As supply chain efforts have matured around the world, a clear distinction has
appeared. Businesses that embrace the inherent concepts are opening a serious
gap over less able competitors. They do so by using advanced techniques �
primarily adopting external collaboration and the use of technology enablers
across linked organizations � to focus not only on cost improvement but
revenue enhancement. The distinction that can be developed has been used by
such leaders as Wal-Mart, Procter & Gamble, Toyota, Intel, Dell, Cisco Systems,
Tesco, and Nike, to open up commanding leads in their industries. These
organizations and others are moving rapidly toward what becomes a valuemanaged
enterprise and a dominant position in an industry, while many of their
competitors remain bogged down in the early levels of their supply chain
progression.
The leaders have nurtured the advantages offered by moving their supply
chains into a position of having superior capabilities, gained through greater
access to knowledge across what becomes an intelligent value chain network.
The difference for these businesses can be a doubling of earnings per share. The
laggards and followers tend to keep their focus on internal improvement only,
particularly the never-ending quest for lower costs of operations. While we
accept that this cost orientation will hardly cease to exist, the contemporary
view holds that there must be an equal and pervasive effort directed at distinguishing
the firm in the eyes of the most important customers and end consumers
so that new and profitable revenues are generated. Moreover, there must be a
methodology in place to track the claimed improvements to the profit and loss
statement, and there should be documented benefits for those members of the
network that assist in the improvement process.
To facilitate our presentation and to establish a framework for understanding
how a business can make progress toward the desired position with a supply chain
effort and within an industry, we will use a familiar maturity model as a guide for
the discussion. The purpose is to introduce the concept of supply chain optimization
and how companies can approach their desired status and to apply a five-level
progression model to explain the route to advanced business performance while
calibrating the results. From this beginning position, we will present the processenabled
matrix, to explain how a firm can add the most benefits from improving
the process steps in the intelligent value network. More importantly, we will
describe how to trace the improvements to financial advantage � for the firm
involved and its business allies. In later chapters, a simulation technique will also
be discussed, so the interested firm can experiment with the techniques described
without incurring undue risk. Throughout the text, actual case examples will be
used to give the concepts a flavor of reality.
Tuesday, December 1, 2009
CONCEPTS BEHIND SUPPLY CHAIN MATURITY
a supply chain maturity model is used to describe the typical
progression, through which a firm evolves on its way to the most desired
advanced level of implementation. Many firms in many countries have used this
model to understand the logical progression of a supply chain effort. The model
is also useful to calibrate a firm�s position as it moves forward and to determine
to what level of progress the company should aspire, especially when the model
is extended to the various business functions. Implicit in the use of the model
is the understanding that a firm must progress through the levels, none of which
can be skipped, although some firms might have business units with footprints
in various levels at the same time.
To begin, a firm typically launches its supply chain effort by bringing
whatever existing improvement effort is being pursued under an umbrella type
of orientation focused on the end-to-end processing that constitutes the
organization�s supply chain. In this first level of the progression, the firm begins
to focus on functional processes, particularly sourcing and logistics. In addition
to using these two areas of attention to gather early improvement and quick
profit gains, a secondary goal is to bring enterprise integration into focus as an
objective � within the organization. That means most companies find, as they
begin integrating their existing improvement efforts with the overall attention
to supply chain, that there is a substantial amount of internal resistance to any
type of information sharing or best practice integration inside the four walls of
the business. The so-called stovepipe or silo mentality is a serious reality for
companies starting into the supply chain evolution.
As will be documented, there generally are significant savings generated
during this first part of the evolution. Supply bases are reduced through techniques
designed to segregate suppliers, based on categories of purchase, amount
of purchase, quality, and factors of importance to the firm. With a lesser number
of sources providing larger volumes, prices are reduced and added features
introduced into the relationship. Typical benefits add one or two points of profit,
because the amount of total purchases is often as much as 40 to 50% or more
of the costs of goods or services sold.
Concurrently, most firms begin paying serious attention to how purchased
goods are brought into the supply chain processing, how material and supplies
are handled internally, and how finished products and goods are delivered to
the next company in the linked processing. That means a focus is brought to
inbound freight, internal material processing and manufacture, outbound freight,
and the warehousing and delivery mechanisms necessary to support the logistics
system. In the first level, the bulk of concern is brought to bear on internal
processing and outbound freight. Inbound freight is generally held for later
attention. There is a typical resistance to considering turning any part of the
freight handling over to other parties, but as a firm completes this level, there
is generally some form of outside help brought in to take responsibility for at
least a portion of the transportation function. Most firms find one-half to a full
percent of profit here, as they reduce the cost per mile for transportation, begin
reducing warehouse space to what is actually needed, and transfer ownership
of some or all of the assets involved to a third party adept at combining load
requirements over the accumulated asset base for more effective utilization.
There is not much more to the first level, other than the fact that many firms
begin looking for a model to guide the effort, with most selecting the SCOR�
model, endorsed by the Supply-Chain Council. From our experiences, most
businesses modify that model to suit their needs and introduce other features
of importance to their particular industry. Virtually all have used the model
described in Figure 1.1 to track their progress to higher levels of accomplishment.
Detailed discussions of the various levels we are considering can be found
in Advanced Supply Chain Management by Poirier (1999) and E-Supply Chain
by Poirier and Bauer (2000).
