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Strategic Supply Chain Management
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Performance attributes and associated level 1 metrics, SCOR, version 6.0.
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Performance Attribute Performance Attribute De nition Supply chain performance in delivering: the correct product to the correct place and the correct customer at the correct time in perfect condition and packaging in the correct quantity with the correct documentation How quickly a supply chain delivers products to the customer How quickly a supply chain responds to marketplace changes; agility in gaining or maintaining a competitive edge The costs associated with operating the supply chain SCOR Level 1 Metric Delivery performance Fill rate Perfect order ful llment
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Cost of goods sold Total supply chain management cost Value-added productivity Warranty/returns processing cost
Asset Management
Cash-to-cash cycle time How effectively a company Inventory days of supply manages assets to satisfy demand. Includes xed assets Asset turns and working capital.
Note that the SCOR level 1 metrics include both internally focused measures (total supply chain management cost, value-added productivity, warranty/returns processing cost, cash-to-cash cycle time, inventory days of supply, and asset turns) and customer-facing metrics (delivery performance, fill rate, perfect order fulfillment, order-fulfillment lead time, supply chain response time, and production flexibility). SCOR level 1 metrics are designed to provide a view of overall supply chain effectiveness. Explains Michelle Roloff, While it is virtually impossible for one company to perform at a best-in-class level for
CHAPTER 5 Core Discipline 5: Use Metrics to Drive Business Success
each of the level 1 metrics, strong performance in targeted areas is a reflection of overall supply chain health and therefore a very good indicator of return on supply chain spending. While level 1 metrics are appropriate for monitoring performance at a high level, they are less useful for diagnosing the causes of performance problems. More detailed performance measures that provide details on tactical execution provide a better understanding of these problems. In keeping with the SCOR model s hierarchical structure, each level 1 metric is associated with a group of level 2 and level 3 metrics. These lowerlevel metrics can be used to diagnose the causes of any performance problems that appear at level 1. Before you start, make sure that you create an overall architecture for your performance-management program determine which level 1, level 2, and level 3 metrics you will monitor. (See Appendix C for a comprehensive list of level 2 and level 3 metrics.)
Measure Yourself as Your Customers Measure You
The metrics embedded in the SCOR model The metrics are consistent with the premise of the sup- embedded in the ply chain as an end-to-end process. As such, each metric is considered from the perspec- SCOR model are tive of customers and suppliers not just consistent with the from an internal perspective. The supply chain scorecard is necessarily prescriptive. premise of the It provides detailed definitions for each supply chain as an metric and specific recommendations for how to collect the needed data. end-to-end process. In many cases a company may stray from the standard definitions. This may be done to ease the burden of data collection, to influence the behavior of an internal or an external constituent, or consciously or unconsciously to make performance seem better than it really is. While it may be appropriate to tweak the standard definitions, always make sure that your metrics are consistent with what your customers and suppliers would use. We worked with a global automotive parts company that spent more than two years making sure that each of its business units adopted a consistent measurement for delivery performance to its primary customers retail chains and stores. With daily deliveries and an official policy that all products would be available to customers within one day of ordering,
Strategic Supply Chain Management
on-time delivery was based on the percentage of products received by customers within one day of the order being placed. However, while the business units reported good results, customers were complaining about delivery performance, and a customer satisfaction survey showed that the company was performing worse than its competition. A closer look revealed that the order desk used a default of next-day delivery except when a product was not available. Products were considered available if they were either in a local distribution center or scheduled to arrive the next day. Customers who ordered a product that was not available were given an estimate of when it would be delivered. Of course, customers expected delivery the next day or on the estimated date provided by the order desk. They measured on-time performance based on these dates, as did the industry association that reported customer satisfaction data. The company, on the other hand, based its calculations on the assumption that only products that were not available at the time the order was placed had missed their target. Missed next day deliveries were not tracked, nor were failures to meet the estimated dates provided when the requested products were not available immediately. In addition, business units calculated their performance on a per-item basis, whereas customers based their measurement on whether or not the entire order was received on time. Following this analysis, management established two new metrics for order-delivery performance. The first was on-time delivery to commit, defined as the percentage of complete orders received by customers on the delivery date that the company committed to. When a later delivery date was requested by the customer, the commit date was updated accordingly. The second metric, order-fulfillment cycle time, tracked the elapsed time between when an order was received by the company and when the product was delivered to the location specified by the customer. Interestingly, by analyzing the discrepancy between performance as reported by the business units and performance as reported by customers, the company made a valuable discovery: Customers valued an accurate delivery date for their entire order more than they valued 24-hour turnaround. This insight led the company to reassess its entire service-level strategy.
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