For the IT community, typical benefits of the new-style architecture and BPM include:
_ Reduction in IT development cost by up to 30%
_ Payback typically between six and nine months
_ Typical enterprise integration project implementation down from 18
months to 7 months
_ BPM supports highly iterative IT projects; start small then grow
For the business community:
_ Some early adopters have achieved annual revenue increases of 5%,
with a three-year return on investment as high as 250%.
_ These figures coexist with annual IT cost reductions of 10% or
more and savings of 50 to 80% for application management alone.
_ BPM puts businesspeople back in the driving seat and enables and encourages
continuous business process improvement and evolution. Directly
executable business models become feasible, with reusable building blocks
for the business, so as the process library builds up, subsequent processes
become easier and quicker to define and implement.
_ BPM aligns processes more directly with business objectives and streamlines
internal and external business processes, eliminating redundancies
and increasing automation.
_ BPM provides end-to-end process visibility, control, and accountability,
supported by common process integration protocol (BPML) behind the
firewall and over the Internet � ideal for supply chain collaboration.
BPM allows for global process convergence while catering to essential
local customization.
Saturday, January 2, 2010
THE EFFORT BEGINS WITH DRIVING METRICS:
As we have worked with numerous firms in various industries and helped guide
them toward enhanced performance through a concerted supply chain effort, a
variety of methods have been used to track the actual improvements, as well
as a number of specific measurements. Depending on the orientation of the
company, we have been asked to document enhancement to economic value
added, earnings per share, return on net assets employed, return on investment,
improved cash flow, and better earnings before taxes. In virtually all cases, we
were able to show the direct link between supply chain improvement and the
desired metric.
Unfortunately, along the way we encountered a number of firms that had
difficulty making the direct connection between important financial measures
and what was resulting from their supply chain actions � in a way that could
be reported on their earnings statements. In spite of good efforts to improve
sourcing costs, cut transportation and logistics costs, reduce dependency on
inventory, implement better forecasting and planning and scheduling, introduce
greatly improved order management systems, and enhance sales lifts through
better manufacturing and delivery techniques, many companies simply lack the
ability to show the direct association with improved financial performance. It
is our intention to eliminate that cloud from the supply chain environment and
show how such a linkage can be established and tracked.
As another example of how the potential positive benefits can be derived
if a driving metric is at the center of the effort, we would cite the actions taken
by Colgate-Palmolive (C-P). This firm has concentrated on achieving the highest
market share in one very competitive market, oral care, which includes
toothpaste and associated products. From a position in 1994 where the firm had
a share of 21.9%, C-P has progressed to a point where it now has 32% of that
market. As this performance was increasing, C-P was deep into a supply chain
effort, with one concentration on cash-flow return on investment. That metric
stood at 14.4% in 2003, versus an industry average 4.8%.
While part of the transformation was no doubt due to significant product
innovations, it was dramatically impacted by the connection to C-P�s supply
chain effort. According to one study, �This let Colgate integrate demand and
supply chain information � and decisions � more effectively. After years of
stagnant sales and narrowing margins in the mid 1990s, Colgate rethought the
entire process involved in its value chain. The company then slashed supply
chain costs for all its products even as it shortened manufacturing and delivery
times.� The report further states that �Colgate�s planning is now much more
precise: Errors in forecasting have been cut from 61% to 21%, and case-fill rates
nudged up from 94% to 97%� (Koudal and Lavien, 2003, p. 82).
To make the most of the exposition to be delivered, it is best for the reader
to set out those metrics of greatest importance to his or her business. Table 3.1
is an excellent reference in this area. Created by Raymond Clayton, and reported
in Supply Chain Management Review, it presents the kind of financial measures
of most importance to a business. Next to each measure is a brief list of the
elements from the financial statement that are related to the measure. Then
Clayton lists the performance drivers that need improving in order to enhance
the desired performance (Clayton, 2002, p. 35). Each company is advised to
develop its own set of financial outcome measures and performance drivers.
