@ Supply Chain Management


Introduction to Supply Chain Council’s SCOR Methodology

Paul Harmon of Business Process Trends has an oldish whitepaper on the Supply Chain Council’s SCOR Methodology and how firms can go about systematically designing and implementing supply chain processes according to the SCOR methodology. The whitepaper is quite detailed and goes into every part of the SCOR methodology. What I would like to know is how well this process methodology has worked out in practice because my knowledge of the methodology is of one outside looking in. The most updated version of the SCOR process model can be obtained at the Supply Chain Council’s website here.
Paul suggests that implementors think about their first SCOR project in terms of six phases as he outlines in his whitepaper:

0. Review Corporate Strategy. This isn’t so much a project phase, as a decision to consider whether an existing supply chain can be improved.
Once this decision is taken, a team is set up, trained in the SCOR methodology if necessary, and set to work.

It is not only a committment by the firm to review its supply chain processes but the necessary definition of where the constraints are, where the emphasis ought to be, what variables are significant levers and what variables are not essential to competitive advantage etc. If one has developed the purpose of using one’s supply chain as a competitive tool, the one must at the very outset outline how the firm envisions the structure of that competition. That’s why this stage is crucial to the review of the SCOR process. An example would be wherein a firm has decided on a decentralized distribution strategy with DCs as close to the customer location as possible. From the follows directions for transportation management, warehouse management, supply and order management with respect to the manufacturing etc etc.

I. Define the Supply Chain Process. SCOR provides a common vocabulary and notation system for defining the major processes that make up supply chains. The first phase the team undertakes is the actual analysis of the existing process. This effort includes decisions about the number and scope
of the supply chain processes to be examined.

The key idea that any cross industry standards group such as the Supply Chain Council brings in is the establishment of standards. A corollary to this is that standards sacrifice innovation flexibility for conforming understanding across the industries adhering to the standard. In the case of SCM, which often spans several industries like warehousing, transportation, suppliers of numerous items across different industries, manufacturers, importers, exporters etc, such a standard is quite crucial because it brings disparate parties together and forces them to learn some bits and pieces of a new language. However, such a standard is only as good as the breadth of adoption and I don’t think it has gone as far as it should so that using such a standard becomes essential.
If you were about to reengineer or design a process, then the logical second step is to ascertain what needs to be done – some might go for the low hanging fruit in order to demonstrate competence, some for the big change (in order to demonstrate bigness?? Or perhaps it might be an issue of survival) and still some others might go for something in the middle but crucial to getting it right.
Paul elucidates on how SCOR types all supply chain processes into the following five general sub-types:

Plan, Source, Make, Deliver, and Return. Complex supply chains are made up of multiple combinations of these basic processes.

The SCOR Process model that is captured in a process diagram gives a good idea of how a firm’s entire supply chain can be mapped out in terms of the above general sub-types as well as process types (Level 1, Level 2 and Level 3).

II. Determine the Performance of the Existing Supply Chain. Once one has scoped the existing supply chain process, one can use historic data to
define how the existing supply chain is performing. In addition, one can compare the performance of your supply chain with benchmarks to determine how your process stacks up against similar processes in similar industries.

If you knew what you were doing, the next logical step is to know how well you’re doing what it is that you’re doing. So after understanding how the existing supply chain is structured, the question then becomes about measuring the performance of the current supply chain against which future changes will be measured i.e. creating a baseline.

SCOR defines five generic performance attributes and three levels of measures that the analysts can use.

The measures are numbered (m0, m1, m2 and m3) where
m0 – measure the performance of the organization as a whole (also designated as Internal Facing Measures)
m1 – measure the performance of the supply chain as a whole (aslo designated as Customer Facing Measures)
m2 – measures that are related to Level 2 processes
m3 – measures that are related to Level 2 sub-processes
This type of current performance data benchmarked against same industry competitors or cross-industry firms gives an idea of what the future state performance targets ought to be before rework of the supply chain processes can be started.

III. Establish Your Supply Chain Strategy, Goals and Priorities. Once one has hard data on the performance of your existing supply chain, and
benchmark data, one is in a position to consider if your supply chain strategy is reasonable, and how it might be improved. One can consider alternative
targets for improvement and determine how they might improve the company’s performance. Similarly, once can identify which changes would
yield the highest return and priorities any improvement efforts.

