SCOR FOR THE WORLD

All indications are that the worldwide business environment is likely to stay volatile this year. On the one hand, central banks are continuing to ease credit costs, and interest rate spreads are remaining high because of high risk perceptions. On the other, there is continuing weakness in the balance sheets of companies and continuing low demand over the globe.

While the crisis originated in the US, it was able to spread worldwide at an unanticipated rate owing to the fact that the US – the global supply chain master – is the major player in international trade of goods and services, being ranked the largest importing country and the fourth largest exporting country.

Although this global supply chain explains the widespread turmoil from the US to its suppliers and customers, it also suggests that domestic macroeconomic rescue for individual countries alone will not be effective and efficient; rather, global planning and coordination is required to fix the economic downturn.

While the role of Asian economies has become more and more important in the world, it is vital to understand and forecast their performance this year. Several Asian countries, such as Japan and China, are heavily involved in the international trades of the US. Asean countries, meanwhile, are largely dependent on exports and so urgently seeking ways to soften the impact of the meltdown on their export-driven economies, with millions of jobs at risk.

Taking a closer look at global planning and coordination, it sends out two compelling signals. First, the world economy is connected, and hence free trade should be strongly encouraged; trade protectionism is deemed to lead to ineffi ciency and low productivity for the globe as a whole. Second, all nations should cooperate to restructure the global supply chain towards better resource allocation, more advanced technology and more environmentally friendly operations.

With shrinking demand from the global supply chain master, real GDP growths of almost all nations worldwide are declining. Therefore, it is crucial to trigger the next global demand cycle, with new requirements and standards on technology and energy consumption.

With a combined gross domestic product of US$1.4 trillion, Asia has become a relative bright spot in the world economy. China’s share in world’s exports reached 8.8 percent by 2007, making it the world’s second largest exporter, trailing only Germany. In fact, China’s foreign trade has been growing at an average annual rate of 17.4 percent ($2,173.7 billion from just $20.6 billion) since 1978 when its reform and opening-up began.

With persistent government efforts to boost foreign trade and encourage investment, China’s exports rose from $9.8 billion to $1,217.8 billion during the period, and imports gained from $10.9 billion to $956 billion. Similarly, India’s exports increased from $44 billion in 2002 to $163 billion in 2008; while its imports increased from $51 billion to $251 billion. These figures demonstrate that China and India are moving towards increased global integration through trade.

Nevertheless, Asian economies alone will not be able to provide the complete solution to the worldwide crisis. Analyzing the trading patterns and global supply chains of four major Asian economies – China, India, Japan and South Korea – several trends can be observed.

Firstly, their imports and exports tend to involve heavily other nations in Asia, either as import sources or as export markets. Second, trade flows are prone to be geared toward the developing nations. Last but not least, the US is always a key importing and exporting partner of all four economies. Therefore, Asia and the US should be considered in conjunction for the future of the global economy, owing to the critical roles of both parties in the global supply chain.

GLOBAL APPROACH

With the economic downturn having spread to the entire world, it should be emphasized that each nation is interdependent, and thus the overall solution must be sought by rebalancing worldwide supply and demand. Although certainly not welcome, this global crisis can function as a wake-up call or catalyst for investigating and reorganizing the global supply chain in a more eff ective and efficient manner.

Global supply chain management (SCM) requires the coordination of all nations. To balance supply-demand and optimize resource allocation at the global level, it is necessary for countries to cooperate and develop a high-level plan. Based on this plan, execution can be subsequently followed at the country or even industrial sector level.

With respect to the concept of global SCM, while it becomes crucial in mitigating the global economic crisis, it should be welcome regardless of whatever happens in the world, Serving customers worldwide efficiently, while minimizing resources such as working capital required and meanwhile lessening the burden on the environment is a worthy and significant goal at all times.

Under a volatile and dynamic business environment, flexibility and responsiveness of the supply chain have become of paramount importance. Although the worldwide demand is low at the current stage, it is expected to surge once the global economy recovers. Organizations should manage uncertainty by matching supply and demand without incurring large costs or lower productivity. Massive retrenchment is happening all over the world but this is neither a viable nor an effective solution.

Instead, strategies such as supply chain reconfiguration, collaborative partnerships and logistics network design should be sought to gain an end-to-end visibility of the entire supply chain, to reduce cycle time with more effective decisionmaking, and to adapt capacity with no inventory or cost penalties.

