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Transcript of Using SCOR to Integrate Your Supplier's Supplier Into Your
Using SCOR to Integrate Your Supplier’s Supplier Into Your
Supply Chain
Module 4:
Fall Conference
Dallas, TX
November 24, 1997
© Copyright 1997 The Supply-Chain Council15662–Module 4
The Supply Chain Operations Reference-model (SCOR) has been developed and endorsed by the Supply-Chain Council (SCC), an independent not-for-profit corporation, as the cross-industry standard for supply-chain management
SCOR is freely available to all who wish to use the standard reference model
The SCC was organized in 1996 by Pittiglio Rabin Todd & McGrath (PRTM) and Advanced Manufacturing Research (AMR), and initially included 69 voluntary member companies
Council membership is now open to all companies and organizations interested in applying and advancing state-of-the-art supply-chain management systems and practices
Member companies pay a modest annual fee to support Council activities
All who use the SCOR model are asked to acknowledge the SCC in all documents describing or depicting the SCOR model and its use
All who use SCOR are encouraged to join the SCC, both to further model development and to obtain the full benefits of membership
Further information regarding the Council and SCOR can be found at the Council’s Web site, www.supply-chain.com
© Copyright 1997 The Supply-Chain Council15662–Module 4
Agenda
Imperative: Why are Companies “Integrating” their Supply Chains?
Benefits of Integrating Supply Chains
What does Integration Mean?
How to Initiate the Integration Effort
Case Study
© Copyright 1997 The Supply-Chain Council15662–Module 4
Session objectives and take-away
Session objective– Discuss the imperative of integrating your supplier into
your supply chain– Discuss the benefits of integration– Demonstrate how to use SCOR to engage a supplier– Review an example of dual-company supply-chain
integration approach
Session take-away– Enable session participants to successfully engage their
suppliers in supply-chain integration
Imperative: Why are Companies “Integrating” their Supply Chains?
© Copyright 1997 The Supply-Chain Council15662–Module 4
© Copyright 1997 The Supply-Chain Council15662–Module 4
Historically, intercompany relationships consisted of one-way, sequential flow of material and information
“Walls” of separation prevented supply-chain optimization
Activities were not coordinated Communication flow was interrupted “Full-stream” decision-making was not possible
Customer Activities
ManufacturerActivities
Supplier Activities
DeliverMakeSource DeliverMakeSource DeliverMakeSource
© Copyright 1997 The Supply-Chain Council15662–Module 4
Competition is driving intercompany integration…
“Establish flexibility to weather unpredictability”
Reliability
“Retain our customers and secure new ones”
Growth“Reduce our cost and
increase our margin”
Margin
“Develop products that meet customer needs”
Product Differentiation
© Copyright 1997 The Supply-Chain Council15662–Module 4
…coupled with new “enablements” which make it easier
Electronic Commerce—EDI, provides “seamless” links of data
Joint Service Agreements—provides a relationship of “agreement”
Supplier value-added services promote collaboration– Vendor Managed Inventory– Consignment– Consumption-based replenishment– Schedule sharing– Pull mechanisms
ERP Systems—potential for better information
© Copyright 1997 The Supply-Chain Council15662–Module 4
Supplier Activities
Manufacturing Activities
Leaders are increasing their market share through supplier integration
Partnering with suppliers has increased flexibility, and on-time delivery, yielding satisfied customers
Satisfied customers are responding by awarding more business to “predictable” manufacturers
Elimination of redundant supplier/manufacturer activities has yielded increased customers/market share
= Increased Market Share
=
Customer
Customer
Customer
Manufacturing Activities
Supplier Activities
Customer Activities
Manufacturing Activities
