “standard cost plus variance” or “actual cost”. Ideally, costs can be segmented by product and/or by plant. The most common benchmark formula is calculated as cost as a % to sales.