What’s Your SCOR?

Logistics Asia, 1/9/2007

Implement the SCOR model to provide a structured approach to supply chain analysis and as a basis to improve performance all down the line, says Lim Yeong Chuan.

On behalf of the Supply Chain Council South East Asia chapter, iCognitive recently surveyed 263 companies from nine industry groups operating across Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. A key finding: very few companies are all-round achievers in supply chain performance. In fact, only four were classified bestin- class in the three supply chain metrics they were evaluated against – inventory days of supply, cash-to-cash cycle time, and cost of goods sold; and only 21 companies were best-in-class in two of these metrics.

It is not difficult to make the conclusion that good and sustainable supply chain operations are still lacking in Southeast Asia. Along with a generally low level of understanding of supply chain within companies, many are struggling to cope with production volume and fail to see the importance of investing time and effort to better manage and improve their supply chain processes.

And lacking a structured approach to supply chain analysis, companies in the region are finding it very difficult to align internal and external supply chain partners towards common goals, something which is necessary in order to compete against other supply chains.

Enter the Supply Chain Operations Reference-model (SCOR); a supply chain improvement framework that enables companies to address, improve and communicate supply chain management practices between partners.

The SCOR model
SCOR describes business activities associated with all phases of satisfying customer demand. The model is organized around the five primary management processes of PLAN, SOURCE, MAKE, DELIVER and RETURN. By describing supply chains using these process building blocks, the model can be used to describe supply chains that are very simple or very complex, using a common set of definitions.

To start using the SCOR model it is first necessary to define the supply chain, in terms of span (horizontally) and depth (vertically), in order to establish a clear and comprehensive end-to-end visibility. Span describes where the supply chain starts and ends. For example, a milk product company may describe their supply chain “from cow to consumer”, an oil company from “crude to consumer”.

SCOR provides three levels of details. Level 1 describes top level activities of each entity within a supply chain. A pure manufacturer will have planning, sourcing, making, delivering and maybe returns. Typically, a distribution center will not have Make processes, but will have Planning, Sourcing, Delivering and maybe Return.

Level 2 describe the configuration for each process; how each process is done. For instance, the model defines three Sourcing strategies: Source stocked product (S1), Source maketo- order product (S2), Source engineer-to-order product (S3). There are also three Make strategies: Make-tostock (M1), Make-to-order (M2) and Make-to-engineer (M3). You don’t have to choose between these strategies, you can select more than one.

Once the configuration is defined, Level 3 gives a very detailed description of the process elements that each process category can contain. For example, SCOR gives five process elements for process category S1 (Source stocked product): Schedule Product Deliveries (S1.1), Receive Product (S1.2), Verify Product (S1.3), Transfer Product (S1.4) and Authorize Supplier Payment (S1.5). For each of these process elements a definition, metrics, best practices, the inputs and outputs are given by the model.

Thus, by mapping top level activities of each entity within a supply chain (Level 1), and describing how things are done, configuration and strategy (Level 2), the model provides a detailed operational process flow (Level 3) where you can cross-check recommended performance metrics, best practices or whether you have missed any critical steps.

Performance measurement
SCOR provides a set of measures that is both structured and balanced. SCOR Level 1 metrics are primarily high level measures that should form part of the senior management’s dashboard. With these metrics, they will have a good indication how their supply chain is performing. Lower level metrics (Level 2 and 3) in the model provide operational information and can be monitored daily or even more frequently.

SCOR metrics are organized into five performance attributions:

Reliability – measures 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.

Responsiveness – measures speed at which a supply chain provides products to the customer.

Flexibility – measures agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.

Cost – measures costs associated with operating the supply chain.

Assets – measures effectiveness of an organization in managing assets to support demand satisfaction.

Supply chain reliability, responsiveness and flexibility are customer facing, which means these metrics measure performance in light of the customer’s experience in working with you. Supply chain cost and asset management are internal facing measures which point towards financials of your company.

Metrics from the five attributes should be measured concurrently to assess supply chain operations and financials from various angles. The selected metrics then form the supply chain SCORcard.

In an example of horizontal decomposition, also known as an enterprise-wide measurement, SCORcard A is used for the sourcing department, SCORcard B for manufacturing, and SCORcard C for delivery.

The SCORcard can also be used across the entire supply chain to measure chainwide performance. In this case, SCORcard A for 1st tier supplier, SCORcard B for your organisation and SCORcard C for 1st tier customer (such as a whole seller or reseller). The overall SCORcard will be the chain-wide performance.

SCOR metrics and the SCORcard enhance coordination between different partners (often with different interests) across the supply chain to align and drive towards a common objective.

Bringing benefits
SCOR has been adopted across various industries and by many leading companies, including Ford, Volvo, Siemens, Sony, Intel, Coca-Cola, Unilever, Pfizer, Petronas, to name just a few.

How companies have used the SCOR model:
• Operational improvements
• Redesign supply chain
• Standardize global supply chain operations around the world
• Standardize performance measurement
• Evaluation of IT application
• Greenfield – new market/ product
• Merger and acquisition

Tangible benefits reported by using SCOR:
• Reduction in operating cost
• Lower cost of servicing
• Enable cost avoidance
• Create additional/new revenue
• Total cash release, reduction in working capital
• Increase cash flow

Intangible benefits for using SCOR:
• Provide Common Language across the organization
• Improve internal communication between departments and groups
• Improve communications between external partners
• Provide Common Metrics for the Supply Chain
• Detailed Process Mapping for continuous review & improvement
• Simplify processes and workflow steps
• Provide a Platform for the Supply Chain to act faster and cheaper [ ]

Geographic map of product flow
Thread diagram of product flow
Performance attributes and Level 1 metrics
SCORcard deployment

Lim Yeong Chuan is Senior Business Consultant with iCognitive (www.icognitive. com). As well as providing supply chain consulting services to a wide range of clients, he coordinates a number of initiatives on behalf of the Supply Chain Council, SEA Chapter.

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