Supplier Activities
Satisfied Customers
Reliability
Growth Margin
Product Differentiation
© Copyright 1997 The Supply-Chain Council15662–Module 4
Leaders are increasing their margins through supplier integration
Best-in-class companies work with their suppliers to co-develop products and jointly drive R&D costs down
Alliances with fewer suppliers and customers lower supply-chain management cost
– Inventory carrying cost– Material acquisition cost
Best-in-class companies lower operational cost by focusing in core competencies
VendorManaged InventoryPull Mechanisms
Consignment Inventory
Supplier CustomerSupplier Manages Customer’s Source
Joint Ownershipof Inventory
RapidReplenishment
RapidReplenishment
Customer
FGRAW WIP
Supplier
FGRAW WIP
Your Company
FGRAW WIP
Source
Plan
Make Make
Plan
Deliver
Reliability
Growth Margin
Product Differentiation
© Copyright 1997 The Supply-Chain Council15662–Module 4
Leaders are stabilizing operations through supplier integration
Interdependent activities are coordinated
– Use of joint service agreements based on agreed goals
– Sequential dependencies identified and parallel activities implemented where appropriate
Communication flows accurately and freely
– Efficient communication of key inputs and outputs
– Across functional and company boundaries Decision-making is effective
– Informed with the required information
– Timely and predictable
– Empowerment to make decisions at the appropriate level
Material Flow
Supplier Mfg. Customer
Information Flow
Customer Activities
Supplier Activities
Mfg Activities
Material Flow
Information Flow
Reliability
Growth Margin
Product Differentiation
© Copyright 1997 The Supply-Chain Council15662–Module 4
Leaders are realizing product differentiation through supplier integration
Manufacturers are leveraging their suppliers to develop differentiated products and services
– Customized raw materials
– Technical assistance
– Joint development programs
Early involvement by suppliers has proven instrumental in product and service differentiation
Best-in-class companies have reduced R&D cycle times by forging partnerships with suppliers
Survival Is Increasingly Dependent on a Willingness to Integrate With Suppliers
Survival Is Increasingly Dependent on a Willingness to Integrate With Suppliers
Reliability
Growth Margin
Product Differentiation
Benefits of Integrating Supply Chains
© Copyright 1997 The Supply-Chain Council15662–Module 4
© Copyright 1997 The Supply-Chain Council15662–Module 4
Quantifiable time and quality benefits can be dollarized and carried to the bottom line
Delivery Performance
Inventory Reduction
Fulfillment Cycle Time
Forecast Accuracy
Overall Productivity
Lower Supply-Chain Costs
Fill Rates
Improved Capacity Realization
16% – 28% Improvement
25% – 60% Improvement
30% – 50% Improvement
25% – 80% Improvement
10% – 16% Improvement
25% – 50% Improvement
20% – 30% Improvement
10% – 20% Improvement
Typical Quantified Benefits from Integratingthe Supply Chain
Source: 1997 PRTM ISC Benchmark Study
© Copyright 1997 The Supply-Chain Council15662–Module 4
Supplier involvement is linked directly to time, quality, and cost improvements
Time is now a competitive weapon– Reduced development cycle-times– Higher responsiveness due to reduced source/make
cycle times
Quality is “assured” vs. “controlled”– Better product designs– Better fit for use– Higher product and process yields
Cost is jointly managed down– Development cost significantly reduced
– Cost of “quality” is less (material acquisition cost)– Inventory carrying cost drastically reduced
S S
© Copyright 1997 The Supply-Chain Council15662–Module 4
Integrating the supply chain creates a win-win environment
Improved working environment
Mutual awareness of business needs and improvements
Improved speed and consistency in decision-making
Common supply-chain “language” that facilitates communications
Creation of a true virtual “chain of chains”
Improved customer satisfaction due to improved responsiveness
What does Integration Mean?
