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Using SCOR to Integrate Your Supplier's Supplier Into Your

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Using SCOR to Integrate Your Supplier's Supplier Into Your

  1. 1. Using SCOR to Integrate Your Supplier’s Supplier Into Your Supply Chain Module 4: Fall Conference Dallas, TX November 24, 1997
  2. 2. © Copyright 1997 The Supply-Chain Council 15662–Module 4 The Supply Chain Operations Reference-model (SCOR) has been developed and endorsed by the Supply-Chain Council (SCC), an independent not-for-profit corporation, as the cross-industry standard for supply-chain management SCOR is freely available to all who wish to use the standard reference model The SCC was organized in 1996 by Pittiglio Rabin Todd & McGrath (PRTM) and Advanced Manufacturing Research (AMR), and initially included 69 voluntary member companies Council membership is now open to all companies and organizations interested in applying and advancing state-of-the-art supply-chain management systems and practices Member companies pay a modest annual fee to support Council activities All who use the SCOR model are asked to acknowledge the SCC in all documents describing or depicting the SCOR model and its use All who use SCOR are encouraged to join the SCC, both to further model development and to obtain the full benefits of membership Further information regarding the Council and SCOR can be found at the Council’s Web site, www.supply-chain.com
  3. 3. Agenda <ul><li>Imperative: Why are Companies “Integrating” their Supply Chains? </li></ul><ul><li>Benefits of Integrating Supply Chains </li></ul><ul><li>What does Integration Mean? </li></ul><ul><li>How to Initiate the Integration Effort </li></ul><ul><li>Case Study </li></ul>
  4. 4. Session objectives and take-away <ul><li>Session objective </li></ul><ul><ul><li>Discuss the imperative of integrating your supplier into your supply chain </li></ul></ul><ul><ul><li>Discuss the benefits of integration </li></ul></ul><ul><ul><li>Demonstrate how to use SCOR to engage a supplier </li></ul></ul><ul><ul><li>Review an example of dual-company supply-chain integration approach </li></ul></ul><ul><li>Session take-away </li></ul><ul><ul><li>Enable session participants to successfully engage their suppliers in supply-chain integration </li></ul></ul>
  5. 5. Imperative: Why are Companies “Integrating” their Supply Chains? © Copyright 1997 The Supply-Chain Council 15662–Module 4
  6. 6. Historically, intercompany relationships consisted of one-way, sequential flow of material and information <ul><li>Activities were not coordinated </li></ul><ul><li>Communication flow was interrupted </li></ul><ul><li>“ Full-stream” decision-making was not possible </li></ul>“ Walls” of separation prevented supply-chain optimization Customer Activities Manufacturer Activities Supplier Activities Deliver Make Source Deliver Make Source Deliver Make Source
  7. 7. Competition is driving intercompany integration… <ul><ul><li>“ Establish flexibility to weather unpredictability” </li></ul></ul>Reliability <ul><ul><li>“ Retain our customers and secure new ones” </li></ul></ul>Growth <ul><ul><li>“ Reduce our cost and increase our margin” </li></ul></ul>Margin <ul><ul><li>“ Develop products that meet customer needs” </li></ul></ul>Product Differentiation
  8. 8. … coupled with new “enablements” which make it easier <ul><li>Electronic Commerce—EDI, provides “seamless” links of data </li></ul><ul><li>Joint Service Agreements—provides a relationship of “agreement” </li></ul><ul><li>Supplier value-added services promote collaboration </li></ul><ul><ul><li>Vendor Managed Inventory </li></ul></ul><ul><ul><li>Consignment </li></ul></ul><ul><ul><li>Consumption-based replenishment </li></ul></ul><ul><ul><li>Schedule sharing </li></ul></ul><ul><ul><li>Pull mechanisms </li></ul></ul><ul><li>ERP Systems—potential for better information </li></ul>
  9. 9. Leaders are increasing their market share through supplier integration <ul><li>Partnering with suppliers has increased flexibility, and on-time delivery, yielding satisfied customers </li></ul><ul><li>Satisfied customers are responding by awarding more business to “predictable” manufacturers </li></ul><ul><li>Elimination of redundant supplier/manufacturer activities has yielded increased customers/market share </li></ul>Supplier Activities Manufacturing Activities = Increased Market Share = Customer Customer Customer Manufacturing Activities Supplier Activities Customer Activities Manufacturing Activities Supplier Activities Satisfied Customers Reliability Growth Margin Product Differentiation
