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

Establishing the Overall Project Portfolio and Initiating the Return-on-Investment Analysis

There are some best practices to apply when building a credible overall project portfolio, which is the first agenda item for Day Two. The first best practice is no double-dipping. It gets harder at the end; here are some tips the Fowlers team used:

Help the people in the finance function to understand where the savings are by speaking in their language, which tends to be oriented toward cost centers rather than supply chains. To this end, leverage the cost-center mapping to total supply chain cost, and warranty and return cost developed in the SCORcard phase of the project (Chapter 4).

Use the Level Three metrics for the internal measure of total supply chain cost and warranty and return cost (Table 4-1), to sort between material flow measure versus work and information flow.

Count customer service cost, returns authorization processing cost, purchasing cost, labor part of FG warehouse cost, labor part of RM warehouse, labor part of return maintenance cost demand planning, and supply planning costs as work and information flow as they generally are transaction related.

Count inventory carrying cost, outbound transportation cost, inbound transportation cost, returns transportation cost, physical asset (lease or owned) part of FG warehouse cost, physical asset part (lease or owned) of RM warehouse, physical asset part (lease or owned) returns warehouse cost as material flow as they are material related.

Use information technology costs, as a percent of sales, to combine labor expense to support IT operations with fixed assets and leases for software and hardware.

These are not strict rules to enforce, but rather guidelines to help keep the money straight and count it only once.

Using these guidelines, the Fowlers team made the following adjustments to the material flow disconnect opportunity grid (Figure 18-4):

$1,500,000 was added to (2) supply management, based on purchase order productivity improvements.

$2,349,080 was added to (7) undisciplined order management, based on sales order productivity improvements.

$2,134,530 was added to (5) poor data integrity, based on data accuracy and maintenance productivity to customer, item, and supplier master data.

$1,246,238 was added to (4) disparate systems, based on productivity improvements made through elimination of enable costs to support customized partially integrated systems.

Figure 18-4: Fowlers' updated disconnect opportunity grid.

Another best practice is to incorporate known processes for requesting and gaining approval of capital expenditures. Model the supply chain portfolio after successfully approved capital improvements, noting the format of the business case description, financial calculations and assumptions, situation analysis, and time-and-material descriptions for internal and external resources.

In Fowlers' case, the team established a return-on-investment summary modeled after one of their most successful capital projects (Figure 18-5).

Source: Copyright 2000 Pragmatek Consulting Group, Ltd. Used with permission.

Figure 18-5: Fowlers' project portfolio.

The basic format translated each project (and associated profit improvement) on the list into a three-year benefit schedule, detailing a cost estimate for the first-year expenses to get the implementation pilot and roll-out plan completed. For each benefit year, the team estimated the percent of the benefit to be realized based on the pilot results and an estimate of the percent of the rollout completed. The cost breakdown was a gross estimate of the expense to institute all recommended changes, including material, work, and information flow. The benefit analysis for each project netted out any increase in ongoing operating costs that would result from the changes.

The Fowlers design team invited controllers from each business group to help educate everyone on the finer points of the necessary detail required as backup to the summary. This added content and change-management value in preparation for the final steering team review during the last week.

An updated disconnect opportunity grid, advice and counsel from the controllers, and a blank project portfolio and return-on-investment profile provided the obvious homework assignment heading into the last week of the analyze and design phase of the supply chain project.