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

Peter Bolstorff, Robert Rosenbaum

نسخه متنی -صفحه : 135/ 24

Reviewing a Balanced Set of Supply Chain Metrics

With the kickoff meeting complete, the real design work begins. Typically, the only people in the room at this point are the project manager, coach, and design team. The first order of business is to define the number of SCORcards to be assembled. In an ideal world, it would be simple: slice financial and customer data by product and by channel to come up with an infinite number of perfectly matched measures. In reality, the many variables in how financial reports and customer-order data are organized makes it difficult to have all three key metric sets—customer, internal, and shareholder—on every SCORcard. For example, a company may report the profitability measures at multiple layers of the organization and the balance sheet only at the corporate level. Or, a company may be able to track revenue by customer channel but costs by product group only. In almost all cases, compromises are necessary between the desire to measure all aspects of every supply chain and the ability to collect that data.

To help the Fowlers design team figure out what data to put on each SCORcard, the coach suggested creating another matrix. This time, the rows would be defined by available customer, internal, and shareholder data. The columns would represent the number of desired SCORcards, which in turn was influenced by the scope of the project.

Fowlers reported balance sheet data at the corporate level, while profits, customer revenue, and order data were all reported at the business group level. After some discussion, the design team agreed that it needed to build three SCORcards: Fowlers consolidated enterprise, food products group, and technology products group. The consolidated SCORcard would omit the customer-facing metrics because these metrics don't add value at the highest level. The product group SCORcards would omit the return and per share categories of the shareholder-facing metrics, because such data simply wasn't available at the business group level.

Fowlers SCORcard Matrix	Number of SCORcards
Fowlers Enterprise	Food Products	Technology Products
Data per SCORcard	Customer Facing	Omit	X	X
Internal Facing	X	X	X
Shareholder Facing	X	X Omit Return and Share	X Omit Return and Share

Fowlers SCORcard Matrix

Number of SCORcards

Fowlers Enterprise

Food Products

Technology Products

Data per SCORcard

Customer Facing

Omit

Internal Facing

Shareholder Facing

X Omit Return and Share

Figure 4-1: Fowlers' SCORcard matrix.

The next order of business was to educate the team on definitions, benchmark sources, metric decomposition, and query strategies for supply chain metrics to be used in each SCORcard. The basis for education was the SCOR Metrics Template. (See Tables 4-la—customer facing, 4-1b—internal facing, and 4-1c—shareholder facing.)

The education process of the template is conducted like a guided tour. First there is a discussion of the column and row headers with most of the time dedicated to a thorough review of each metric definition and how the data will be collected. The goal is to identify the Level One metrics that will comprise the company's balanced supply chain SCORcard. The best approach is to start with the template list as a default and look for excuses not to deviate from it. Additions and subtractions should only be made with strong reason and passionate argument from the design team.

For example, the director of logistics argued that line-item fill rate ought to be a SCOR metric, though it was not in the original template, and the corporate controller sparred on the necessity and definitions of some of the shareholder metrics. By day's end, the Fowlers design team had identified the following metrics for its balanced supply chain SCORcard and created a blank SCORcard template (Table 4-2):

Delivery performance

Line-item fill rate

Perfect order fulfillment

Order fulfillment lead time

Supply chain response time

Production flexibility

Cost of goods

Total supply chain cost

Sales, general, and administrative cost (SGA)