In level 2, the business continues on its intra-enterprise track, but now the
focus moves to attaining some degree of optimization across the internal processing
occurring within the four walls of the business. Sourcing and logistics
move to a higher level as the firm begins more intense work with the key
suppliers and transportation providers. Planning, as accented by the SCOR�
model, becomes an important effort. A supply chain infrastructure begins to
appear during this level, usually with a professional supply chain manager being
introduced to the organization.
Since planning now assumes importance, order management takes on relevance
as a key factor. Unfortunately, virtually every study we have conducted
in this area unearths a problem with the data. As orders, both with suppliers
for purchased goods and services and with customers for finished products and
services, are analyzed, we typically find that 30 to 40% contain one or more
errors. This range may seem high, but when the analysis is extended to determining
how the orders are placed or received, we find that most companies still
rely heavily on telephone, facsimile, and mail for order entry and order processing.
In spite of the amount of order management that has moved to electronic
data interchange and e-commerce, the overwhelming amount of order processing
is still done in a manual fashion, with many implicit errors. Establishing
an order system that eliminates these errors and mistakes is crucial to introducing
a planning system that has any degree of reliability and becomes a requisite
for level 2 progress.
As planning is pursued, some form of sales and operations planning (S&OP)
is generally introduced to require the firm to have a formal process for analyzing
the orders, the production process steps, and the final delivery to customers.
Forecast accuracy becomes an internal issue, as we find that most level 1 firms
operate in an area of about 40% or less forecast accuracy. With the application
of special algorithms or mathematical models, that figure might rise to about
50% in level 2. As S&OP matures, and key customers become involved in the
level 3 processing, the accuracy of the demand information improves and firms
do move as high as 60% accuracy. These general ranges are not absolute, but
are based on our experiences with numerous firms across many industries.
In the second level, companies also turn their attention to the matter of
inventory management. Much effort is expended to reduce the amount of cash
tied up in inventories, so a one-time improvement can be made to working
capital, and the annual carrying costs of excess inventories are reduced. Our
experience shows, however, that some of the improvements made are real, while
much of the effort results in a sort of shell-game maneuver. This means we find
that a large amount of the inventory is simply moved upstream � toward
obliging suppliers � rather than taken out of the supply chain. Results of many
studies have indicated that firms did, indeed, remove a significant amount of
inventory during their level 2 efforts, but much of it was absorbed by suppliers
willing to hold the inventory until needed or to retain ownership until the point
of actual use. Assuming the suppliers are smart enough to cover their carrying
costs in the total price for the delivered supplies, it becomes a game of moving
the assets and costs, rather than eliminating the need for extra inventory and
safety stock.
Toward the conclusion of level 2, a supply chain organization will be firmly
established, with a designated leader. Collaboration between this leader and the
information technology group, and particularly the chief information officer,
will be emerging. Internal resistance to cooperative effort will be subdued. The
firm will be leveraging its full buying, manufacturing, storage, and delivery
capacity across all business units, and there will be an intranet of information
sharing at work, to supply the various functions and parts of the business with
vital data on the processing taking place. Transportation management systems
and warehouse management systems will be appearing as the practitioners begin
to apply technology as an enabler to the desired process improvement. As
indicated in the figure, most firms are still working on level 2 improvements
in today�s markets.
A cultural barrier exists between levels 1 and 2, as indicated by the brick
wall in the figure. Most businesses are very comfortable continuing to work on
internal excellence, particularly the never-ending quest for cost reduction. They
resist outside help as an indictment that they do not have the internal expertise
to solve each and every supply chain issue or problem encountered. Many also
resist references to best practices that could be viewed and adopted outside of
their four walls, and they especially oppose sharing any information that is
considered proprietary with any external sources, even if it could lead to further
improvement. Overcoming this barrier takes a forceful hand at the top of the
organization and generally comes when one business unit leader takes a part
of the firm into level 3 and beyond, proving the value of working collaboratively.
A final requirement for completing this level is to form an alliance between the
supply chain organization and the information technology group, so there is a
joint effort to improve processing and to bring the necessary enabling
technology into play.
progression, through which a firm evolves on its way to the most desired
advanced level of implementation. Many firms in many countries have used this
model to understand the logical progression of a supply chain effort. The model
is also useful to calibrate a firm�s position as it moves forward and to determine
to what level of progress the company should aspire, especially when the model
is extended to the various business functions. Implicit in the use of the model
is the understanding that a firm must progress through the levels, none of which
can be skipped, although some firms might have business units with footprints
in various levels at the same time.
To begin, a firm typically launches its supply chain effort by bringing
whatever existing improvement effort is being pursued under an umbrella type
of orientation focused on the end-to-end processing that constitutes the
organization�s supply chain. In this first level of the progression, the firm begins
to focus on functional processes, particularly sourcing and logistics. In addition
to using these two areas of attention to gather early improvement and quick
profit gains, a secondary goal is to bring enterprise integration into focus as an
objective � within the organization. That means most companies find, as they
begin integrating their existing improvement efforts with the overall attention
to supply chain, that there is a substantial amount of internal resistance to any
type of information sharing or best practice integration inside the four walls of
the business. The so-called stovepipe or silo mentality is a serious reality for
companies starting into the supply chain evolution.