With the Clayton chart as a guide, the information we present will then have
the most benefit in determining how a concerted effort will produce the type
of desired impact.
Along the way, it is equally important to understand the relationship between
financial results and the specific elements within the supply chain that
impact performance in both directions � positive and negative. This refers to
the need to make sure efforts devoted to supply chain improvements are linked
with process changes that are valuable to the firm, and not just measures that
show improvement without really having a positive effect on financial perfor
mance. For example, we could consider the very important need to segregate
suppliers and customers by value, before developing supply chain changes that
impact both areas, so a lot of effort is not wasted on areas that have little
additional merit (weak suppliers and customers serviced at a loss).
We note, for example, that one firm which has made great progress with
supply chain improvements, Procter & Gamble, is constantly faced with the
need to put emphasis in its supply chain effort on areas that have the most
overall impact to the firm. According to one report, �In 2002, just 12 of P&G�s
250-odd brands generated half of its sales and an even bigger share of net
profits� (Andrew and Sirkin, 2003, p. 77). Clearly, a lot of valuable effort could
be wasted on brands that have little overall merit. It becomes essential, as a
supply chain effort matures, to track what return is being made from the specific
areas of most value, so that carefully directed investments in time and resources
are made in the areas of greatest importance.
them toward enhanced performance through a concerted supply chain effort, a
variety of methods have been used to track the actual improvements, as well
as a number of specific measurements. Depending on the orientation of the
company, we have been asked to document enhancement to economic value
added, earnings per share, return on net assets employed, return on investment,
improved cash flow, and better earnings before taxes. In virtually all cases, we
were able to show the direct link between supply chain improvement and the
desired metric.
Unfortunately, along the way we encountered a number of firms that had
difficulty making the direct connection between important financial measures
and what was resulting from their supply chain actions � in a way that could
be reported on their earnings statements. In spite of good efforts to improve
sourcing costs, cut transportation and logistics costs, reduce dependency on
inventory, implement better forecasting and planning and scheduling, introduce
greatly improved order management systems, and enhance sales lifts through
better manufacturing and delivery techniques, many companies simply lack the
ability to show the direct association with improved financial performance. It
is our intention to eliminate that cloud from the supply chain environment and
show how such a linkage can be established and tracked.
As another example of how the potential positive benefits can be derived
if a driving metric is at the center of the effort, we would cite the actions taken
by Colgate-Palmolive (C-P). This firm has concentrated on achieving the highest
market share in one very competitive market, oral care, which includes
toothpaste and associated products. From a position in 1994 where the firm had
a share of 21.9%, C-P has progressed to a point where it now has 32% of that
market. As this performance was increasing, C-P was deep into a supply chain
effort, with one concentration on cash-flow return on investment. That metric
stood at 14.4% in 2003, versus an industry average 4.8%.
While part of the transformation was no doubt due to significant product
innovations, it was dramatically impacted by the connection to C-P�s supply
chain effort. According to one study, �This let Colgate integrate demand and
supply chain information � and decisions � more effectively. After years of
stagnant sales and narrowing margins in the mid 1990s, Colgate rethought the
entire process involved in its value chain. The company then slashed supply
chain costs for all its products even as it shortened manufacturing and delivery
times.� The report further states that �Colgate�s planning is now much more
precise: Errors in forecasting have been cut from 61% to 21%, and case-fill rates
nudged up from 94% to 97%� (Koudal and Lavien, 2003, p. 82).
To make the most of the exposition to be delivered, it is best for the reader
to set out those metrics of greatest importance to his or her business. Table 3.1
is an excellent reference in this area. Created by Raymond Clayton, and reported
in Supply Chain Management Review, it presents the kind of financial measures
of most importance to a business. Next to each measure is a brief list of the
elements from the financial statement that are related to the measure. Then
Clayton lists the performance drivers that need improving in order to enhance
the desired performance (Clayton, 2002, p. 35). Each company is advised to
develop its own set of financial outcome measures and performance drivers.
With the Clayton chart as a guide, the information we present will then have
the most benefit in determining how a concerted effort will produce the type
of desired impact.
