Supply Chain Management

Week 10

SCOR, Lean, and Six Sigma

Top 25 Supply Chains: Trends & Strategies
 Lean Emphasizes
Elimination of Waste
= Value Added Time

Time

Value added lead-time is a small %

Waste Waste Waste
of total lead-time (5% - 10%), scattered
throughout the process.

Waste = 90% to 95% of the non-

Lean Activities value added lead-time.
Concentrate Here!

Time

Huge Improvements
Possible!
 Lean:
Eight Common Types of Waste
11 1 2 1
10 2

9 3

8 4
7 5
6

Defects/
Rework
Overproduction Waiting/Delays

Waste
(DOWNTIME) Non/Underutilized
Talent
Extra Processing
(e.g. inefficiency)

Motion
Defective Unnecessary
Products Inventory
Excess Transportation
3
 Lean Thinking
Sees 3 Types of Activities
Value-Added Activities
· Change the form, fit or function of the product/service
· The customer is willing to pay more if we did more of it

Non Value-Added Required - Needed Activities

· Necessary but the customer will not pay you to do
· Cannot be eliminated (due to non-robustness of process) based on
current state of technology
· Required (regulatory, customer mandate, legal)

Non Value – Added Activities

· Consume resources but create no value in the eyes of the customer
· The customer is not willing to pay
· Pure waste
Assignment 10.1
Saturn

8
 Saturn Vehicle Delivery Process
Return to the Saturn Corporation Case; specifically the Delivery Process pages 4-8

Starting with Event 38, develop flowcharts of the delivery process for truck and rail.
Develop a second set of flowcharts that streamlines the delivery processes, removes
redundant, unimportant, non-value added activities, and addresses concerns related to
the current process.

Use rectangles and arrows in PowerPoint to show each step and the flow of the process.

Indicate which steps are green (value added) activities; or red (non-value added); or
yellow (non-value added but required. ) Keep in mind the definitions of value-add and
the 8 types of wastes
 Integrated Improvement
… SCOR, Six Sigma and Lean
SCOR, Six Sigma and Lean aim to improve the
business by optimizing system performance,
reducing variation, and eliminating wasteful
activities.
SCOR Six Sigma Lean
Y= f (X 1 , ... , XN )

• Top-Down Analysis • Variation reduction • Speed in the value chain

• End-to-End View • Problem solving methodology • Waste elimination
• Optimizing supply-chain • Stability and accuracy • Value system redesign
as a whole

10
Phase
The SCOR Project Roadmap
Name Deliverable Resolves

Initial Build • Organizational Support Who is the sponsor?

• Supply-Chain Definition
• Supply-Chain Priorities What will the program
I Discover
• Project Charter cover?

• Scorecard What are the strategic

II Analyze • Benchmark requirements of your
• Competitive Requirements supply-chain?
Design • Geo Map
• Thread Diagram Initial Analysis – where
III Material
Flow • Disconnect Analysis are the problems?

Design • Transactions
Work • Level 3, Level 4 Processes Final Analysis – where
IV
Flow • Best Practices Analysis are the solutions?

• Opportunity Analysis
V Implement • Project Definition How to deploy?
• Deployment Organization

11
 SCOR Roadmap Initial Phase:
Build Organizational support
Building Organizational Support

•Identify appropriate Sponsors, Stakeholders, Evangelists

•Create Steering, Design, and Analysis Teams

Focus: Build a core steering group for the SCOR program

Identification of Supply-Chain Scope
Communication of SCOR throughout organization

Approach: Identification of key players

• Outline of Complete Supply-Chain being examined
• Core Steering Teams and Extended Teams
• Communicate, Communicate, Communicate!
• Creation of Design Team
• Creation of Analysis Team
Deliverable Sponsors & Stakeholders
s:
Stage gate: Kickoff Event
12
Roles & Responsibilities
• Steering Group • Functional Managers
– Executive Team
– Strategic Direction
– Sets Goals
• Evangelist
– Process Owner
– Executive Champion
– Chair Working Group
– Validate Results
– Set Function Goals
– Allocate Required Resources to the
Process and to Implementation
– Ensure Resources have Skills,
Measures, and Feedback
– Execute Process – Drive Results
13
 SCOR Roadmap Phase I:
Discover the Opportunity
Discover the Opportunity
• Supply-Chain Definition
• Supply-Chain Priorities
• Project Charter
Focus: Supply-Chain: generate a clear definition
Priorities: Align to Business Strategy
Resources: Identify and secure process
owners/actors
Approach Sponsor and stakeholders interviews:
: • Work towards a problem statement based on
metrics – current v. desired performance
• Capture customer-identified solutions i.e. a
VOC – Voice of the
technology or practice Customer

