Supply Chain Management Best Practices. David Blanchard

competitors.¹⁶

      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.¹⁷

SCM for Dummies

      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, executive vice president of the Association for Supply Chain Management 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.¹⁸

Follow the Roadmap

      Assuming your company has decided that it wants to pursue a SCOR project, what do you do next? For Imation, a manufacturer of data storage products, adopting the SCOR model began by informing everybody in the company—from the president to the salesclerks and all positions in between—what impact the supply chain initiative was going to have on the business. The next step was to create a supply chain program office to coordinate the various activities, as well as to keep costs in line with goals.

      At a Glance

      SCOR

      The Supply Chain Operations Reference (SCOR) model, developed by APICS Supply Chain Council, provides a standard methodology for managing supply chain projects centered on six measurable processes: plan, source, make, deliver, return, and enable.

Ultimately, Imation determined that it could reach its goal by integrating its supply chain project roadmap with its annual business strategy and planning processes. This required strategic transformations in four key areas: customer behavior, product flow, system utilization, and collaboration. For customer behavior, for instance, Imation used the SCOR model to produce a set of invoices illustrating typical customer buying behavior as well as the policies driving that behavior. As Bolstorff describes it, for Imation it was critical that the company was able to understand the invoice elements that were driving gross-to-net sales, such as deductions, terms, programs, and credits, as well as the impact of warehousing and transportation costs, order processing, purchasing, and planning.

      Using the invoice exercise as a starting point, Bolstorff notes, Imation's supply chain team modeled a material flow strategy that would accommodate customer needs while supporting the company's competitive requirements. This type of exercise was also used to model (1) product flow, which focused on postponement—delaying final customization of a product until the last possible moment—as a key best practice; (2) system utilization, which overhauled Imation's overly complex pricing practices; and (3) a collaborative planning, forecasting, and replenishment (CPFR) initiative, which aimed at improving return on investment by working more closely with Imation's retail customers to effectively manage inventory.

“The SCOR project roadmap,” Bolstorff explains, “can be effectively used at multiple performance levels: eliminating deficiencies, establishing a continuous improvement process, and defining strategic supply chain investments to support competitive advantage.”¹⁹

Make It All Meaningful

Whether your company adopts the SCOR model or chooses a less structured approach to tracking its supply chain, at some point you're going to have to put all that data you've been gathering into context, and that might prove to be even more difficult than setting up the metrics in the first place. “The toughest part of establishing measures is making them meaningful in the right way,” admit consultants Mike Ledyard and Kate Vitasek, faculty members of the University of Tennessee's Vested program. Even if you have an elaborate system of scorecards that measures every group within your company's supply chain, it'll just be an empty show of sound and fury if you can't link the performance measures to actionable plans linked to specific company goals. “Measures must be aligned to strategy,” they note, “but it's important that the measurements be linked to logistics execution. Without that vital link and ample communication, the people performing the logistics tasks in your organization won't see the value or the connection between what they do and the larger corporate or division strategy.”

      According to Ledyard and Vitasek, before getting too caught up in measurements and metrics, every supply chain professional needs to answer two key questions:

      1 Will you change your behavior, or ask others to change their behavior, based on this measure?

      2 Does the potential benefit gained from this information exceed the cost of obtaining it?

Citing advice from the late management guru Peter Drucker, Ledyard and Vitasek observe, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” And that, they say, sums up the wasted effort of the measurement trap—merely collecting measures for collection's sake, without a clear plan as to how you plan to meet your company's overall objectives and goals.²⁰

It's better by far to follow a path similar to that trod by high-tech giant IBM. To evaluate the performance of its suppliers, IBM devised a detailed scorecard that tracks how each supplier is performing and how well they deliver to Big Blue's requirements. IBM would routinely review scorecards with suppliers, including transportation providers, to identify where