Five Primary Processes of Supply Chain Management. 4 Roadblocks on the Supply Chain Path. Learn the SCOR (Supply Chain Operations Reference) Model

June 23, 2011 by · Leave a Comment
Filed under: Supply Chain Management 

At some point in the early 1980s, the concepts of transportation, distribution, and materials management began to merge into a single, all-encompassing term: supply chain management. The term apparently first appeared in print in 1982, and is attributed to Keith Oliver, a consultant with Booz Allen. In any event, in 1985, Harvard professor Michael Porter’s influential book, Competitive Advantage, illustrated how a company could become more profitable by strategically analyzing the five primary processes on which its supply chain framework is built:
1. Inbound logistics. These are the activities associated with receiving, storing, and disseminating inputs to the product (material handling, warehousing, inventory control, transportation scheduling, and returns to suppliers).
2. Operations. This refers to the activities associated with transforming inputs into the final product form (machining, packaging, assembly, equipment maintenance, testing, printing, and facility operations).
3. Outbound logistics. These are the activities associated with collecting, storing, and physically distributing the product to buyers (finished goods warehousing, material handling, freight delivery, order processing, and scheduling).
4. Sales and marketing. Within a supply chain context, these are the activities that induce buyers to purchase a product and enable them to buy it (advertising, promotions, sales force, quoting, channel selection, channel relations, and pricing).
5. Service. This refers to the activities associated with providing service to enhance or maintain the value of the product (installation, repair, training, parts supply, and product adjustment).

Roadblocks on the Supply Chain Path
Although the concept of supply chain management entered the public consciousness nearly 30 years ago, to date only a very small percentage of companies have fully embraced the idea. Even though many of the best-known manufacturing and retail companies in the world are as celebrated for their supply chains as they are for their brands, relatively few companies even attempt full-scale supply chain projects, and of those that do, many are stymied by various roadblocks that make them question whether the end result will be worth the aggravation.
Consulting firm Accenture teamed up with Stanford University and global business school INSEAD to try to figure out why that should be. Of the companies they studied, it turns out that more than half encountered unexpected problems in the course of their supply chain transformations. Exacerbating the situation is the fact that these problems aren’t easily solved:
 Technology implementations didn’t work as promised. The supply chain movement faced a moment of crisis when the Internet bubble burst, taking many supply chain technology vendors (and even more vaporware companies) with it. Companies that should have known better assumed that establishing a Web site was a ticket to instant riches, and they embraced the Internet with a giddy “gold rush” fervor. They spent millions on ill-advised end-to-end projects that had no timeline for deliverable payback, and they got badly burned in the process. To this day, many companies still remain extremely cautious about investing in any kind of supply chain solution.
 Projects cost too much and never came close to meeting service targets. This problem predates the supply chain. The list of unfinished and underimplemented enterprise resource planning projects is a lengthy one, and unfortunately there are plenty of similarly out-of-control supply chain projects to add to that list. Many of these enterprise-wide initiatives end up being a bottomless money pit of costs with no end in sight and no discernible benefits.
 Supply chain projects were inconsistent with a company’s current business strategy. The unfortunate reality is that many companies don’t have a well-defined business strategy. Trying to plug a supply chain initiative into an uncertain and continually shifting corporate plan can wear out even the most patient project managers.
 It was too difficult to manage change internally and externally. For a supply chain project to succeed, employees first need to be convinced that sharing product and transactional data between their own divisions is a good thing. Too often, companies will fail in their attempts at collaborating with key supply chain partners because their own internal groups don’t cooperate with each other. You have to be able to trust your own people before you can hope to collaborate with other companies.

Supply Chain Checkup
How do you know that you need help in the first place, though? Benchmark studies and process maps are both expensive and time-consuming. Many companies whose earnings put them well outside of the Fortune 1000 realize that their supply chains aren’t all they ought to be, but they are still hesitant as to what to do about it. Consultant Mike Donovan of R. Michael Donovan & Company offers a relatively short but challenging checklist that provides a basic assessment of how healthy your supply chain might be. If you answer no to any of the following questions or, even worse, if you don’t even know the answers to some of these questions, then the time to get serious about fixing your supply chain problems is right now:
1. Do your order fill rates meet management’s specific and measured customer service strategy?
2. Are your delivery lead times competitive and predictable?
3. Do all of your supply chain departments agree on which products are make-to-stock and which are make-to-order?
4. Do sales and manufacturing share equally in determining the mix and investment in inventory?
5. Are the appropriate calculations being used rather than rules of thumb to establish the desired mix and levels?
6. Are management’s inventory investment plan and customer service objectives being compared against the actual results that are achieved?
7. Are short-term forecast deviations being monitored and adjusted, and is long-term forecast accuracy continuously improving?
8. Is your inventory accuracy consistently above 98 percent?
9. Are you able to avoid carrying excess safety stock buffers?
10. Are your excess and obsolete inventories being measured, and are they less than 1 percent of total inventory?