Along the way, it is equally important to understand the relationship between
financial results and the specific elements within the supply chain that
impact performance in both directions � positive and negative. This refers to
the need to make sure efforts devoted to supply chain improvements are linked
with process changes that are valuable to the firm, and not just measures that
show improvement without really having a positive effect on financial perfor
mance. For example, we could consider the very important need to segregate
suppliers and customers by value, before developing supply chain changes that
impact both areas, so a lot of effort is not wasted on areas that have little
additional merit (weak suppliers and customers serviced at a loss).
We note, for example, that one firm which has made great progress with
supply chain improvements, Procter & Gamble, is constantly faced with the
need to put emphasis in its supply chain effort on areas that have the most
overall impact to the firm. According to one report, �In 2002, just 12 of P&G�s
250-odd brands generated half of its sales and an even bigger share of net
profits� (Andrew and Sirkin, 2003, p. 77). Clearly, a lot of valuable effort could
be wasted on brands that have little overall merit. It becomes essential, as a
supply chain effort matures, to track what return is being made from the specific
areas of most value, so that carefully directed investments in time and resources
are made in the areas of greatest importance.
THE PROCESS-BASED PROFIT AND LOSS STATEMENT AND BALANCE SHEET:
At this point, we have introduced several ideas:
_ A supply chain maturity model can be used to calibrate a firm�s position
with regard to advancing to the highest appropriate level and to determine
the order-of-magnitude benefits for making such a progression.
_ The SCOR� model can be applied to match the best practices across an
advanced progression with the elements of that model.
_ A series of matrices can be used to determine that the best practices have
been achieved at the desired level of maturity.
_ Customer satisfaction, delivered through an intelligent value network,
will be a major factor distinguishing the businesses linked in a wellplanned
and -executed extended enterprise.
We have also indicated that business process management and business process
management systems should be used to make the communication breakthrough
between important constituents of the supply chain network and to gain access
into disparate technology systems, so that business allies can access the necessary
knowledge across the enterprise, of which they are one link, to make
important end-to-end process changes. With those concepts as our background,
Our basic premise is that once the appropriate connections are made between
business processes within the network, so a view of potential optimized conditions
and highest possible customer satisfaction can be attained, attention
should turn to pursuing the necessary improvement effort while verifying the
enhanced financial performance. This means that the real opportunities for
increasing value move from nebulous concepts to identified additions to revenues
and profits. This thesis is encapsulated in the transition values for each
process in the maturity model introduced in the first chapter. By identifying a
firm�s and its enterprise�s current and desired status on the maturity model and
the SCOR� matrices, and relating the examples, improvement percentages, and
actual numbers to be documented through case studies to one�s own financial
statements, the reader will be able to create a first-cut value-based transformation
plan.
That means the processes being improved are cared for not simply because
they are elements of the supply chain, but because the improvements can be
tracked to financial performance. This idea is no longer part of an elusive quest.
Recent reports by major companies are beginning to verify exactly what can
be accomplished. In one specific example, IBM Corporation determined that its
2000 financial statement showed an inventory of roughly $4.8 billion, while
sales were $88.4 billion. Using a formula for days of inventory, which divided
the amount of inventory by the sales and multiplied the result by 365 days, the
company reckoned its days of inventory at 19.7 days. A one-day reduction to
that figure ($4.8 billion divided by 19.7 days) would generate a one-time positive
cash flow of $241 million.
For further substantiation of the potential for ASCM, a few examples verify
what can be brought to the balance sheet and profit and loss (P&L) statements:
_ Gillette Company, the Boston-based manufacturer of shaving and oral
care products and Duracell batteries, has reduced its inventory by 30%,
or $400 million, since the January 2000 formation of its supply chain
organization.
_ Quaker Oats, a division of Pepsico, Inc., through its supply chain initiative
dubbed North American Manufacturing Study, expects to achieve
savings between $60 and $70 million.