With this in mind, the Supply Chain Operation Reference (SCOR) model (www. supply-chain.org) is a proven methodology and tool that has been successfully applied and implemented in Fortune 500 firms, from manufacturing to services sectors. In particular, SCOR performance measurements and best practices provide the framework and foundation to conduct systematic improvement analysis of supply chain operations.

EXTENDING SCOR

Having discussed the importance of reorganizing the economy in a global manner, all nations should collaborate towards an integrated plan with more intensive adoption of advanced technologies and a higher degree of environmental consciousness. Take green car development and manufacturing as an example.

Toyota has been considered the most innovative green car manufacturer ever since the first Prius went on sale in Japan in 1997, making it the first mass-produced hybrid vehicle in the world. Likewise, BMW also plans a green supercar, which combines all the latest technology together with drastically improved fuel economy yet without overburdening the environment.

Nonetheless, there are depressing reports from The Financial Times that carmakers are abandoning research and development plans in a bid to survive. The cost-cutting measures, designed to reduce the financial pressures on carmakers are likely to be highly damaging to the development of green cars and new technologies. As a consequence, there is a pressing need to utilize the scarce resources of the planet more wisely, through coordinated joint R&D and mass production.

Facing a crisis at the macroeconomic level, it is feasible and advisable to adopt the SCOR model to manage the supply chain end-to-end with an integrated planning and lean management to improve global operations by reducing all waste vertically and horizontally along the supply network.

The SCOR model allows companies to measure the end-to-end supply chain network horizontally, from supplier’s suppliers to customer’s customers, as well as vertically with cascading techniques from organizational strategic level to implementation level at the bottom. This hierarchical model is a useful tool for designing strategies at the global level while specifying the details at the country, industry sector and factory levels.

SCOR is structured around five core processes of PLAN, SOURCE, MAKE, DELIVERY and RETURN. It also emphasizes the enabling elements that are essential for the entire supply chain to function effectively and efficiently, such as appropriate business rules, business relationships and technologies.

To provide the framework and foundation to conduct systematic improvement projects on supply chain operations, SCOR defi nes performance measurements and best practices at all levels, covering operational aspects such as Reliability, Responsiveness and Flexibility of the supply chain, as well as financial aspects such as Total Cost and Return on Fixed Assets.

Revisiting the issue on green car development, joint R&D can be initiated among several automakers to allocate R&D and manufacturing resources to certain companies, while research outcomes could be shared within the industry. With better integration of suppliers and customers, this plan aims to achieve balanced end to end supply chain activities, globally optimized resource allocation, and higher productivity and efficiency, which will eventually help minimize total supply chain cost and maximize profit.

Traditionally, the SCOR model is applied to industrial supply chains involving various companies categorized as “suppliers” and “customers”. Nonetheless, it is innovative yet feasible to consider a Global Supply Chain for international trades, with different countries as the suppliers and customers.

In this manner, the SCOR model can be readily applied to investigate the existing performance of the entire chain as well as of individual nations. Moreover, SCOR performance attributes and metrics help benchmark world economies and discover bottleneck or root issues in the chain for international trade. In consequence, the future model of the Global Supply Chain could be designed and developed, with the aim of improving supply chain efficiency, flexibility and responsiveness.

COUNTRY SCORECARD

the scorecard in Table 1 has been constructed to evaluate the performance of 10 major world economies based on three performance attributes: Social, Economic, and Industry & Trade-related. In the scorecard nine performance metrics are analyzed in detail.

The establishment of this scorecard demonstrates that SCOR methodology and techniques are ready to be adopted in analyzing, assessing and reconfiguring the Global Supply Chain. By aggregating lowlevel performance metrics to three highlevel performance attributes, it provides a common and uncomplicated platform to compare major world economies against each other.

It is able to summarize all facets of one nation, namely, social, economic and industry & trade-related performances at one glance. Furthermore, it indicates the strengths and weaknesses of one country and suggests strategic areas that will be beneficial for the particular country to develop into.

To improve SCM performance and efficiency in the current volatile environment, opportunities for emerging from the crisis should firstly be identified, and proven methodologies, best practices and tools ought to be utilized to support continuous improvement in supply chain management.