Warranty/returns processing costs

Cash-to-cash cycle time

Inventory days of supply

Asset turns

Gross margin

Operating income

Net income

Return on assets

Table 4.1a: SCOR metrics template—customer-facing metrics.
	Performance Attribute or Category	Level 1 Performance Metrics	Working Definition	Benchmark Sources	Main Level Two Components	Main Level Three Components	Typical Query
Customer Facing	Supply Chain Delivery Reliability The performance of the supply chain in delivering: the correct product, to the correct place, at the correct time, in the correct condition and packaging, in the correct quantity, with the correct documentation to the correct customer.	Delivery Performance	Delivery Performance measures the percentage of orders delivered "on time and in full" to customer request date AND/ OR to customer commit date.	PMG On time and in full delivery to customer request and customer commit.	Supplier on time and in full delivery, Manufacturing schedule attainment, Warehouse on time and in full shipment, and Transportation provider on time delivery.	Not Hardwired Yet These are departmental and/or diagnostic measures supporting delivery performance goals.	Customer Orders Delivered On Time and In Full / Total Number of Customer Orders; use the PMG survey as a guide.
		Fill Rates	Fill Rates measures the percentage of ship from stock orders shipped within 24 hours of order receipt. Many companies use Line Item Fill Rate as an alternative metric measured by the percentage of lines filled within "committed to" hours of order receipt.	No Source Identified Most companies have their own internal gauge as to their competitive rank for Line Item Fill Rate.	Forecast Accuracy has been assigned level 2 relationship to Fill Rate or Inventory Days of Supply	Not Hardwired Yet These are departmental and/or diagnostic measures supporting perfect order fulfillment performance goals.	Customer Lines Delivered On Time and In Full Quantities.
		Perfect Order Fulfillment	Perfect Order Fulfillment measures the percentage of orders delivered "on time and in full" to customers request date AND flawless match of purchase order, invoice, and receipt.	No Source Identified This metric is important but difficult to get good statistical benchmark comparisons.	In addition to Delivery Performance components, Supplier Match % and Customer Match %	Not Hardwired Yet These are departmental and/or diagnostic measures supporting perfect order fulfillment performance goals.	Customer Orders Delivered On Time and In Full with 100% match of price, item, and quantity on the invoice, packing slip, and customer PO / Total Number of Customer Orders.
	Supply Chain Responsiveness The velocity at which a supply chain provides products to the customer.	Order Fulfillment Lead Time	Order Fulfillment Lead Time measures the number of days from order receipt in customer service to the delivery receipt at the customer's dock. Originally intended only for "Make-to-Order Items," it has been broadened to include stock and engineer-to-order items.	PMG Order Receipt to Order Entry, Order Entry to Order Shipment, Order Shipment, to Order Receipt, and overall Order Fulfillment Lead Time.	For Stock Items Order Receipt to Order Entry, Order Entry to Order Shipment, Order Shipment, to Order Receipt For To Order Items Order Receipt to Order Entry, Order Entry to Complete Manufacturing to Order Shipment, Order Shipment to Order Receipt Backorder Duration Another frequently used level 2 decomposition is that of Back Order Duration.	Not Hardwired Yet These are departmental and/or diagnostic measures supporting cycle time within the order fulfillment processes.	Absolute Value [actual Delivery Date—Order Entry Date] for each line item AND/OR each Customer Order; use the PMG survey as a guide.
	Supply Chain Flexibility The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.	Supply Chain Response Time	Supply Chain Response Time measures the number of days it takes a supply chain to respond to (plan, source, make, and deliver orders) an unplanned significant increase or decrease in demand without cost penalty.	No Source Identified This metric is important but difficult to get good statistical benchmark comparisons.	Source Leadtime (often contractual), Order Fulfillment Lead Time for To Order items	Not Hardwired Yet These are departmental and/or diagnostic measures supporting cycle time or leadtime improvement in Purchasing, Manufacturing, and Order Management.	Source Leadtime for Contraint Item + Manufacturing Cycle Time for Make-to-Order + Order Fulfillment Leadtime for Stock Items.
		Production Flexibility	Production Flexibility measures the number of days to achieve an unplanned 20% increase or decrease in orders without cost penalty.	PMG Upside Production Flexibility.	Days to Increase or Decrease Production Labor, Material, and/or Capacity	Not Hardwired Yet None Identifed.	Anecdotal Query based Utilization, Staffing Model, and Supplier Contracts; use the PMG survey as a guide.