Deliverab Project Charter

les:
Stage Project Charter acceptance
14
gate:
 SCOR Roadmap Phase II:
Analyze Basis for Competition
Analyze Basis for Competition
• Scorecard
• Benchmark
• Competitive Requirements
Focus: Scorecard: Appropriate Level Metrics
Benchmark: Select and Use Industry Source
Requirements: Prioritization and Ratification
Approach: Initial Data and Transaction Capture
Financial Validation
Early “Defect” analysis of performance gaps VOC – Voice of the
Customer
Root Cause
Deliverabl Defined Metrics for program focus Analysis

es: Pareto Charts

Time Value Maps
Waste Analysis
Stage Supply-Chain Selected and Metrics Described
gate: 15
 ScorCard
3312 – Blast furnaces & Steel Mills, 3315 – Steel wire &
Charter Steel - All Products related, 3316 – Cold Finishing
Parity Advantage Superior Requirements
Level 1
Performance Attribute Actual Median of Midpoint of 90th Gap
Performance
or Category (2005 data) statistical parity and Percentile of Reqmnts -
Metrics
sample superior Population Actual
Supply Chain Delivery Perfect Order
74.0% 93.4% 98.0% 99.4% 25.4%
Reliability Fulfillment (Line)
Supply Chain Order Fulfillment
30.22 27.9 5.0 2.0 -25.2
External

Responsiveness Cycle Time (Line)

Upside Supply Chain
Flexibility (Purchased 71.7 42.0 29.7 14.4 -42.0
Supply Chain Billets)
Flexibility Upside Supply Chain
Flexibility (Mfg. 34.7 42.0 29.7 14.4 -5.0
Billets)
Cost of Goods 80.5% 79.2% 76.7% 72.1% -1.3%
Total Supply Chain
Supply Chain Cost 8.5% 10.2% 7.8% 4.3% 1.7%
Management Cost
Internal

SG&A Cost 2.9% 5.0% 4.0% 3.7% 2.1%

Cash-to-Cash Cycle
33.1 95.0 60.8 54.6 61.9
Supply Chain Asset Time
Management Inventory Days of
51.2 74.0 52.4 35.8 22.8
Efficiency Supply
Asset Turns 1.9 1.4 1.7 2.3 -0.5
Shareholder

Gross Profit Margin 16.4% 20.8% 23.3% 27.9% 4.4%

Profitability
Net Profit Margin 12.6% 8.3% 10.0% 12.3% -4.3%
Effectiveness of
Return on Assets 24.4% 15.4% 21.9% 29.4% -9.0%
Return
16
 Identify Competitive Requirements (CHIP)

Competitive Requirements: S, A, P, P Procedure

Performance Attribute or Category
Supply Chain A
Supply Chain Delivery Reliability
The performance of the supply chain in
delivering: the correct product, to the
correct place, at the correct time, in the
correct condition and packaging, in the
correct quantity, with the correct
documentation, to the correct customer.
External
Supply Chain B
– Prioritize supply chain performance
requirements for each relevant
customer/market channel
• Within a channel you get 1 superior (S),
1 advantage (A), and two parity (P)
Superior Superior – Each unique combination of ratings
defines Your Supply Chain Strategy for
the channel

– Think of the rating as a desired state,

Supply Chain Responsiveness NOT where you want to improve the
The velocity at which a supply chain
provides products to the customer.
most
Advantage Superior
Supply Chain Flexibility
The agility of a supply chain in
responding to marketplace changes to
gain or maintain competitive advantage.

Supply Chain Cost

The costs associated with operating the Parity Superior
supply chain.
Supply Chain Asset Management
Internal

Efficiency
The effectiveness of an organization in
managing assets to support demand Parity Superior
satisfaction. This includes the
management of all assets: fixed and
working capital.

17
 SCOR Roadmap Phase III:
Design Material Flow
Design Material Flow

• Create a common understanding of to-be

process
• Document proposed to-be (=desired) process
Focus: AS IS: SCOR Material Flow Model
Disconnect Analysis: Deep Dive on Transactions
TO BE: Identify Early changes

Approach Facilitated workshops, dedicated design teams

: Geographic Mapping, Thread Diagrams
Brainstorming, Opportunity Aggregation

Deliverab Process design documentation

les: Opportunities for Change VSM
Future-state
Process
Stage Review captured information with key Map
SIPOC
gate: stakeholders Brainstorming
Cause & effect