_ KYB Manufacturing, a Franklin, New Jersey supplier of automotive
struts and shock absorbers, experienced a volume explosion from 80,000
units per month to over 500,000. Applying supply chain techniques and
enabling technology to track inventory, order parts, and forecast demand,
the company reduced raw material inventory from $7.8 million
to $6.3 million. Scrap has been reduced by 50%, while errors have been
eliminated and on-time rates have skyrocketed.
_ Unilever, the global consumer goods firm, through its Path to Growth
supply chain effort, expects an annual sales growth of 5 to 6%, coupled
with a 16% increase in operating margins.
_ IBM�s Integrated Supply Chain Group is expecting to cut up to $2
billion from its $40 billion raw material and supplies spend.
_ Johnson & Johnson Medical, Inc. saw an increase in forecast accuracy
from 12% to 53%, a reduction in inventory turnaround from 154 days
to 110 days, and an increase in customer service from 95% to 99.38%.
These types of documentation serve to verify that the search for real financial
gains is not a spurious effort, but is bringing the long-sought improvements to
the P&L statement and balance sheet.
_ A supply chain maturity model can be used to calibrate a firm�s position
with regard to advancing to the highest appropriate level and to determine
the order-of-magnitude benefits for making such a progression.
_ The SCOR� model can be applied to match the best practices across an
advanced progression with the elements of that model.
_ A series of matrices can be used to determine that the best practices have
been achieved at the desired level of maturity.
_ Customer satisfaction, delivered through an intelligent value network,
will be a major factor distinguishing the businesses linked in a wellplanned
and -executed extended enterprise.
We have also indicated that business process management and business process
management systems should be used to make the communication breakthrough
between important constituents of the supply chain network and to gain access
into disparate technology systems, so that business allies can access the necessary
knowledge across the enterprise, of which they are one link, to make
important end-to-end process changes. With those concepts as our background,
Our basic premise is that once the appropriate connections are made between
business processes within the network, so a view of potential optimized conditions
and highest possible customer satisfaction can be attained, attention
should turn to pursuing the necessary improvement effort while verifying the
enhanced financial performance. This means that the real opportunities for
increasing value move from nebulous concepts to identified additions to revenues
and profits. This thesis is encapsulated in the transition values for each
process in the maturity model introduced in the first chapter. By identifying a
firm�s and its enterprise�s current and desired status on the maturity model and
the SCOR� matrices, and relating the examples, improvement percentages, and
actual numbers to be documented through case studies to one�s own financial
statements, the reader will be able to create a first-cut value-based transformation
plan.
That means the processes being improved are cared for not simply because
they are elements of the supply chain, but because the improvements can be
tracked to financial performance. This idea is no longer part of an elusive quest.
Recent reports by major companies are beginning to verify exactly what can
be accomplished. In one specific example, IBM Corporation determined that its
2000 financial statement showed an inventory of roughly $4.8 billion, while
sales were $88.4 billion. Using a formula for days of inventory, which divided
the amount of inventory by the sales and multiplied the result by 365 days, the
company reckoned its days of inventory at 19.7 days. A one-day reduction to
that figure ($4.8 billion divided by 19.7 days) would generate a one-time positive
cash flow of $241 million.
For further substantiation of the potential for ASCM, a few examples verify
what can be brought to the balance sheet and profit and loss (P&L) statements:
_ Gillette Company, the Boston-based manufacturer of shaving and oral
care products and Duracell batteries, has reduced its inventory by 30%,
or $400 million, since the January 2000 formation of its supply chain
organization.
_ Quaker Oats, a division of Pepsico, Inc., through its supply chain initiative
dubbed North American Manufacturing Study, expects to achieve
savings between $60 and $70 million.
_ KYB Manufacturing, a Franklin, New Jersey supplier of automotive
struts and shock absorbers, experienced a volume explosion from 80,000
units per month to over 500,000. Applying supply chain techniques and
enabling technology to track inventory, order parts, and forecast demand,
the company reduced raw material inventory from $7.8 million
to $6.3 million. Scrap has been reduced by 50%, while errors have been
eliminated and on-time rates have skyrocketed.