Table 4.1b: SCOR metrics template—internal-facing metrics.
	Performance Attribute or Category	Level 1 Performance Metrics	Working Definition	Benchmark Sources	Main Level Two Components	Main Level Three Components	Typical Query
Internal Facing	Supply Chain Cost The costs associated with operating the supply chain.	Cost of Goods	Cost of Goods measures the direct cost of material and labor to produce a product or service.	PMG and www.hoovers.com See COGS under Income Statement and calculate median (middle), superior (average of top 20%), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Material Cost, Direct Cost of Production, and Indirect Cost of Production.	Not Hardwired Yet These are departmental and/or diagnostic measures supporting unit cost goals.	Cost Centers for Material + Cost Centers for Direct Manufacturing Labor + Cost Centers for Indirect Manufacturing Labor.
		Total Supply Chain Management Cost	Total Supply Chain Management Cost measures the direct and indirect costs to plan, source, and deliver products and services. Make costs are often captured in COGS while Return costs are calculated in Warranty/ Returns Processing Costs.	PMG Order Management Cost, Material Acquisition Cost, SC Related IT Cost, Inventory Carrying Cost, Finance and Planning Related Cost.	Order Management Cost, Material Acquisition Cost, Finance and Planning Related Costs, MIS Costs, and Inventory Carrying Costs.	Customer Service Cost, Outbound Transportation Cost, FG Warehouse Cost, Purchasing Cost, Inbound Transportation Cost, RM Warehouse Cost, Demand Planning, and Supply Planning Transactional Productivity is an alternative Level 3 measure; i.e., divide Material Acquisition Costs (people hours) divided by Purchase Orders.	Map the cost centers that support the supply chain activities listed at Level 3 then add them up; use the PMG survey as a guide.
		SG&A Cost	Sales, General, and Administration Costs measures the indirect cost of sales, administration, engineering, and lab to support a product or service.	www.hoovers.com See SG&A under Income Statement and calculate median (middle), superior (average of top 20%), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Revenue, Indirect Costs.	Not Hardwired Yet These are departmental and/or diagnostic measures supporting unit cost goals.	Cost Centers for Sales and Marketing + Cost Centers Administration + Cost Centers Lab and Engineering.
		Warranty / Returns Processing Costs	Warranty / Returns Processing Costs measures the direct and indirect costs associated with returns including defective, planned maintenance, and excess inventory. This includes the entire reverse logistics process.	No Source Identified This metric is important but difficult to get good statistical benchmark comparisons.	Returns Warehouse Cost, Returns Authorization Processing Cost, Returns Maintenance Cost, Returns Transportation Cost (inbound from customer, intercompany, and outbound to supplier).	Not Hardwired Yet These are departmental and/or diagnostic measures supporting warranty and return cost goals.	Map the cost centers that support the supply chain activities listed at Level 2 then add them up.
	Supply Chain Asset Management Efficiency The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital.	Cash-to-Cash Cycle Time	Cash-to-Cash Cycle Time measures the number of days that cash is tied up as working capital.	PMG and www.hoovers.com Days Payables Outstanding, Days of Inventory, and Days Sales (Receivables) Outstanding.	Days Payables Outstanding, Days of Inventory, and Days Sales (Receivables) Outstanding.	$ Payables, Cost of Materials, Accounts Payables Terms, Inventory $, Cost of Goods, $ Receivables, Revenue, Accounts Receivables Terms.	[$ Inventory / (COGS / 365)] + [$ Receivables / (Revenue / 365)] - [$ Payables / (Material Cost / 365)] Use PMG Survey as a guide.
		Inventory Days of Supply	Inventory Days of Supply measures the number of days that cash is tied up as inventory.	PMG and www.hoovers.com Days RM Inventory, Days WIP Inventory, and Days FG Inventory; for marketguide, calculate median (middle), superior (average of top 20%), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Days RM Inventory, Days WIP Inventory, and Days FG Inventory.	Within each Level 2 inventory type, inventory classifications differ by organization but often are based on volume and/or turns; classification language often is noted by A items, B items, C items, and D items as well as nonworking inventory.	$ Inventory by classification / (COGS by classification / 365).
		Asset Turns	Asset Turns is calculated by dividing revenue by total assets including both working capital and fixed assets.	PMG and www.hoovers.com Revenue, Total Net Assets; for marketguide, calculate median (middle), superior (average of top 20% ), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Revenue, Working Capital, and Fixed Assets.	Use Level 2 metrics as source for Level 3 components.	Revenue $ / Total Net Asset $.