  10. 10. Leaders are increasing their margins through supplier integration <ul><li>Best-in-class companies work with their suppliers to co-develop products and jointly drive R&D costs down </li></ul><ul><li>Alliances with fewer suppliers and customers lower supply-chain management cost </li></ul><ul><ul><li>Inventory carrying cost </li></ul></ul><ul><ul><li>Material acquisition cost </li></ul></ul><ul><li>Best-in-class companies lower operational cost by focusing in core competencies </li></ul>Vendor Managed Inventory Pull Mechanisms Consignment Inventory Supplier Customer Supplier Manages Customer’s Source Joint Ownership of Inventory Rapid Replenishment Rapid Replenishment Customer FG RAW WIP Supplier FG RAW WIP Your Company FG RAW WIP Source Plan Make Make Plan Deliver Reliability Growth Margin Product Differentiation
  11. 11. Leaders are stabilizing operations through supplier integration <ul><li>Interdependent activities are coordinated </li></ul><ul><ul><li>Use of joint service agreements based on agreed goals </li></ul></ul><ul><ul><li>Sequential dependencies identified and parallel activities implemented where appropriate </li></ul></ul><ul><li>Communication flows accurately and freely </li></ul><ul><ul><li>Efficient communication of key inputs and outputs </li></ul></ul><ul><ul><li>Across functional and company boundaries </li></ul></ul><ul><li>Decision-making is effective </li></ul><ul><ul><li>Informed with the required information </li></ul></ul><ul><ul><li>Timely and predictable </li></ul></ul><ul><ul><li>Empowerment to make decisions at the appropriate level </li></ul></ul>Material Flow Supplier Mfg. Customer Information Flow Customer Activities Supplier Activities Mfg Activities Material Flow Information Flow Reliability Growth Margin Product Differentiation
  12. 12. Leaders are realizing product differentiation through supplier integration <ul><li>Manufacturers are leveraging their suppliers to develop differentiated products and services </li></ul><ul><ul><li>Customized raw materials </li></ul></ul><ul><ul><li>Technical assistance </li></ul></ul><ul><ul><li>Joint development programs </li></ul></ul><ul><li>Early involvement by suppliers has proven instrumental in product and service differentiation </li></ul><ul><li>Best-in-class companies have reduced R&D cycle times by forging partnerships with suppliers </li></ul>Survival Is Increasingly Dependent on a Willingness to Integrate With Suppliers Reliability Growth Margin Product Differentiation
  13. 13. Benefits of Integrating Supply Chains © Copyright 1997 The Supply-Chain Council 15662–Module 4
  14. 14. Quantifiable time and quality benefits can be dollarized and carried to the bottom line Delivery Performance Inventory Reduction Fulfillment Cycle Time Forecast Accuracy Overall Productivity Lower Supply-Chain Costs Fill Rates Improved Capacity Realization 16% – 28% Improvement 25% – 60% Improvement 30% – 50% Improvement 25% – 80% Improvement 10% – 16% Improvement 25% – 50% Improvement 20% – 30% Improvement 10% – 20% Improvement Typical Quantified Benefits from Integrating the Supply Chain Source: 1997 PRTM ISC Benchmark Study
  15. 15. Supplier involvement is linked directly to time, quality, and cost improvements <ul><li>Time is now a competitive weapon </li></ul><ul><ul><li>Reduced development cycle-times </li></ul></ul><ul><ul><li>Higher responsiveness due to reduced source/make cycle times </li></ul></ul><ul><li>Quality is “assured” vs. “controlled” </li></ul><ul><ul><li>Better product designs </li></ul></ul><ul><ul><li>Better fit for use </li></ul></ul><ul><ul><li>Higher product and process yields </li></ul></ul><ul><li>Cost is jointly managed down </li></ul><ul><ul><li>Development cost significantly reduced </li></ul></ul><ul><ul><li>Cost of “quality” is less (material acquisition cost) </li></ul></ul><ul><ul><li>Inventory carrying cost drastically reduced </li></ul></ul>S S
  16. 16. Integrating the supply chain creates a win-win environment <ul><li>Improved working environment </li></ul><ul><li>Mutual awareness of business needs and improvements </li></ul><ul><li>Improved speed and consistency in decision-making </li></ul><ul><li>Common supply-chain “language” that facilitates communications </li></ul><ul><li>Creation of a true virtual “chain of chains” </li></ul><ul><li>Improved customer satisfaction due to improved responsiveness </li></ul>
  17. 17. What does Integration Mean? © Copyright 1997 The Supply-Chain Council 15662–Module 4
  18. 18. Planning links suppliers’ and customers’ supply-chain management processes <ul><li>Each intersection of two execution processes (Source-Make-Deliver) is a “link” in the supply chain </li></ul><ul><li>Planning processes manage these customer-supplier relationships </li></ul>Customer and Supplier Supply Chain Customer and Supplier Customer and Supplier Plan Plan Plan Plan Source Make Deliver “ Manages relationship” with supplier Manages source/make relationship Manages make/deliver relationship “ Manages relationship” with customer