18
Transactional Analysis
Figure 14.2: Fowlers Transaction Analysis Worksheet

PROCESS:
D1.2 Receive, Enter & Validate Order (Deliver Stocked Product)
D2.2 Receive, Configure, Enter & Validate Order (Deliver Make to Order Product)

INPUT / OUTPUT:
Customer call, fax or
email
D1.2 Entered order

Web order
D2.2
Field Sales contact

Customer profile

PROCESS STEPS:
1. Retrieve or enter new customer master record.
2. Verify ship to/bill to addresses.
3. Review customer special notes.
4. Enter customer contact, payment terms, ship method and P.O. number.
5. Enter requested ship date.
6. Enter part number and quantity.
7. Review part description and modify as necessary.
8. Input default price and unit of measure.
9. Update or save order record.
10. Call back customer when inventory allocation fails and re-date the order.

TECHNOLOGY USED: MS Word, Access, and Excel; Legacy Mainframe; Fax;

Email; Fowlers Website
VOLUME: 100,000 orders/year
CYCLE TIME (EVENT): Average – 15 minutes
CYCLE TIME (ELAPSED): Average – 6 hours
YIELD: 60% - meaning 40 orders out of 100 need to be reopened
to rework data

BUSINESS RULES:
1. Formal - orders can be held waiting for payment for a maximum of 30 days after stock is
committed.
2. Formal – Credit reviews holds once daily.
3. Informal – once an order is entered, each order line is manually reviewed for correct
quantity, part number and price. | 19
 Disconnect Analysis
Cause and Effect Diagram
Fishbone Diagram
 SCOR Roadmap Phase IV:
Design Work & Information Flow
Work and Information Flow Design
• Collect and analyze detail work and
information data
• Create detailed base of changes to SC
environment
Focus: Transactions: Productivity and Yield
Process: Level 3 and Level 4 SCOR information
Analysis: As-Is, Disconnect, To-Be
Approach Facilitated workshops, interviews and modeling
: • “Staple-Yourself-To" approach
• Cover all: process, technology, people,
objectives
• RACI, and Practice Assessment VSM
Future-state
Deliverab Facilitated workshops, interviews and Process
Map
les: preliminaries SIPOC
Brainstorming
Cause & effect
Stage Review captured information with key
gate: stakeholders
21
SCOR Roadmap Phase V: Implement
Implementation Planning
• Ensure the implementation or deployment teams have
thorough understanding of the designs
• Designs and plans are validated
Focus: Projects: Aggregate Problem Statements into Projects
Impact: Decision Matrices
Approach: Implementation, Charter, and Sequence
Approach: Segregate and Prioritize projects, select deployment
strategy, establish detailed requirements documentation
and, integrate team members in deployment teams
Deliverable High level deployment plans for Lean, Six-Sigma, or
s: Convergence focus projects, to-be process
documentation/training materials and/or requirements
documentation
Stage gate: Release documentation to and education to (staffed, funded
and named) process deployment teams

22
 Income Benefit Summary*
Opportunity Analysis
YEAR OF IMPACT
2006 2007 2008 2009 2010

Net Sales Margin - 2,817,637 4,344,485 5,388,696 6,048,569

Total Cost of Sales 0 (1,540,174) (2,630,147) (3,277,105) (3,531,740)
SG&A Cost - (258,600) (492,200) (492,200) (492,200)
Supply Chain Management Expense - - - - -
Order Management Cost - (619,879) (1,014,719) (1,014,719) (1,014,719)
Planning and Finance Cost - (32,439) (44,119) (44,119) (44,119)
Inventory Carrying Cost - (706,812) (1,349,373) (1,349,373) (1,349,373)
IT Cost for Supply Chain 1,065,313 1,721,100 306,527 344,120 332,234
Total Supply Chain Management Cost 1,065,313 361,970 (2,101,684) (2,064,091) (2,075,977)
Operating Income (1,065,313) 4,254,441 9,568,516 11,222,092 12,148,486
Project Resource Costs (1,527,577) (1,389,921) (55,980) - -
Net Income (2,592,890) 2,864,520 9,512,536 11,222,092 12,148,486

Net Present Value (5 years, 12.7%) 20,238,288

Net Present Value (No labor savings) 17,533,874

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 Different Perspective
Low Risk High Risk

Change in few processes Change in many processes

Hi 80/20: high impact 80/20: high impact
gh
Inexpensive Change Expensive Change
Re
tu Easy to back out Difficult to back out
rn High ROI quick High ROI sponsor
Quick Deployment Long Deployment
wins issue

Change in few processes Change in many processes

Lo 80/20: low impact
80/20: low impact area
w
Inexpensive Change Expensive Change
Re
tu Easy to back out Difficult to back out
rn Low ROI Low ROI
Quick Deployment
nice consider
Long Deployment
to carefully
have

