Chapter 6: Week Four: SCORcards

Tackle the difference between competitive requirements and actual performance.

After a proper debrief of highlights from the steering team meeting, the design team starts in on the objectives of Week Four: Review all SCORcards, begin the process of calculating gaps, and assign financial value to the gaps between competitive requirements and actual performance.

The SCORcard Review

For a SCORcard to be complete, it must include actual data for each metric of each supply chain, as well as appropriate industry benchmarks, competitive requirements, and gap calculations completed for each metric for each SCORcard. In a perfect world SCORcards would cascade neatly from the enterprise level to each business, or from the enterprise level to each market segment. But that rarely happens, as the Fowlers design team learned on Day One of the fourth week. As the review process Chapter 4) for surprising results on delivery performance, line item fill rate, etc.

Source: Copyright 2001 Supply-Chain Council, Inc. Used with permission.

A second compromise had to do with the fact that balance sheet data was only available at the corporate level; trying to allocate that information back to the product groups would have taken a major restructuring. As a result, the team simply left the "supply chain asset management efficiency" metrics blank on the product group SCORcards.

Third, and most important, the SCORcards weren't organized in the same way as the supply chain competitive performance requirements that had been generated during Week Three. The SCORcards were organized by business—because that's how the data existed. And the supply chain requirements were determined by market/customer channel—because that represented the ideal situation the team wanted to create. So translating from the competitive requirements to the SCORcard would be a challenge.

For example, the food products group supplied products to food service, retail, and government channels—each requiring its own priorities (summarized in Figure 5-2). How could these different requirement profiles be aligned on a single SCORcard for the food products group? Especially when the cash-to-cash, inventory, and asset turn data only showed up on the enterprise SCORcard.

"You'll come up against more than one roadblock like this," the coach said. "We're not always going to have complete data or perfect alignment. What do you want to do? Go back and do some more homework, or pick a direction to go forward?" The team was impatient, and a few minutes of conversation made it clear that there probably was no perfect solution. So they agreed to apply the priorities of the retail channel because it represented the operating unit's largest share of revenue.

The food products SCORcard discussion (Table 6-2), lead by the vice president of sales and marketing—food products group, summarized four learning points and considered two compromises. Here was the first learning point: While it was perceived as superior in delivery performance, the food products group had an opportunity to improve and widen its competitive gap by focusing on delivery performance and perfect order metrics.

Here was the second learning point: Most of the supply chain cost factors were accounted for in the cost-of-goods-sold cost centers. Comparing individual components of these costs to industry benchmarks highlighted new opportunities for cost reduction that would help put the division at a more acceptable level of operating income.

The third learning point was that the food products business team, in order to focus on cash-to-cash efficiency, would first need to create new information tools for analysis and better leverage its new ERP system.

Fourth, for Fowlers Inc. to perform at the level expected by shareholders, the food products group needed to do better than achieve industry parity in operating income. It needed to achieve superior results.

In this way, the SCORcard exercise helped members of the food products business team to formalize a strategy of supply chain excellence as a means to compete not on list price of its products, but on total landed price to customers.

The first necessary compromise focused on how to distribute the market/customer channel performance requirements—the chip exercise priorities—onto the food products SCORcard. While their supply chain definition matrix identified four potential supply chains (Table 3-5) that were then consolidated to three distinct channels (Figure 5-2), the food products business team agreed to adopt the retail markets SPAP (superior/parity/ advantage/parity) priorities for their SCORcard gap baseline because it was the largest and most profitable segment. Supply chain cost was a high priority in all segments; and lead time requirements for the direct-to-consumer markets and OEM/key accounts could initially be set up on a fee-for-service basis for requirements above parity.

The second compromise was recognized at the enterprise level. The competitive opportunity for asset management efficiency would be defined through the enterprise SCORcard until information systems and financial reporting could support truer activity-based definitions. In the meantime, to calculate opportunity the team used 25 percent of enterprise cash-to-cash and inventory numbers.

Discussion about the technology products group (Table 6-3), lead by David Able in his capacity as the group's operations vice president, summarized three unique learning points and considered necessary two compromises.

The first learning point was this: While the decision to out-source manufacture of several products succeeded at achieving lowest unit cost, it drastically reduced the responsiveness and flexibility metrics, which in turn impacted inventory levels. The second learning point was that the new metrics on service reliability provided empirical evidence to complaints by customers that the company was "hard to do business with." In the third learning point, by assembling supply chain costs it became clear that material acquisition expenses outpaced all other increases. And inbound transportation, normally calculated as a cost of material, was isolated for all to see. The last learning point was similar to one of the lessons for the food products group: There was considerable opportunity to improve operating income by attacking supply chain costs, improving utilization of working capital, and better leveraging the new ERP system.

Like the food products group, the technology products group's first necessary compromise focused on how to distribute the market/customer channel performance requirements onto the technology products SCORcard. The technology products business team agreed to adopt the direct-to-consumer and OEM/key accounts superior/parity/advantage/parity priorities for their SCORcard gap baseline. The second compromise was that competitive opportunity for asset management efficiency would be defined at the enterprise level based on information systems and financial reporting. In the meantime, to calculate the opportunity gap, David used 45 percent of the enterprise cash-to-cash and inventory dollars. That effort completed a full day of work.