As will be documented, there generally are significant savings generated
during this first part of the evolution. Supply bases are reduced through techniques
designed to segregate suppliers, based on categories of purchase, amount
of purchase, quality, and factors of importance to the firm. With a lesser number
of sources providing larger volumes, prices are reduced and added features
introduced into the relationship. Typical benefits add one or two points of profit,
because the amount of total purchases is often as much as 40 to 50% or more
of the costs of goods or services sold.
Concurrently, most firms begin paying serious attention to how purchased
goods are brought into the supply chain processing, how material and supplies
are handled internally, and how finished products and goods are delivered to
the next company in the linked processing. That means a focus is brought to
inbound freight, internal material processing and manufacture, outbound freight,
and the warehousing and delivery mechanisms necessary to support the logistics
system. In the first level, the bulk of concern is brought to bear on internal
processing and outbound freight. Inbound freight is generally held for later
attention. There is a typical resistance to considering turning any part of the
freight handling over to other parties, but as a firm completes this level, there
is generally some form of outside help brought in to take responsibility for at
least a portion of the transportation function. Most firms find one-half to a full
percent of profit here, as they reduce the cost per mile for transportation, begin
reducing warehouse space to what is actually needed, and transfer ownership
of some or all of the assets involved to a third party adept at combining load
requirements over the accumulated asset base for more effective utilization.
There is not much more to the first level, other than the fact that many firms
begin looking for a model to guide the effort, with most selecting the SCOR�
model, endorsed by the Supply-Chain Council. From our experiences, most
businesses modify that model to suit their needs and introduce other features
of importance to their particular industry. Virtually all have used the model
described in Figure 1.1 to track their progress to higher levels of accomplishment.
Detailed discussions of the various levels we are considering can be found
in Advanced Supply Chain Management by Poirier (1999) and E-Supply Chain
by Poirier and Bauer (2000).
In level 2, the business continues on its intra-enterprise track, but now the
focus moves to attaining some degree of optimization across the internal processing
occurring within the four walls of the business. Sourcing and logistics
move to a higher level as the firm begins more intense work with the key
suppliers and transportation providers. Planning, as accented by the SCOR�
model, becomes an important effort. A supply chain infrastructure begins to
appear during this level, usually with a professional supply chain manager being
introduced to the organization.
Since planning now assumes importance, order management takes on relevance
as a key factor. Unfortunately, virtually every study we have conducted
in this area unearths a problem with the data. As orders, both with suppliers
for purchased goods and services and with customers for finished products and
services, are analyzed, we typically find that 30 to 40% contain one or more
errors. This range may seem high, but when the analysis is extended to determining
how the orders are placed or received, we find that most companies still
rely heavily on telephone, facsimile, and mail for order entry and order processing.
In spite of the amount of order management that has moved to electronic
data interchange and e-commerce, the overwhelming amount of order processing
is still done in a manual fashion, with many implicit errors. Establishing
an order system that eliminates these errors and mistakes is crucial to introducing
a planning system that has any degree of reliability and becomes a requisite
for level 2 progress.
As planning is pursued, some form of sales and operations planning (S&OP)
is generally introduced to require the firm to have a formal process for analyzing
the orders, the production process steps, and the final delivery to customers.
Forecast accuracy becomes an internal issue, as we find that most level 1 firms
operate in an area of about 40% or less forecast accuracy. With the application
of special algorithms or mathematical models, that figure might rise to about
50% in level 2. As S&OP matures, and key customers become involved in the
level 3 processing, the accuracy of the demand information improves and firms
do move as high as 60% accuracy. These general ranges are not absolute, but
are based on our experiences with numerous firms across many industries.
In the second level, companies also turn their attention to the matter of
inventory management. Much effort is expended to reduce the amount of cash
tied up in inventories, so a one-time improvement can be made to working
capital, and the annual carrying costs of excess inventories are reduced. Our
experience shows, however, that some of the improvements made are real, while
much of the effort results in a sort of shell-game maneuver. This means we find
that a large amount of the inventory is simply moved upstream � toward
obliging suppliers � rather than taken out of the supply chain. Results of many
studies have indicated that firms did, indeed, remove a significant amount of
inventory during their level 2 efforts, but much of it was absorbed by suppliers
willing to hold the inventory until needed or to retain ownership until the point
of actual use. Assuming the suppliers are smart enough to cover their carrying
costs in the total price for the delivered supplies, it becomes a game of moving
the assets and costs, rather than eliminating the need for extra inventory and
safety stock.
Toward the conclusion of level 2, a supply chain organization will be firmly
established, with a designated leader. Collaboration between this leader and the
information technology group, and particularly the chief information officer,
will be emerging. Internal resistance to cooperative effort will be subdued. The
firm will be leveraging its full buying, manufacturing, storage, and delivery
capacity across all business units, and there will be an intranet of information
sharing at work, to supply the various functions and parts of the business with
vital data on the processing taking place. Transportation management systems
and warehouse management systems will be appearing as the practitioners begin
to apply technology as an enabler to the desired process improvement. As
indicated in the figure, most firms are still working on level 2 improvements
in today�s markets.