Table 4.1c: SCOR metrics template—shareholder-facing metrics.
	Performance Attribute or Category	Level 1 Performance Metrics	Working Definition	Benchmark Sources	Main Level Two Components	Main Level Three Components	Typical Query
Shareholder Facing	Profitability Income after cost.	Gross Margin	Gross Margin is calculated by subtracting Cost of Goods from Revenue and is most often expressed as a % of the remaining dollars to sales.	www.hoovers.com Revenue, Cost of Goods; for marketguide, calculate median (middle), superior (average of top 20%), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Revenue, Cost of Goods.	Use Level 2 metrics as source for Level 3 components.	(Revenue $ - Cost of Goods $) / Revenue $.
		Operating Income	Operating Income (or Margin) is calculated by subtracting Cost of Goods AND Sales, General, and Administration, (SG&A) from Revenue and is most often expressed as a % of the remaning dollars to sales.	PMG and www.hoovers.com Revenue, Cost of Goods, and SG&A; for marketguide, calculate median (middle), superior (average of top 20%), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Revenue, Cost of Goods, SG&A.	Use Level 2 metrics as source for Level 3 components.	(Revenue $ - Cost of Goods $ - SG&A Costs) / Revenue $.
		Net Income	Net Operating Income (or Margin) is calculated by subtracting Cost of Goods AND Sales, General, and Administration (SG&A) AND Taxes from Revenue and is most often expressed as a % of the remaining dollars to sales.	www.hoovers.com Revenue, Cost of Goods, SG&A, and Taxes; for marketguide, calculate median (middle), superior (average of top 20%), and advantage (midpoint of median and superior) based on the industry or other designated competitors.	Revenue, Cost of Goods, SG&A, and Corporate Taxes.	Use Level 2 metrics as source for Level 3 components.	(Revenue $ - Cost of Goods $ - SG&A Costs - Tax $) / Revenue $.
	Effectiveness of Return	Return on Assets	Return on Assets is calculated by dividing Net Operating Income by Total Net Assets.	www.hoovers.com Net Operating Income, Total Net Assets.	Revenue, Cost of Goods, SG&A, Corporate Taxes, Interest Expense, and Total Net Assets.	Use Level 2 metrics as source for Level 3 components.	Net Operating Income $ / Total Net Asset $.
	Share	Earnings Per Share	Earnings Per Share is the adjusted income available to common shares divided by the diluted weighted average shares outstanding.	www.hoovers.com Adjusted income, Diluted weighted average shares outstanding.	Not Hardwired Yet None Identified.	Not Hardwired Yet None Identifed.	Use company formula.

Table 4-2: Fowlers' blank SCORcard template.
	Performance Attribute or Category	Level 1 Performance Metrics
External	Supply Chain Delivery Reliability	Delivery Performance
		Line Item Fill Rate
		Perfect Order Fulfillment
	Supply Chain Responsiveness	Order Fulfillment Lead Time
	Supply Chain Flexibility	Supply Chain Response Time
	Supply Chain Flexibility	Production Flexibility
Internal	Supply Chain Cost	Cost of Goods
		Total Supply Chain Cost
		SGA Cost
		Warranty / Returns Processing Costs
	Supply Chain Asset Management Efficiency	Cash-to-Cash Cycle Time
		Inventory Days of Supply
		Asset Turns
Shareholder	Profitability	Gross Margin
		Operating Income
		Net Income
	Effectiveness of Return	Return on Assets

Building on the momentum of the first day and knowing that relationships were critical to executing the schedule, Brian, Martha, and Doris sponsored a social event to finish up a day that all agreed was one of the best project launches anyone at the company could recall.