_ Unilever, the global consumer goods firm, through its Path to Growth
supply chain effort, expects an annual sales growth of 5 to 6%, coupled
with a 16% increase in operating margins.
_ IBM�s Integrated Supply Chain Group is expecting to cut up to $2
billion from its $40 billion raw material and supplies spend.
_ Johnson & Johnson Medical, Inc. saw an increase in forecast accuracy
from 12% to 53%, a reduction in inventory turnaround from 154 days
to 110 days, and an increase in customer service from 95% to 99.38%.
These types of documentation serve to verify that the search for real financial
gains is not a spurious effort, but is bringing the long-sought improvements to
the P&L statement and balance sheet.
. THE PROCESS-BASED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET:
The statement shows how our business is doing overall, but does
not tell us how well the processes are performing. What are the costs associated
with the Plan process? With the Make or Deliver process? Are these funds being
spent well?
The product design processes can
be dealt with in a similar way and can easily be added to the figure. The key
to the decisions is deciding who is accountable for generating the income or
consuming the cost � or has some responsibility for the process. As in many
situations, these roles are not always clear. In the authors� experience, one
process should be accountable for each key metric or share of it, and the
contributions of others should be clearly understood. The accountabilities and
responsibilities are then built into individuals� performance measurements.
Nonetheless, they will
all, ultimately, come under the control of one or more processes in the complete
enterprise process map. The ultimate responsibility of the managers of the
enterprise is, of course, to maximize the return for the shareholders and increase
the strength of their balance sheet.
We now have a set of metrics against which the performance of each process
can be judged as investments are made in increasing maturity. The same principles
can and should be extended to nonfinancial key performance indicators
such as fill rates, on-time delivery, and customer satisfaction. The impact of
process changes can now be judged against the RONA performance of the
whole enterprise. Are we reducing cost or increasing revenue? Are we investing
in our balance sheet in a way that enhances our overall return on net assets?
Are we seeing the kinds of returns promised by those who advised investing
in supply chain efforts?
The task of establishing an internal supply chain and measuring its effectiveness
is well illustrated by work done with Zeneca Agrochemicals, now part
of Syngenta. The project piloted a new approach to supply chain management
in the company�s insecticide/fungicide suspended colloids business. Farmers
around the world use these products to guard their crops from infestations by
not tell us how well the processes are performing. What are the costs associated
with the Plan process? With the Make or Deliver process? Are these funds being
spent well?
The product design processes can
be dealt with in a similar way and can easily be added to the figure. The key
to the decisions is deciding who is accountable for generating the income or
consuming the cost � or has some responsibility for the process. As in many
situations, these roles are not always clear. In the authors� experience, one
process should be accountable for each key metric or share of it, and the
contributions of others should be clearly understood. The accountabilities and
responsibilities are then built into individuals� performance measurements.
Nonetheless, they will
all, ultimately, come under the control of one or more processes in the complete
enterprise process map. The ultimate responsibility of the managers of the
enterprise is, of course, to maximize the return for the shareholders and increase
the strength of their balance sheet.
We now have a set of metrics against which the performance of each process
can be judged as investments are made in increasing maturity. The same principles
can and should be extended to nonfinancial key performance indicators
such as fill rates, on-time delivery, and customer satisfaction. The impact of
process changes can now be judged against the RONA performance of the
whole enterprise. Are we reducing cost or increasing revenue? Are we investing
in our balance sheet in a way that enhances our overall return on net assets?
Are we seeing the kinds of returns promised by those who advised investing
in supply chain efforts?
The task of establishing an internal supply chain and measuring its effectiveness
is well illustrated by work done with Zeneca Agrochemicals, now part
of Syngenta. The project piloted a new approach to supply chain management
in the company�s insecticide/fungicide suspended colloids business. Farmers
around the world use these products to guard their crops from infestations by
THE APPROACH BEGINS WITH MAKING THE FINANCIAL LINK TO PROCESSES
The value created in a supply chain network can be measured in several ways,
but the key is to find a set of measures that encourage the efficient creation of
profit. These measures look good if either profit goes up or the assets used to
generate the same amount of profit go down. We shall begin by using the
concept of return on net assets (RONA) as it relates to supply chain management.