A cultural barrier exists between levels 1 and 2, as indicated by the brick
wall in the figure. Most businesses are very comfortable continuing to work on
internal excellence, particularly the never-ending quest for cost reduction. They
resist outside help as an indictment that they do not have the internal expertise
to solve each and every supply chain issue or problem encountered. Many also
resist references to best practices that could be viewed and adopted outside of
their four walls, and they especially oppose sharing any information that is
considered proprietary with any external sources, even if it could lead to further
improvement. Overcoming this barrier takes a forceful hand at the top of the
organization and generally comes when one business unit leader takes a part
of the firm into level 3 and beyond, proving the value of working collaboratively.
A final requirement for completing this level is to form an alliance between the
supply chain organization and the information technology group, so there is a
joint effort to improve processing and to bring the necessary enabling
technology into play.
CONFIRMED RESULTS VALIDATE THE OPPORTUNITY:
During the summer of 2004, Computer Sciences Corporation (CSC) and Supply
Chain Management Review conducted a survey among readers of the magazine
and selected business organizations known to have some form of ASCM effort
under way. The feedback came from 209 companies, of which 115 were corporations
or independent businesses; 58 were divisions, wholly owned subsidiaries,
or strategic business units; and 33 were group or multidivision organizations.
The industries represented in the survey included aerospace and defense,
automotive, chemicals, consumer goods, discrete manufacturing, food service,
government, healthcare, high technology, mining, oil and gas, process manufacturing,
professional services, publishing and printing, retail, telecommunications,
utilities, and wholesale distribution; 23 firms listed their business as
�other.�
The survey was intended to find answers to such questions as:
Where have supply chain efforts gone?
What are the documented results?
What are the leaders doing?
What variation exists across industries?
What is the link with technology?
In summary, the results provided the following answers:
Most businesses, regardless of industry, reported that their results positioned
them predominantly in levels 2 and 3, with evidence that most
companies tend to bog down somewhere in this area; 91% of the respondents
indicated they were no further along than level 3.
Most of the documented progress, as expected, was reported in the areas
of sourcing and logistics, followed by planning and inventory management.
Those responding rated progress with other areas of importance
much lower.
Collaboration with external business allies remains an elusive concept
for most companies, as there was clear evidence that this concept was
not generally being applied.
Reported cost savings ranged from 1 to 20% or more of identified supply
chain costs. There appeared to be a disparity in what is included in
supply chain costs, as the amount varied from a few percent to as much
as 50% of total revenues, indicating that there still is some confusion
concerning what should be included in supply chain costs.
High technology, telecommunications, and wholesale delivery were the
industries where those responding gave themselves the highest level of
progress ratings.
The link with technology was indelible, meaning higher levels of progress
could not be attained without enabling technology, but there was sufficient
information in the responses to indicate that there was far more
technology applied to finding solutions and improvements than there
were documented results as a result of those efforts. We interpret this
finding to mean that there has been a tendency to try to apply technology
solutions before the processing has been properly improved and
then enhanced with technology.
Revenue increases were also reported, ranging from 1 to 20% or more, but
there was less certainty of the results here, as a significant percentage of
those responding indicated they were not sure of revenue increases.
Our general conclusion was that supply chain efforts are alive and well, with
supply chain now accepted as a major business improvement technique.
Chain Management Review conducted a survey among readers of the magazine
and selected business organizations known to have some form of ASCM effort
under way. The feedback came from 209 companies, of which 115 were corporations
or independent businesses; 58 were divisions, wholly owned subsidiaries,
or strategic business units; and 33 were group or multidivision organizations.
The industries represented in the survey included aerospace and defense,
automotive, chemicals, consumer goods, discrete manufacturing, food service,
government, healthcare, high technology, mining, oil and gas, process manufacturing,
professional services, publishing and printing, retail, telecommunications,
utilities, and wholesale distribution; 23 firms listed their business as
�other.�
The survey was intended to find answers to such questions as:
Where have supply chain efforts gone?
What are the documented results?
What are the leaders doing?
What variation exists across industries?
What is the link with technology?
In summary, the results provided the following answers:
Most businesses, regardless of industry, reported that their results positioned
them predominantly in levels 2 and 3, with evidence that most
companies tend to bog down somewhere in this area; 91% of the respondents
indicated they were no further along than level 3.
Most of the documented progress, as expected, was reported in the areas
of sourcing and logistics, followed by planning and inventory management.
Those responding rated progress with other areas of importance
much lower.
Collaboration with external business allies remains an elusive concept
for most companies, as there was clear evidence that this concept was
not generally being applied.
Reported cost savings ranged from 1 to 20% or more of identified supply
chain costs. There appeared to be a disparity in what is included in
supply chain costs, as the amount varied from a few percent to as much
as 50% of total revenues, indicating that there still is some confusion
concerning what should be included in supply chain costs.
High technology, telecommunications, and wholesale delivery were the
industries where those responding gave themselves the highest level of
progress ratings.
The link with technology was indelible, meaning higher levels of progress
could not be attained without enabling technology, but there was sufficient
information in the responses to indicate that there was far more
technology applied to finding solutions and improvements than there
were documented results as a result of those efforts. We interpret this
finding to mean that there has been a tendency to try to apply technology
solutions before the processing has been properly improved and
then enhanced with technology.