Leading up to this point, each of the previous steps has been a lot of legwork, data gathering and analysis, explanation of standards that a firm might adopt etc. This has a two-fold benefit. The first being that the firm itself has a greater and broader understanding of its own supply chain (you might be surprised at how little understanding some firms have of their own processes) and the other being that a lot of data, diagrams and information about the firm has been generated that provides a fact base upon which further work can be carried out i.e. a rigorous numbers based foundation has been laid that can be investigated at a later date. Developing a SCORcard which ranks performance attributes vs competition in the current state and expected future state into three ranks – Superior, Advantage and Parity. This sort of ranking and analysis should ideally be in harmony with the roadmap that heads in the direction of sustained competitive advantage or that there are few key performance attributes that will be chosen as the attributes of focus which in turn should generate the desired competitive advantage. As Paul reports, there is a round trip to Phase 0 that might be beneficient to the firm that is undertaking a supply chain examination. This time round, the development of corporate strategy is in the light of a preliminary diagnosis and additional lab tests to boot. That makes any highly wishful and fanciful thinking hit the road so to speak and adjustments can be made i.e. closed loop feedback in action. The next step in this process is to determine which of the supply chain processes needs improvement or reengineering.
So far so good.

IV. Redesign Your Supply Chain as Needed. SCOR provides a number of tools to help in redesigning a supply chain. It provides tools for identify
problems and gaps and suggests the best practices used by companies with superior supply chains. Tools are available to similar your redesign SCOR design so that you can be sure it will yield the results you have targeted.

Its time to get into the nitty gritty of Supply Chain redesign/improvement according to the SCOR model. From carrying out the previous phases, the areas for improvement should have already been identified. A number of time tested techniques have been provided by SCOR in order to improve the performance of supply chain processes which include lists of opportunities and transactions that often cause difficulty.

The redesign team may change its To-Be Thread diagram several times as it explores possibilities and studies the problem in more depth. The place to start, however, is with a tentative redesign.

For the Level 3 process that is under examination, the normal process is to consult the SCOR manual for a typical SCOR model for that process and compare what the firm does with the industry benchmark. The following is a highlight of what constitutes the generalized suggestions for best practices:

As a strong generalization, best practice suggestions can be subdivided into three general types. They can recommend new management practices. They can recommend new employee practices, or they can recommend the use of software applications or systems to automate an activity or to support the employees who perform the activity.

Paul also advises about the suitability of simulation in such a context wherein changes made to a supply chain are tested within a simulation in order to check the validity of the redesign/improvement. Why?

In complex supply systems, its sometimes hard for humans to identify bottlenecks that are obvious once you run several large sets of data through a simulated model of the system. Simulation can take time and it requires developers who are familiar with the techniques required by the simulation tools, but if you are seeking to make millions of dollars of changes in a key supply chain system, spending two months and a hundred thousand dollars to be sure that your system will work as designed is well worth it.

V. Enable the Redesign and Implement. Once the design is complete, you must implement the redesign using software and human performance
improvement techniques. Then you must implement the new supply chain and gather data to determine if you are, in fact, meeting your new targets.

This goes to the control phase that is emphasised in Six Sigma methodology for continuous improvement that envisions that improved or new processes will need freezing, implementation and finally measurement to see whether targets are reached.

As can be seen from this extended look into the SCOR model for supply chain, there is a high degree of congruence with the PDCA (Plan-Do-Check-Act) methodology for continuous improvement as well as the DMAIC (Define-Measure-Analyze-Improve-Control) methodology of Six Sigma. There should be because they’re about process improvement but in the case of Supply Chain, the SCOR model has adapted this general process improvement model into the SCM space as well as provided the best practices benchmark so that firm’s following the methodology can be continually informed through a feedback loop. However, the SCOR model because of the focus on industry best practices and deriving improved/new processes from that creative pool of what has worked for others or what has worked well points a firm in a particular direction i.e. the direction that other firms in its competitive landscape are headed towards. Ergo, if there is an underlying philosophy that is driving the best firms in a particular industry (be it efficiency, velocity, flexibility etc) in a particular direction, how do you think copying that industry’s best practice affects the firm that is redrawing its own processes – in the same direction? This is a serious problem, in my opinion, because I am interested in flexible supply chains over efficient supply chains. And this preference harkens back to the ways in which a firm may derive sustained competitive advantage. Ask yourself where the source of true sustained competitive advantage is located? Then, ask how adopting process improvements that rely heavily on industry best practices delivers competitive advantage – are they sustainable or merely short term jumps, rapidly copied and thus lost advantages?
The SCOR model seems to be concerned (and rightly so) with execution of the supply chain through well analyzed and developed processes and stresses the steering of corporate strategy in Phase 0 step itself. I think that you’re more likely to end up with a very efficient supply chain simply because at this time, there is a clamor about efficient supply chains but only murmurs (or perhaps, silence) about flexible supply chains. Perhaps, one of the factors that has contributed to this state of affairs is that Source/Make has shifted to more efficient means of production/procurement (read outsourcing) and that effect is rippling through the supply chains of many a firm.
So, what are flexible supply chains?
Coming soon to a blog post near you…

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Category: Reviews, SCOR, Supply Chain Management


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July 2006