© Copyright 1997 The Supply-Chain Council15662–Module 4
© Copyright 1997 The Supply-Chain Council15662–Module 4
Planning links suppliers’ and customers’ supply-chain management processes
Each intersection of two execution processes (Source-Make-Deliver) is a “link” in the supply chain
Planning processes manage these customer-supplier relationships
Customerand Supplier
Supply Chain
Customerand Supplier
Customerand Supplier
Plan Plan PlanPlan
Source Make Deliver
“Manages relationship” with supplier
Manages source/make relationship
Manages make/deliver relationship
“Manages relationship” with customer
© Copyright 1997 The Supply-Chain Council15662–Module 4
Supply-chain integration is based on “sharing”
Shared objectives– A clear understanding and
mutual respect for each other’s objective
Shared expertise– Leveraging each other’s
skill sets, processes and core competencies
Shared knowledge– Leveraging models,
frameworks, benchmarking and best practices
Shared information– Synchronization of
activities (schedules, demand, inventory, marketing data, sales data, design and technology plans)
Shared experiences– Communicating
experiences which may save time and cost
Shared responsibility– Inventory – Cycle
times
– Quality – Cost
© Copyright 1997 The Supply-Chain Council15662–Module 4
Supplier integration requires joint planning, schedule sharing, and rapid replenishment
Plan
Source Make Deliver
Plan
Source Make Deliver
Supplier Customer
Joint Planning
Rapid-Replenishment
Manufacturing Schedule Sharing
Issue Resolution
© Copyright 1997 The Supply-Chain Council15662–Module 4
Integration can mean new process, new infrastructure or new systems and tools
Practices
Results
The integration technique may be different for each effort
© Copyright 1997 The Supply-Chain Council15662–Module 4
Integration can mean new process, new infrastructure or new systems and tools
The integration technique may be different for each effort – Continued
Practices
Results
© Copyright 1997 The Supply-Chain Council15662–Module 4
Integration can mean new process, new infrastructure or new systems and tools
Practices
Results
The integration technique may be different for each effort – Continued
How to Initiate the Integration Effort
© Copyright 1997 The Supply-Chain Council15662–Module 4
© Copyright 1997 The Supply-Chain Council15662–Module 4
“Integration” changes focus from internal to external process management
Intra-company (Inward Focus)
Each business optimizes inside its own supply chain
Problems tend to be limited to internal solutions
Intra-company relationshipsare built
Inter-company (Outward Focus)
Links the output activities of one company to the input activities of another
Processes are integrated by macro level planning
Allows for maximum reduction in cost and interval
Migration from intra- to intercompany assumes you have optimized internally first
Plan
Make DeliverSource MakeSource DeliverMakeSourceDeliver SourceDeliver
Supplier Customer Customer’sCustomer
Suppliers’Supplier
(internal or external) (internal or external)Your Company
Outward Focus Inward Focus Outward Focus
© Copyright 1997 The Supply-Chain Council15662–Module 4
There are three stages to integrate your supplier into your supply chain
Stage 1Overall Supply-Chain Process
Stage 2Supply-Chain Configurations
Stage 3Intra-/Intercompany Process
Improvement
Educate the suppliers—assumes internal
optimization has occurred
Gain an understanding of how the two
configurations “interlock”
Implement with help of a Joint Service Agreement
(JSA)
• Identify target supplier accounts
• Provide “SCOR” education to supplier
• Share “your” supply-chain configuration
• Explain benefits of “interlocking” supply chains
• Setup a session to help your supplier configure their supply chain
• Bring them to a similar level of understanding of supply-chain configurations and how to use it
• Connect your configurations with theirs
• Discuss redundancies• Discuss mutual benefits• Develop plan to address
redundancies and optimize benefits