Revenue increases were also reported, ranging from 1 to 20% or more, but
there was less certainty of the results here, as a significant percentage of
those responding indicated they were not sure of revenue increases.
Our general conclusion was that supply chain efforts are alive and well, with
supply chain now accepted as a major business improvement technique.
supply chain improvement effort on a network basis
That means an inter-enterprise view is brought to the end-to-end processing, and partner
collaboration is considered as an important business strategy. The idea is to have
the most competent constituent of the extended enterprise assume responsibility
for the process steps for which it is most capable of performing. Forecasting
and planning go through another improvement cycle as companies begin to
collaborate to match actual demand signals with production and delivery capacity.
A form of advanced planning and scheduling is typically introduced in this
level. The concepts are basic, but implementation is difficult, as many companies
resist turning over responsibility for any processing to external organizations,
even when the data verify the higher capability. They also want to hold
back the sharing of vital information, until there is a better understanding of
what can and should be shared for mutual advantage.
Most companies start their network formation by working closely with a few
suppliers. They begin sharing a bit of previously sacrosanct data, with the
intention of finding the hidden savings that have been eluding the firms, in spite
of years of purchasing and supply relationships. Now the process maps describing
the supply chain steps are viewed with an eye toward how the business allies
can find areas of mutual benefit. Partnering diagnostics come into play as the
allies seriously analyze what takes place within the process steps, particularly
at the points of handoff. Frequently using reengineering techniques, the allies
develop improved process steps, often applying enabling technology to improve
the transfer of critical knowledge. Results generally provide a higher level of
improvement for each of the participating parties. The key in this area is to make
certain that the discovered savings are shared in some way between the parties
to the effort.
Distributors can play a key role in this area, as they work more closely with
the manufacturers to get the products and services to the end customer in the
most effective manner, with the appropriate amount of inventory. The results
of the survey to be cited verified that some of these distributors have made
substantial progress with their supply chain efforts and have advanced solidly
into level 3 and beyond. As the internal house begins to get in order, and key
distributors are made a part of the network, most firms then turn to a few key
customers and the analysis of the linked process steps continues, with the focus
moving toward optimization across the total network, not just the internal
processing.
(ASCM) efforts. Now the supply chain constituents are working closely together,
sharing knowledge across a communication extranet and collaborating
on how to increase revenues and better utilize combined assets, as well as
finding further cost and service improvements. A new set of metrics is introduced
to measure performance, with most of the measures focused on customer
or consumer satisfaction. This is truly the realm of the intelligent value network
we will describe and where the savings can reach as high as five to eight points
of new profit.
The fifth and final level of the evolution is darkened in the figure, because
it is more theoretical than actual, with only a handful of firms achieving full
network connectivity. That term is used to describe a condition in which the
linked organizations are sharing virtually all of the important data electronically
and are working together through some form of cybercommunication system.
This is the domain of high-technology companies (Intel, Cisco, Hewlett-Packard,
IBM), a few leading-edge consumer goods providers (Colgate-Palmolive, Procter
& Gamble, Nike, Dell, GE, Toyota), and a select group of experimenters trying
to determine the actual value of direct knowledge sharing.
This framework will be used throughout the text, as we describe how a
business organization can move carefully and effectively across the five levels
and attain the highest position of importance to the firm, its market, and its
customers. For now, the maturity model should be applied to consider how
companies are making progress across the described evolution and to determine
the values for moving to higher levels of performance. As we progress together,
we will also show what the documented results by level have been.
collaboration is considered as an important business strategy. The idea is to have
the most competent constituent of the extended enterprise assume responsibility
for the process steps for which it is most capable of performing. Forecasting
and planning go through another improvement cycle as companies begin to
collaborate to match actual demand signals with production and delivery capacity.
A form of advanced planning and scheduling is typically introduced in this
level. The concepts are basic, but implementation is difficult, as many companies
resist turning over responsibility for any processing to external organizations,
even when the data verify the higher capability. They also want to hold
back the sharing of vital information, until there is a better understanding of
what can and should be shared for mutual advantage.
Most companies start their network formation by working closely with a few
suppliers. They begin sharing a bit of previously sacrosanct data, with the
intention of finding the hidden savings that have been eluding the firms, in spite
of years of purchasing and supply relationships. Now the process maps describing
the supply chain steps are viewed with an eye toward how the business allies
can find areas of mutual benefit. Partnering diagnostics come into play as the
allies seriously analyze what takes place within the process steps, particularly
at the points of handoff. Frequently using reengineering techniques, the allies
develop improved process steps, often applying enabling technology to improve
the transfer of critical knowledge. Results generally provide a higher level of
improvement for each of the participating parties. The key in this area is to make
certain that the discovered savings are shared in some way between the parties
to the effort.
Distributors can play a key role in this area, as they work more closely with
the manufacturers to get the products and services to the end customer in the
most effective manner, with the appropriate amount of inventory. The results
of the survey to be cited verified that some of these distributors have made
substantial progress with their supply chain efforts and have advanced solidly
into level 3 and beyond. As the internal house begins to get in order, and key
distributors are made a part of the network, most firms then turn to a few key
customers and the analysis of the linked process steps continues, with the focus
moving toward optimization across the total network, not just the internal
processing.