Learn the SCOR (Supply Chain Operations Reference) model

SCOR is a multilevel process reference model, moving from Level 1 (operations strategy) to Level 4 (phased implementation).
The SCOR model combines business process reengineering with benchmarking, best practices, and process measurement into an all-encompassing framework for executing a supply chain project. According to consultant Peter Bolstorff, principal of SCE Limited and one of the original developers of the SCOR model, SCOR is most successful when solid project management is combined with technology expertise for implementation in a series of six steps:
1. Educate for support. Find a project champion (Bolstorff describes this person as an “evangelist”) within your company who has the passion to lead a supply chain project. At the same time, identify a key executive to actively sponsor the project. Both of these people must be willing to learn SCOR from top to bottom and be enthusiastic about sharing their knowledge throughout the organization.
2. Discover the opportunity. Form a business case that justifies investment in a supply chain project. A key outcome from this step is a project charter, Bolstorff notes, which sets up the supply chain project in terms of approach, budget, organization, communication plan, and establishing clear measures for success.
3. Analyze. In this step, you articulate the value proposition of the project in terms of cash-to-cash cycle time, inventory days, order fulfillment, and other performance factors. The intent here is to define the supply chain opportunity according to the company’s profit-and-loss statement.
4. Design. The two key components in this step are material flow and work/information flow. According to Bolstorff, some of the questions you’ll want to ask are: “What are my material flow problems and what’s it worth to solve them?” and “How does work and information flow impact material flow?” Define the work first and then the information that moves the material.
5. Develop. The design team shifts to become an implementation team assigned to specific tasks. The goal, as Bolstorff explains it, is to create a master schedule for the projects that will take your supply chain from its present state (“as is”) to its optimal state (“to be”).
6. Implement. Based on the master schedule for each change, prepare and transition your company for the changes as you begin implementation of the supply chain transformation.

By far the best-known and most detailed performance metrics are encompassed in the Supply Chain Operations Reference model (www.supplychain.org), which was created in 1995 and has been continuously refined ever since. The SCOR model provides an industry-standard approach to analyze, design, and implement changes to improve performance throughout five integrated supply chain processes—plan, source, make, deliver, and return—spanning the full gamut from a supplier’s supplier to a customer’s customer and every point in between. The SCOR model is aligned with a company’s operational strategy, material, work flows, and information flows.

As explained by Peter Bolstorff and Robert Rosenbaum in Supply Chain Excellence, a handbook on using the SCOR model, the five SCOR processes encompass these measurable activities:
1. Plan. Assess supply resources; aggregate and prioritize demand requirements; plan inventory for distribution, production, and material requirements; and plan rough-cut capacity for all products and all channels.
2. Source. Obtain, receive, inspect, hold, issue, and authorize payment for raw materials and purchased finished goods.
3. Make. Request and receive material; manufacture and test product; package, hold, and/or release product.
4. Deliver. Execute order management processes; generate quotations; configure product; create and maintain a customer database; maintain a product/price database; manage accounts receivable, credits, collections, and invoicing; execute warehouse processes, including pick, pack, and configure; create customer-specific packaging/labeling; consolidate orders; ship products; manage transportation processes and import/export; and verify performance.
5. Return. Process defective, warranty, and excess returns, including authorization, scheduling, inspection, transfer, warranty administration, receiving and verifying defective products, disposition, and replacement.

The SCOR model provides a supply chain scorecard (or SCORcard, if you will) that companies can use to set and manage supply chain performance targets across their organization. Given the increased attention and scrutiny Wall Street is applying to the supply chain’s impact on a company’s financial performance, being able to measure exactly how well each process is doing is one of the key steps on the road to developing a best-in-class supply chain. Therefore, one of the main roles of the SCOR model is to provide a consistent set of metrics a company can use to measure its performance over time as well as compare itself against competitors.
Supply chain metrics have three main objectives, according to Shoshanah Cohen and Joseph Roussel, authors of Strategic Supply Chain Management:
1. They must translate financial objectives and targets into effective measures of operational performance.
2. They must translate operational performance into more accurate predictions of future earnings or sales.
3. They must drive behavior within the supply chain organization that supports the overall business strategy.

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