Supply Chain Excellence [Electronic resources] : A Handbook for Dramatic Improvement Using the SCOR Model نسخه متنی

Initiating the Opportunity Analysis

The objective for the design session on Day Two is to educate the team about the process of quantifying opportunity, to identify the appropriate documentation tool, to demonstrate how to create a test scenario, and to clarify the homework for next week—that is, completing the opportunity analysis.

The quantification process follows five principles.

Principle One. At a minimum, the subteams must determine the value of killing the fish using locations and measures from the material flow performance spreadsheet (Table 8-2).

Principle Two. Factor out the effect of forecasted growth by assuming constant revenue for the financial period; usually savings are annualized. It's acceptable to include the profit improvement of revenue growth as a result of solving the problem.

Principle Three. Be realistic in the savings estimates; the steering team and ultimately the executive team should add the appropriate safety buffer to the numbers, observing the doctrine of "underpromise and overdeliver." Conservative realism is normal; gross sandbagging is not helpful at this point.

Principle Four. Document all assumptions behind the savings estimates. This is the most important principle; any pushback by the steering team typically has more to do with the assumptions than the numbers.

Principle Five. Identify validation resources that can objectively test or spar with the numbers and assumptions—before the estimates are shared with the steering team. There are two kinds of value that result from this effort: change management and content. The validation team accomplishes both, giving others the opportunity to participate and feel ownership while making the content more accurate.

Documenting the opportunity analysis varies from sophisticated supply chain modeling and simulation software tools to simple spreadsheets. In all cases, the true challenge is to represent the value of eliminating each fishbone problem in the context of the profit and loss statement and balance sheet.

This part of the process makes many people uncomfortable. Engineers and other detail-minded folks on the project team have a difficult time getting comfortable with estimating opportunity. Even with sophisticated modeling tools, acronyms like WAG (wild ass guess) and SWAG (super wild ass guess) frequently show up at this phase of the analysis. But there should be some comfort in the fact that you'll round to the nearest $100,000 or $50,000. Some teams choose to value every major bone and then total them. Other teams focus on valuing the whole fish. Either way works as long as assumptions are documented.

Table 10-1 is a reasonably complicated sample opportunity spreadsheet. It is comprised of three main columns:

Baseline represents actual data on the SCORcard and the material flow spreadsheet (Table 8-1)

Test scenario represents the impact of eliminating the fish problem

Change is where the change estimates are entered

The rows are organized by SCOR Level Two categories using order service level, lead-time, cost, working capital, and profit.

This spreadsheet will change a little for each project depending on how the cost centers and inventory organizations are allocated. In other projects, the material flow performance spreadsheet (Table 8-2) is used to show changes in appropriate locations and performance categories.

Try not to spend time estimating bones or fish related to work flow and information flow issues—things like customer service cost, purchasing cost, and planning cost. The next design phase will focus on indirect labor productivity to handle transactions such as purchase orders, work orders, sales orders, return authorizations, forecasts, and replenishments. Things get a little fuzzy in warehouse cost, because moving or eliminating such a facility involves both labor and physical cost. If the focus of the opportunity is the warehouse, then keep it as part of the material flow opportunity assessment. If the focus of the opportunity is on the productivity improvement of the process, then save the analysis for work and information flow.