(ASCM) efforts. Now the supply chain constituents are working closely together,
sharing knowledge across a communication extranet and collaborating
on how to increase revenues and better utilize combined assets, as well as
finding further cost and service improvements. A new set of metrics is introduced
to measure performance, with most of the measures focused on customer
or consumer satisfaction. This is truly the realm of the intelligent value network
we will describe and where the savings can reach as high as five to eight points
of new profit.
The fifth and final level of the evolution is darkened in the figure, because
it is more theoretical than actual, with only a handful of firms achieving full
network connectivity. That term is used to describe a condition in which the
linked organizations are sharing virtually all of the important data electronically
and are working together through some form of cybercommunication system.
This is the domain of high-technology companies (Intel, Cisco, Hewlett-Packard,
IBM), a few leading-edge consumer goods providers (Colgate-Palmolive, Procter
& Gamble, Nike, Dell, GE, Toyota), and a select group of experimenters trying
to determine the actual value of direct knowledge sharing.
This framework will be used throughout the text, as we describe how a
business organization can move carefully and effectively across the five levels
and attain the highest position of importance to the firm, its market, and its
customers. For now, the maturity model should be applied to consider how
companies are making progress across the described evolution and to determine
the values for moving to higher levels of performance. As we progress together,
we will also show what the documented results by level have been.
supply chain efforts are alive and well,in business management:
There were several other important points that emerged from the survey.
When we asked if the CEO considers supply chain management to be a source
of competitive advantage, the replies were 75% positive, indicating the concept
is now accepted at the most senior level of the business for most organizations.
When we inquired as to what functions/costs were included in a supply chain
organization, there were two categories to the responses. The major functions
included, in ranked order:
_ Logistics, transportation, and warehousing
_ Purchasing procurement and sourcing
_ Inventory and materials management
_ Forecasting, planning, and scheduling
_ Supply chain software and technology
The secondary functions included:
_ Manufacturing
_ Supplier relationship management
_ Customer relationship management
_ Marketing, sales, and customer service
We interpret these findings to indicate that, once again, most business organizations
are hard at work on the basics, or level 1 through 3 efforts, while
postponing higher level efforts that would include a closer network type of
relationship with suppliers and customers. Virtually 90% of the firms responding
to the survey placed their companies or business units in levels 1 through
3, while there was evidence that the ASCM concepts were not fully understood
or applied. The only firms giving themselves multiple level 4 or 5 ratings were
in the discrete manufacturing, high-technology, telecommunications, and wholesale
distribution industries. The laggards formed a much larger group, with
defense, government, oil and gas, publishing and printing, and utilities contained
in that area. Best-in-class ratings were given to Dell, Wal-Mart, Procter
& Gamble, Toyota, Cisco Systems, IBM, General Electric, and Hewlett-Packard.
The most surprising result of the survey was the indication that a solid
supply chain strategy was generally missing in action. By that we mean most
responding firms indicated they did not have a specific strategy at work todefine the supply chain effort or, more importantly, to link the results with the
business plan.
When we asked if the CEO considers supply chain management to be a source
of competitive advantage, the replies were 75% positive, indicating the concept
is now accepted at the most senior level of the business for most organizations.
When we inquired as to what functions/costs were included in a supply chain
organization, there were two categories to the responses. The major functions
included, in ranked order:
_ Logistics, transportation, and warehousing
_ Purchasing procurement and sourcing
_ Inventory and materials management
_ Forecasting, planning, and scheduling
_ Supply chain software and technology
The secondary functions included:
_ Manufacturing
_ Supplier relationship management
_ Customer relationship management
_ Marketing, sales, and customer service
We interpret these findings to indicate that, once again, most business organizations
are hard at work on the basics, or level 1 through 3 efforts, while
postponing higher level efforts that would include a closer network type of
relationship with suppliers and customers. Virtually 90% of the firms responding
to the survey placed their companies or business units in levels 1 through
3, while there was evidence that the ASCM concepts were not fully understood
or applied. The only firms giving themselves multiple level 4 or 5 ratings were
in the discrete manufacturing, high-technology, telecommunications, and wholesale
distribution industries. The laggards formed a much larger group, with
defense, government, oil and gas, publishing and printing, and utilities contained
in that area. Best-in-class ratings were given to Dell, Wal-Mart, Procter
& Gamble, Toyota, Cisco Systems, IBM, General Electric, and Hewlett-Packard.
The most surprising result of the survey was the indication that a solid
supply chain strategy was generally missing in action. By that we mean most
responding firms indicated they did not have a specific strategy at work todefine the supply chain effort or, more importantly, to link the results with the
business plan.
purposes of demonstrate and clear strategy:
One of the purposes of this text will be to demonstrate the
importance of such a clear strategy and how a link to the business plan can result
in substantiated improvements to sales and earnings, found directly on the profit
and loss statement prepared by the firm.