• Develop a JSA to capture “new” responsibilities of both parties
• Implement the JSA
JSA
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: Educate the supplier on the overall Supply-Chain process
Identify target supplier accounts
Provide “SCOR” education to supplier
Share “your” supply-chain configuration
Explain benefits of “interlocking” supply chains
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 2: Understand each other’s Supply-Chain configurations
Setup a session to help your supplier configure their supply chain
Bring them to a similar level of understanding of supply-chain configurations and how to use it
Connect your configurations with theirs
Supplier Customer
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 3: Implement intra-/intercompany process improvements with the help of a JSA
Discuss redundancies Discuss mutual benefits Develop plan to address redundancies and optimize
benefits Develop a JSA to capture “new” responsibilities of
both parties Implement the JSA
JSA
© Copyright 1997 The Supply-Chain Council15662–Module 4
Review with your supplier “their” critical suppliers – Discuss issues, concerns, possibilities
Encourage your supplier to educate their supplier
Link the entire supply-chain and begin additional discussions to improve entire supply chain
Integrating your supplier’s supplier should follow a similar but collaborative approach
Educate their Supplier on SCOR
Share ConfigurationsDrive Intercompany
Process Improvements
SupplierSuppliers Supplier
Your Company
SupplierSuppliers Supplier
Your Company
JSA
Case Study
© Copyright 1997 The Supply-Chain Council14849–Module 4
© Copyright 1997 The Supply-Chain Council15662–Module 4
To illustrate, we will walk through an integration effort between two companies
ABC is a primary customer of XYZ– Two manufacturing plants
XYZ is a supplier of injection molded plastics– Produces plastics products in two manufacturing facilities
• Savannah plant produces products to stock• Houston plant produces a major intermediate to stock
– Both manufacturing facilities purchase and receive their materials independently
– After final production, all products are shipped from the Savannah plant
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC educates the supplier on SCOR, and shows them their configuration
Cu
sto
mer
s
Su
pp
lier
s
P1 Plan Supply ChainPlan
P2 Plan Source P3 Plan Make P4 Plan Deliver
Source Make Deliver
S1 Source Purchased Materials
S2 Source Make-to-Order Products
M1 Make-to-Stock - Process
M2 Make-to-Order - Process
M3 Make-to-Order - Discrete
M4 Make-to-Stock - Discrete
M5 Engineer-to-Order - Discrete
S3 Source Engineer-to-Order Products
S0 Source Infrastructure M0 Make Infrastructure D0 Deliver Infrastructure
D1 Deliver Stocked Products
D2 Deliver Make-to-Order Products
D3 Deliver Engineer-to-Order Products
P0 Plan Infrastructure
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC discusses its current SCOR processes and the threads that link them
XYZ
P2 P3
S1
S3
P4 Sub-
Assembly
D3
M1, M2
ABC Supply-Chain Configuration
S3D1
D2
M1
D2 S1
S1
S1
P2 P3
D1
P4
ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC identifies supply-chain redundancies
Customers
P2 P3
S3
P4 Sub-
Assembly
D3
M1, M2
S3
D2
D2 S1
S1
S1
P2 P3
D1
P4
ABC has two distinct internal supply chains without significant
integration
D1 S1 M1
XYZ
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC identifies where it can leverage savings from vendors
Independent sourcing from common supplier
Customers
P2 P3
S3
P4 Sub-
Assembly
M1, M2
D2
D2 S1
S1
S1
P2 P3
D1
P4
S1 D3 S3D1 M1
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC identifies supply-chain improvement opportunities
Customers
P2 P3
S3
P4 Sub-
Assembly
D3
M1, M2
S3
D2
D2 S1
S1
S1
P2 P3
D1
P4
Planning is not rolled-up across the supply chain
D1 S1 M1
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC creates and shares “to-be” supply-chain configuration sketch
Customers
S3
Sub-Assembly
D3 S3
D3
D2 S1
S1
P4