24
 Assignment 10.2
SCOR – Lean – Six Sigma

25
 Assignment 10.2
SCOR – Lean – Six Sigma
• After reading Principles of Supply Chain Management Chapter 8 on Lean
and Six Sigma in the Supply Chain as well as pages 499-503 on SCOR as
well as having reviewed the previous slide deck; write a 2-4 page paper
answering the following:
1. Briefly describe: The SCOR model and SCOR Roadmap; Lean; and Six
Sigma. Answer should include: SCOR architecture and
2. How are SCOR, Lean, and Six Sigma different from each other?
3. What do SCOR, Lean, and Six Sigma have in common?
4. You have recently been hired as VP of Supply Chain and can see your new
employers supply chain needs improvement. Which or which
combination of supply chain performance methodologies (SCOR, Lean, or
Six Sigma) would you use? Why?
 Assignment 10.3
Top 25 Supply Chains: Trends & Strategies

27
 We have come a long way:
Here is a reprise of some of the major learning's from our course
Before proceeding to the next slide: Pause and consider what these learning’s have in common
The Root Beer Game What can go wrong without supply chain visibility and coordination
The Bull Whip Effect Oscillation of forecasts, orders, and stock-outs automatically
happen unless mitigated by visibility of true consumer demand
The Triple A Supply Chain World’s best supply chains are Agile, Adaptable, Aligned
Postponement Designing in SC flexibility to better respond to demand
Collaborative Planning Wal-Mart’s secret sauce giving suppliers Point of Sale (POS) by sku
Forecasting, and by store every 10 minutes
Replenishment (CPFR)
Zara vs. Sport Obermeyer Demand from stores as it happens & rapid fire fulfillment (in
design, manufacturing, and distribution) and 2 weeks design to
shelf vs. 1 ½ years. Zara enjoys growing revenue and ½ the
markdown costs of competitors

Sport Obermeyer and Getting a picture of true demand early; importance of having both
The Global Supply Chain speculative and reactive capacity; Supply Demand Mismatch Costs
Simulation
Lean and The Toyota Value defined by the customer; elimination of non-value added
Production System steps; creating an uninterrupted production and delivery flow; The
flow is controlled by a pull signal from customer demand
Successful Supply Chains focus on visibility , Collaboration, and Coordination.

They seek a clear and early picture of true consumer

They build supply chains that can quickly respond to demand

In essence they are demand driven

The benefits are greater revenues from meeting consumer demand and building customer
loyalty; lower supply demand mismatch costs; and therefore higher profits

In this assignment we are going to learn from the world’s top supply chains how they focus
on being demand driven; their strategies; as well as current supply chain trends

Our learning vehicle is Gartner’s Top 25 Supply Chain Report for 2012
Gartner Research is a leading information technology research and advisory company
http://www.gartner.com

For eight years Gartner has been identifying, ranking, and researching the world’s top supply
chains. The focus is on supply chains that are demand driven via:
• Visibility of consumer demand
• More demand than forecast driven
• Sense market changes and respond
• Pull manufacturing / sourcing processes driven by demand
• Supply chain designed for flexibility to be demand driven Click Here for Top
25 Site
• Innovations moving closer to the demand driven goal

As Gartner puts it: “The Gartner Supply Chain Top 25

is about leadership. Every year we identify the
companies that best exemplify the demand-driven
ideal for today's supply chain and document their 2012 Top 25 Supply Chains
best practices, which can help all companies move
closer to their demand-driven goals. “
How the rankings work:
A combination of Financial Metrics and a Peer Review is used.
50% financial and 50% Opinion

The Financial Metrics include:

 Return on Assets (ROA) = Net Income ÷ Total Assets (25% of score)
 Inventory Turns = Cost of Goods Sold (COGS) ÷ Inventory (25% of score)
 Revenue Growth = Change from previous year (10% of score)

Opinion (50% of score)

 50% Gartner Researchers & Analysts
 50% Peers – The goal of the peer panel is to draw on extensive
knowledge of professionals that as customers and or
suppliers, have direct experience interacting with the
companies being ranked
 More details on questions and metrics are in the report you
are being assigned to read
 Assignment 10.3 (20 points)

First – Read The Top 25 supply Chains 2012 by Gartner Research linked here

In a 1-2 page paper answer the following question:

1. What are the trends emerging from among the leaders?

2. What evidence do you see of superior supply chain performance driving superior
financial performance?
3. Select any 3 of the top 25 and comment on their strategies and or innovations that
is driving performance?
4. Which is your favorite demand driven supply chain? Why?