In conclusion, the survey did document savings as a result of supply chain
efforts. When asked what has been the overall impact of the supply chain effort
on costs, those responding indicated:
_ Reduced by 1 to 5% 27% of responses
_ Reduced by 6 to 10% 33% of responses
_ Reduced by 11 to 20% 8% of responses
_ Reduced by more than 20% 4% of responses
_ Initiative failed to meet objectives 6% of responses
_ Not sure 21% of responses
When asked what has been the overall impact of the supply chain efforts
on increased revenues, the answers were not as definitive. Responses indicated:
_ Increased by 1 to 5% 27% of responses
_ Increased by 6 to 10% 21% of responses
_ Increased by 11 to 20% 5% of responses
_ Increased by more than 20% 4% of responses
_ Failed to meet objectives 5% of responses
_ Not sure 38% of responses
We interpret the high percentage of responses indicating a failure or not sure
as an indication that the idea of using supply chain to differentiate a firm and
its network partners from competitors to create new sales is still not an integral
part of supply chain efforts in general. Building top line performance becomes
the future challenge, as companies discover how to use supply chain excellence
in both directions on the profit and loss statement.
By combining the survey results with CSC research from other firms indicating
a solid supply chain effort, Figure 1.2 can be used as a guide to just what
might be achieved from a continued and concerted effort to use supply chain
to improve both top (revenue) and bottom (cost) line results and how five to
eight points of new profits are possible.
To use this chart effectively, a company should consider the bottom, horizontal
axis as indicating the percent of profit made before paying taxes. The
improvements are then measured in additional points of new profit as a percent
of net revenues. Beginning on the left of the chart, there can be no doubt that
inventory reduction is a viable part of a supply chain effort and can result in
as much as a two-point improvement in profits. We indicate that a much smaller
amount is actually achieved, because, as mentioned, most inventories are simply
reallocated throughout the network, rather than eliminated. Inventory remains
a frontier to be fully conquered, as supply chain efforts mature, and demand
is more closely matched with supply, visibility into the supply chain network
is established, and the need for extra stocks is eliminated. A firm using the chart
is well advised to establish a realistic target for this part of the improvement
effort.
Next we see an improvement through reduced logistics costs, resulting in
a possible point of improvement in earnings. Once again, a range is used
because most firms neglect to work as diligently on improving inbound freight
as they do on internal handling and outbound freight. These companies also tend
to overlook the possibility of using supply chain partners for storing and moving
some of the goods or fail to apply some of the contemporary logistics concepts
that include virtual ownership of assets and shared use of equipment and facilities.
(For a more detailed consideration of the contemporary view of logistics,
see Poirier, 2004.)
The areas of direct and indirect spending merit the largest potential benefits,
as purchasing covers the largest portion of costs in most businesses. We find
that the earliest efforts (levels 1 and 2) typically bring in a reasonable return
and establish sufficient savings to validate the effort, as indicated by the large
range of possible improvement. Later progress by most companies will focus
. The Potential Savings and Revenue Enhancements: Projected Benefits
from Collaborative Initiative Implementations (Source: CSC projections based
on benchmarked performance of comparable solution offerings)
attention on the indirect spend, moving into areas such as office supplies,
furniture, travel, computers, office equipment, and so forth.
importance of such a clear strategy and how a link to the business plan can result
in substantiated improvements to sales and earnings, found directly on the profit
and loss statement prepared by the firm.
In conclusion, the survey did document savings as a result of supply chain
efforts. When asked what has been the overall impact of the supply chain effort
on costs, those responding indicated:
_ Reduced by 1 to 5% 27% of responses
_ Reduced by 6 to 10% 33% of responses
_ Reduced by 11 to 20% 8% of responses
_ Reduced by more than 20% 4% of responses
_ Initiative failed to meet objectives 6% of responses
_ Not sure 21% of responses
When asked what has been the overall impact of the supply chain efforts
on increased revenues, the answers were not as definitive. Responses indicated:
_ Increased by 1 to 5% 27% of responses
_ Increased by 6 to 10% 21% of responses
_ Increased by 11 to 20% 5% of responses
_ Increased by more than 20% 4% of responses
_ Failed to meet objectives 5% of responses
_ Not sure 38% of responses
We interpret the high percentage of responses indicating a failure or not sure
as an indication that the idea of using supply chain to differentiate a firm and
its network partners from competitors to create new sales is still not an integral
part of supply chain efforts in general. Building top line performance becomes
the future challenge, as companies discover how to use supply chain excellence
in both directions on the profit and loss statement.
By combining the survey results with CSC research from other firms indicating
a solid supply chain effort, Figure 1.2 can be used as a guide to just what
might be achieved from a continued and concerted effort to use supply chain
to improve both top (revenue) and bottom (cost) line results and how five to
eight points of new profits are possible.
To use this chart effectively, a company should consider the bottom, horizontal
axis as indicating the percent of profit made before paying taxes. The
improvements are then measured in additional points of new profit as a percent
of net revenues. Beginning on the left of the chart, there can be no doubt that
inventory reduction is a viable part of a supply chain effort and can result in
as much as a two-point improvement in profits. We indicate that a much smaller
amount is actually achieved, because, as mentioned, most inventories are simply
reallocated throughout the network, rather than eliminated. Inventory remains
a frontier to be fully conquered, as supply chain efforts mature, and demand
is more closely matched with supply, visibility into the supply chain network
is established, and the need for extra stocks is eliminated. A firm using the chart
is well advised to establish a realistic target for this part of the improvement
effort.