D2 S1 M1
P3
P1
P4
D1
S1
P2
M1, M2
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC helps XYZ understand its standard processes and the “threads” that link these processes
Suppliers
XYZCoatings
XYZFinal
Production
XYZ IntermediateProduction
Add-ItChemicals
P2 P3
M1
D1 S1
P2 P4P3
M2 D1
D6S1
D3
S1
P1
P4
P1
Supplier’sSupplier
Customer’sCustomer
S3
D1
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC helps XYZ understand integration opportunities such as planning
Suppliers
XYZCoatings
XYZFinal
Production
XYZ IntermediateProduction
Add-ItChemicals
P2 P3
M1
D1 S1
P2 P4P3
M2 D1
D6S1
D3
S1
P1
P4
P1
Supplier’sSupplier
Customer’sCustomer
S3
D1
XYZ has two distinct internal supply-chain “threads,” indicating significant redundant
planning activity
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: ABC and XYZ discuss where new perspectives can help improve XYZ’s performance
Suppliers
XYZCoatings
XYZFinal
Production
XYZ IntermediateProduction
Ad-ItChemicals
P2 P3
M1
D1 S1
P2 P4P3
M2 D1
D6S1
D3
S1
P1
P4
P1
Supplier’sSupplier
Customer’sCustomer
S3
D1
The final production plant views the intermediate plant as any other supplier
Each plant sources independently even though they share a key supplier
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: XYZ determines where internal schedule integration can provide benefit
Suppliers Customers
XYZCoatings XYZ
FinalProduction
XYZ IntermediateProduction
Add-ItChemicals
P2 P3
M1
D1 S1
P2 P4P3
M2 D1
D6S1
D3
S1
P1
P4
P1
Supplier’sSupplier
Customer’sCustomer
S3
D1
Both plants manufacture to stock
The production schedule within the final production plant does not drive the production schedule in the intermediate plant
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: XYZ uses its performance scorecard to identify quantitative gaps
Supply-Chain Performance Versus Custom Populat ion
0% – 20% 20% – 40% 40% – 60% 60% – 80% 80% – 100%
KeyPerspectives
Level 1 MetricsMajor
OpportunityDisadvantage Average
or Median AdvantageBest-
in-Class
Delivery Performance to Request 69% 93%
DeliveryPerformance/
Quality
Order Fulfillment Lead Time (BTO) 69 days 36 days 22 days
Perfect Order Fulfillment 65.7% 86% 92.4%
Flexibility &Supply-Chain Response Time 270 days 92 days
Responsiveness Upside Production Flexibility 42 days 10 days
CostSupply-Chain Management Cost 12.8% 10.2% 8.6%
Warranty Cost as % of Revenue 2.1% 1.5% 0.31%
Value Added per Employee $121K 72 days $154K
Assets Total Inventory Days of Supply 84 days 65 days 55 days
Cash-to-Cash Cycle Time 99.1 days 35.6 days
Net Asset Turns 1.9 turns 2.5 turns 4.2 turns
Example company performance
XYZ balanced “SCORcard”
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 1: After identifying opportunities, a “to-be” XYZ supply chain is configured
XYZCoatings
Suppliers
Add-ItChemicals
D1
D1
S3
P2 P3
S1
S1
P1
S1 M3
M4
P4
XYZFinal
Production
XYZIntermediateProduction
D1
D3
D2
Reconfiguration is a collaborative effort
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 2: ABC and XYZ work together to compare configurations
Customers
S3
Sub-Assembly
D3 S3
D3
D2 S1
S1
P4
D2 S1 M1
P3
P1
P4
D1
S1
P2
M1, M2
XYZ
XYZCoatings
Suppliers
Add-ItChemicals
D1
D1
S3
P2 P3
S1
S1
P1
S1 M3
M4
P4
XYZFinal
Production
XYZIntermediateProduction
D1
D3
D2
XYZ ABC
XYZ ABC
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 2: ABC and XYZ use SCOR to identify appropriate best practices for integration
Process Element:Schedule Material Deliveries
Process Number: S1.1
Process Element DefinitionScheduling and managing the execution of the individual deliveries of material against an existing contract orpurchase order. The requirements for material releases are determined based on the detailed sourcing plan orother types of material pull signals.
Best Practices Software FeaturesRequired
Software ApplicationSuppliers
Utilize EDI transactions to reducecycle time and costs
EDI interface for 830, 850, 856 and862 transactions
All major ERP vendors: SAP, Oracle,JD Edwards, Baan, QAD, SSA, etc.