This technique will take us well on the journey, through levels 1 and 2,
and will support a more advanced treatment when we get beyond level 3.
In other words, it compares the P&L
account with elements of the balance sheet. The value of RONA is that it allows
a balance to be struck between the often-conflicting pressures of trying to
increase profit and manage the asset base. For example, if you increase your
inventories, you may be able to sell more, but will you make commensurately
more profit? If RONA goes up, you will. If it goes down, you won�t.
A second consideration is to choose the scope for applying RONA. Few
supply chains involve the whole of a multidivisional corporation working as a
single entity to supply its customers. In fact, from the authors� experience, most
corporations can be divided into autonomous horizontal businesses,
The horizontals may share suppliers and channels,
but the key decisions about range of investment management, investment in
assets, and tactical decisions around sales order management can all be taken
within the horizontal unit, with no great conflict with other horizontals. The key
determinant of a good decision is whether RONA for the horizontal organization
will go up or down. Interestingly, these horizontals often cross the formal
boundaries in the organization and are the root cause of some of the complexities
encountered in supply chain management.
These horizontals will be the basic building blocks for our thesis. A selfcontained
level 1 organization will be able to decide on its product portfolio
and investment in assets. It will have a supplier base, which it may share with
other parts of the corporation to which it belongs and will be able to see the
sales it generates from its (possibly shared) channels to market, and will incur
a share of the cost of those channels. But for our purposes, it is a self-contained
business, governed by RONA.
but the key is to find a set of measures that encourage the efficient creation of
profit. These measures look good if either profit goes up or the assets used to
generate the same amount of profit go down. We shall begin by using the
concept of return on net assets (RONA) as it relates to supply chain management.
This technique will take us well on the journey, through levels 1 and 2,
and will support a more advanced treatment when we get beyond level 3.
In other words, it compares the P&L
account with elements of the balance sheet. The value of RONA is that it allows
a balance to be struck between the often-conflicting pressures of trying to
increase profit and manage the asset base. For example, if you increase your
inventories, you may be able to sell more, but will you make commensurately
more profit? If RONA goes up, you will. If it goes down, you won�t.
A second consideration is to choose the scope for applying RONA. Few
supply chains involve the whole of a multidivisional corporation working as a
single entity to supply its customers. In fact, from the authors� experience, most
corporations can be divided into autonomous horizontal businesses,
The horizontals may share suppliers and channels,
but the key decisions about range of investment management, investment in
assets, and tactical decisions around sales order management can all be taken
within the horizontal unit, with no great conflict with other horizontals. The key
determinant of a good decision is whether RONA for the horizontal organization
will go up or down. Interestingly, these horizontals often cross the formal
boundaries in the organization and are the root cause of some of the complexities
encountered in supply chain management.
These horizontals will be the basic building blocks for our thesis. A selfcontained
level 1 organization will be able to decide on its product portfolio
and investment in assets. It will have a supplier base, which it may share with
other parts of the corporation to which it belongs and will be able to see the
sales it generates from its (possibly shared) channels to market, and will incur
a share of the cost of those channels. But for our purposes, it is a self-contained
business, governed by RONA.
SUPPLY CHAIN IS ABOUT MORE THAN REDUCING COSTS
To begin, then, the process of tracing value to the P&L and financial statements,
we must accept the premise that there is more to a supply chain effort than simply
cutting costs in perpetuity. That sort of intention will get the effort launched and
provide the early savings to fund a continued effort, but it cannot be the long-term
element of sustenance. At its core, ASCM is concerned with improving business
processes, and thereby enhancing a variety of important metrics, including those
affecting costs, revenues, asset utilization, customer satisfaction, and return to
stakeholders.