Next we see an improvement through reduced logistics costs, resulting in
a possible point of improvement in earnings. Once again, a range is used
because most firms neglect to work as diligently on improving inbound freight
as they do on internal handling and outbound freight. These companies also tend
to overlook the possibility of using supply chain partners for storing and moving
some of the goods or fail to apply some of the contemporary logistics concepts
that include virtual ownership of assets and shared use of equipment and facilities.
(For a more detailed consideration of the contemporary view of logistics,
see Poirier, 2004.)
The areas of direct and indirect spending merit the largest potential benefits,
as purchasing covers the largest portion of costs in most businesses. We find
that the earliest efforts (levels 1 and 2) typically bring in a reasonable return
and establish sufficient savings to validate the effort, as indicated by the large
range of possible improvement. Later progress by most companies will focus
. The Potential Savings and Revenue Enhancements: Projected Benefits
from Collaborative Initiative Implementations (Source: CSC projections based
on benchmarked performance of comparable solution offerings)
attention on the indirect spend, moving into areas such as office supplies,
furniture, travel, computers, office equipment, and so forth.
THE ROUTE TO ADVANCED BUSINESS PERFORMANCE
As mentioned, the SCOR� model and its engineering process counterparts provide
an excellent framework for analyzing how to improve an enterprise�s endto-
end processing. We will apply this model, in conjunction with the supply
chain maturity model and maturity matrices (to be introduced), to explain the
path to the highest appropriate level of supply chain progress, keeping in mind
that there are widely differing interpretations of these processes by companies
at different levels of supply chain sophistication. The simple silo-based planning
of a level 1 company, shared in an ad hoc way with neighboring internal
departments, for example, compares to the complex, reactive planning of a level
4 or 5 network, with collaborative, interactive comparisons of schedules up and
down key threads in the network. The na�ve �replace and scrap� policy for
returns in level 1 supply chains contrasts with the more sophisticated approaches
of higher level organizations, which are planning the cost-effective reentry of
refurbished products into the flow.
It is these different levels of application of the basic process models and the
value that can be generated that the authors have come to understand. For a firm
to generate value from the supply chain journey and become part of the processenabled
extended enterprise requires the creation of a guiding process maturity
roadmap.
is a matrix that is useful for establishing such a roadmap. The
matrix takes the top-level SCOR� processes � Plan, Source, Make, Deliver,
and Return � and sets out the attributes that can be expected for each process
as a company moves through the five levels of supply chain maturity.
The attributes are designed as a stretch for each level, and as our recent
surveys have shown, few companies have moved much beyond level 3. However,
there is merit in establishing an absolute framework against which progress
and value creation can be measured, to avoid the problems of traditional
benchmarking, where the top-level, best-in-class, attained performance may still
only be at level 3. In subsequent chapters, we will lay out the results of extensive
research in a number of case histories, to demonstrate the value that companies
have actually achieved in moving through the levels.
To support the growing process maturity, tools and technology are often
deployed. Again, we have developed a guiding matrix that indicates the types
of approach that typically support the processes in. This technology
matrix is shown in With these two matrices as our guide, we can describe the way in which
the supply chain processes and their supporting technologies develop � the
roadmap to greater supply chain value. Companies that want to follow this
roadmap are well advised to customize the matrices and the SCOR� map to fit
the actual circumstances of their industry and market conditions.
an excellent framework for analyzing how to improve an enterprise�s endto-
end processing. We will apply this model, in conjunction with the supply
chain maturity model and maturity matrices (to be introduced), to explain the
path to the highest appropriate level of supply chain progress, keeping in mind
that there are widely differing interpretations of these processes by companies
at different levels of supply chain sophistication. The simple silo-based planning
of a level 1 company, shared in an ad hoc way with neighboring internal
departments, for example, compares to the complex, reactive planning of a level
4 or 5 network, with collaborative, interactive comparisons of schedules up and
down key threads in the network. The na�ve �replace and scrap� policy for
returns in level 1 supply chains contrasts with the more sophisticated approaches
of higher level organizations, which are planning the cost-effective reentry of
refurbished products into the flow.
It is these different levels of application of the basic process models and the
value that can be generated that the authors have come to understand. For a firm
to generate value from the supply chain journey and become part of the processenabled
extended enterprise requires the creation of a guiding process maturity
roadmap.
is a matrix that is useful for establishing such a roadmap. The
matrix takes the top-level SCOR� processes � Plan, Source, Make, Deliver,
and Return � and sets out the attributes that can be expected for each process
as a company moves through the five levels of supply chain maturity.
The attributes are designed as a stretch for each level, and as our recent
surveys have shown, few companies have moved much beyond level 3. However,
there is merit in establishing an absolute framework against which progress
and value creation can be measured, to avoid the problems of traditional
benchmarking, where the top-level, best-in-class, attained performance may still
only be at level 3. In subsequent chapters, we will lay out the results of extensive
research in a number of case histories, to demonstrate the value that companies
have actually achieved in moving through the levels.
To support the growing process maturity, tools and technology are often
deployed. Again, we have developed a guiding matrix that indicates the types
of approach that typically support the processes in. This technology
matrix is shown in With these two matrices as our guide, we can describe the way in which
the supply chain processes and their supporting technologies develop � the
roadmap to greater supply chain value. Companies that want to follow this
roadmap are well advised to customize the matrices and the SCOR� map to fit
the actual circumstances of their industry and market conditions.
Subscribe to:
Posts (Atom)