VMI agreements allow suppliers tomanage (replenish) inventory
Vendor managed inventories withscheduling interfaces to externalvendor systems
Oracle, Manugistics, Logility, SAP
Mechanical (Kanban) pull signals areused to notify suppliers of the need todeliver material
Electronic Kanban support Discrete ERP vendors: SAP, Oracle,Baan, JD Edwards, QAD, SSA
Consignment agreements are usedto reduce assets and cycle time whileincreasing the availability of criticalitems
Consignment inventory management Typically custom programming
Advanced ship notices allow for tightsynchronization between source andmake processes
Blanket order support withscheduling interfaces to externalvendor systems
All major ERP vendors: SAP, Oracle,JD Edwards, Baan, QAD, SSA, etc.
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 2: ABC and XYZ also use SCOR to identify appropriate integration metrics
Process Element:Schedule Material Deliveries
Process Number: S1.1
Process Element DefinitionScheduling and managing the execution of the individual deliveries of material againstan existing contract or purchase order. The requirements for material releases aredetermined based on the detailed sourcing plan or other types of material pull signals.
PerformanceAttributes
Metric
Cycle Time Total Source Lead Time
% of EDI Transactions
Cost Materials Management as a % of Materials AcquisitionsCosts
Service/Quality % defective
Assets Raw Material Days of Supply (DOS)
Metrics tell you where to start
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 3: Discuss opportunities to integrate ABC — XYZ supply chain
Integrate planning processes between the two entities
Synchronize the manufacturing strategies– With integrated planning can a “pull-based,” make-to-order
flow be implemented across the supply chain?
Create Joint Service Agreements (JSAs) between the two entities
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 3: Use SCOR to orchestrate improvement discussions with supply-chain partners
The results of these discussions are an agreed-to set of supply-chain practices, derived from benchmark performance and industry best practices
Process Elements N
Process Elements 2
Process Elements 3
Process Elements 1Current
PracticesBest
PracticesCurrent
PerformanceDesired
Performance
“Supplier” “Customer”
Process Elements N
Process Elements 2
Process Elements 3
Process Elements 1Current
PracticesBest
PracticesCurrent
PerformanceDesired
Performance
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 3: Discuss mutual benefits
Common goals– Reduced inventories– Consistent production = better on-time delivery– Lower costs
Efficient tool for communicating and reacting to changes within either entity’s supply chain
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 3: Build the plan to address opportunities
Benchmark
Validate Opportunities
Build Value Proposition
Negotiate JSA
Investigate Tools
Pilot
InterimReview
Pilot
Roll-Out
© Copyright 1997 The Supply-Chain Council15662–Module 4
Stage 3: Build the Joint Services Agreement
Agree to performance metrics and targets for the supplier/customer relationships
Identify and implement mutual Best Practices– Understand common practices performed at each company– Identify redundancies– Eliminate redundancies and share benefits
Document a Joint Services Agreement
Pilot, refine and ready program for roll-out
Next Steps
© Copyright 1997 The Supply-Chain Council15662–Module 4
© Copyright 1997 The Supply-Chain Council15662–Module 4
What you can do to get started
New to SCOR SCOR Veteran
• Create your configuration
• Benchmark
• Identify internal opportunities
• Engage you supplier in integration efforts (Stage 1, 2, 3)
• Discuss roles between you and your supplier
• Set specific cost sharing and benefit goals
• Motivate your supplier to use SCOR to integrate with their supplier(s)
© Copyright 1997 The Supply-Chain Council15662–Module 4
Summary
Engage supplier in a three-stage integration effort– Stage 1—educate supplier– Stage 2—understand each other’s configurations– Stage 3—plan improvement implementation
Extend to Supplier’s Supplier – Encourage upstream suppliers to use SCOR – Encourage upstream suppliers to benchmark their
supply chain– Embrace the chain of chains as a competitive weapon
Conclusion
Module 4:
Fall Conference
Dallas, TX
November 24, 1997