Using SCOR� as a guide, we see the linked supply chain processes, laid over
the overall enterprise processes with a few carefully selected additions. Beginning
with the source or buy process step, the challenge begins with a need to
move beyond just finding the lowest priced suppliers, to work with key suppliers
to help with the design and development of new products and services.
The intention becomes to create and deliver a flow of innovative products and
services in the shortest possible cycle time, from concept to commercial success,
while improving the percentage of successful efforts. The next need is to
link the development processes in a way that features of customization can be
added for the highest priority customers and consumers.
Underpinning the third important process step is the need to have a communication
system at work that reliably informs the constituent members of the
supply chain network of exactly what is happening within the overall system.
That means there is visibility into the linked partners� operations and access to
their databases in a way that vital knowledge can be easily extracted, without
risk to security. This information becomes a key element in effective forecasting
and planning, so that schedules going to the manufacturing process are truly
linked with actual demand.
we must accept the premise that there is more to a supply chain effort than simply
cutting costs in perpetuity. That sort of intention will get the effort launched and
provide the early savings to fund a continued effort, but it cannot be the long-term
element of sustenance. At its core, ASCM is concerned with improving business
processes, and thereby enhancing a variety of important metrics, including those
affecting costs, revenues, asset utilization, customer satisfaction, and return to
stakeholders.
Using SCOR� as a guide, we see the linked supply chain processes, laid over
the overall enterprise processes with a few carefully selected additions. Beginning
with the source or buy process step, the challenge begins with a need to
move beyond just finding the lowest priced suppliers, to work with key suppliers
to help with the design and development of new products and services.
The intention becomes to create and deliver a flow of innovative products and
services in the shortest possible cycle time, from concept to commercial success,
while improving the percentage of successful efforts. The next need is to
link the development processes in a way that features of customization can be
added for the highest priority customers and consumers.
Underpinning the third important process step is the need to have a communication
system at work that reliably informs the constituent members of the
supply chain network of exactly what is happening within the overall system.
That means there is visibility into the linked partners� operations and access to
their databases in a way that vital knowledge can be easily extracted, without
risk to security. This information becomes a key element in effective forecasting
and planning, so that schedules going to the manufacturing process are truly
linked with actual demand.
THE VALUE OF INCREASING PROCESS MATURITY
We now have the foundation for assessing the value of increasing process
maturity. Based on an analysis of 40 case studies, we asked the owner of each
case study to:
_ Select the processes that had been improved
_ Assess the maturity level that each process had been moved from and
to
_ Allocate the value created to the processes
Surprisingly, we could find
little hard information about the returns process � perhaps indicative of just
how recently this process has become important.
Doing a better job of planning showed the greatest return on inventory, as
the need for extra safety stocks was reduced and redundant inventories were
eliminated. Labor costs went down nicely, and customer service ratings increased.
Sourcing showed a wide range of advantages, as this core function
usually provides help throughout the maturity process. Substantial improvements
were found in four of the five major categories. Make was especially
beneficial in reducing inventory and labor costs, but had considerable impact
on customer service and lead time as well. Deliver showed a range of enhancements,
but our analysis here indicated that these are minimal ranges of potential
improvement. We expect more will develop as this part of the model continues
to mature.
maturity. Based on an analysis of 40 case studies, we asked the owner of each
case study to:
_ Select the processes that had been improved
_ Assess the maturity level that each process had been moved from and
to
_ Allocate the value created to the processes
Surprisingly, we could find
little hard information about the returns process � perhaps indicative of just
how recently this process has become important.
Doing a better job of planning showed the greatest return on inventory, as
the need for extra safety stocks was reduced and redundant inventories were
eliminated. Labor costs went down nicely, and customer service ratings increased.
Sourcing showed a wide range of advantages, as this core function
usually provides help throughout the maturity process. Substantial improvements
were found in four of the five major categories. Make was especially
beneficial in reducing inventory and labor costs, but had considerable impact
on customer service and lead time as well. Deliver showed a range of enhancements,
but our analysis here indicated that these are minimal ranges of potential
improvement. We expect more will develop as this part of the model continues
to mature.
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