  19. 19. Supply-chain integration is based on “sharing” <ul><li>Shared objectives </li></ul><ul><ul><li>A clear understanding and mutual respect for each other’s objective </li></ul></ul><ul><li>Shared expertise </li></ul><ul><ul><li>Leveraging each other’s skill sets, processes and core competencies </li></ul></ul><ul><li>Shared knowledge </li></ul><ul><ul><li>Leveraging models, frameworks, benchmarking and best practices </li></ul></ul><ul><li>Shared information </li></ul><ul><ul><li>Synchronization of activities (schedules, demand, inventory, marketing data, sales data, design and technology plans) </li></ul></ul><ul><li>Shared experiences </li></ul><ul><ul><li>Communicating experiences which may save time and cost </li></ul></ul><ul><li>Shared responsibility </li></ul><ul><ul><li>Inventory – Cycle times </li></ul></ul><ul><ul><li>Quality – Cost </li></ul></ul>
  20. 20. Supplier integration requires joint planning, schedule sharing, and rapid replenishment Plan Source Make Deliver Plan Source Make Deliver Supplier Customer Joint Planning Rapid-Replenishment Manufacturing Schedule Sharing Issue Resolution
  21. 21. Integration can mean new process, new infrastructure or new systems and tools Practices Results The integration technique may be different for each effort
  22. 22. Integration can mean new process, new infrastructure or new systems and tools The integration technique may be different for each effort – Continued Practices Results
  23. 23. Integration can mean new process, new infrastructure or new systems and tools Practices Results The integration technique may be different for each effort – Continued
  24. 24. How to Initiate the Integration Effort © Copyright 1997 The Supply-Chain Council 15662–Module 4
  25. 25. “ Integration” changes focus from internal to external process management <ul><li>Intra-company (Inward Focus) </li></ul><ul><li>Each business optimizes inside its own supply chain </li></ul><ul><li>Problems tend to be limited to internal solutions </li></ul><ul><li>Intra-company relationships are built </li></ul><ul><li>Inter-company (Outward Focus) </li></ul><ul><li>Links the output activities of one company to the input activities of another </li></ul><ul><li>Processes are integrated by macro level planning </li></ul><ul><li>Allows for maximum reduction in cost and interval </li></ul>Migration from intra- to intercompany assumes you have optimized internally first Supplier Customer Customer’s Customer Suppliers’ Supplier (internal or external) (internal or external) Your Company Outward Focus Inward Focus Outward Focus
  26. 26. There are three stages to integrate your supplier into your supply chain Stage 1 Overall Supply-Chain Process Stage 2 Supply-Chain Configurations Stage 3 Intra-/Intercompany Process Improvement Educate the suppliers—assumes internal optimization has occurred Gain an understanding of how the two configurations “interlock” Implement with help of a Joint Service Agreement (JSA) <ul><li>Identify target supplier accounts </li></ul><ul><li>Provide “SCOR” education to supplier </li></ul><ul><li>Share “your” supply-chain configuration </li></ul><ul><li>Explain benefits of “interlocking” supply chains </li></ul><ul><li>Setup a session to help your supplier configure their supply chain </li></ul><ul><li>Bring them to a similar level of understanding of supply-chain configurations and how to use it </li></ul><ul><li>Connect your configurations with theirs </li></ul><ul><li>Discuss redundancies </li></ul><ul><li>Discuss mutual benefits </li></ul><ul><li>Develop plan to address redundancies and optimize benefits </li></ul><ul><li>Develop a JSA to capture “new” responsibilities of both parties </li></ul><ul><li>Implement the JSA </li></ul>JSA
  27. 27. Stage 1: Educate the supplier on the overall Supply-Chain process <ul><li>Identify target supplier accounts </li></ul><ul><li>Provide “SCOR” education to supplier </li></ul><ul><li>Share “your” supply-chain configuration </li></ul><ul><li>Explain benefits of “interlocking” supply chains </li></ul>
  28. 28. Stage 2: Understand each other’s Supply-Chain configurations <ul><li>Setup a session to help your supplier configure their supply chain </li></ul><ul><li>Bring them to a similar level of understanding of supply-chain configurations and how to use it </li></ul><ul><li>Connect your configurations with theirs </li></ul>Supplier Customer
  29. 29. Stage 3: Implement intra-/intercompany process improvements with the help of a JSA <ul><li>Discuss redundancies </li></ul><ul><li>Discuss mutual benefits </li></ul><ul><li>Develop plan to address redundancies and optimize benefits </li></ul><ul><li>Develop a JSA to capture “new” responsibilities of both parties </li></ul><ul><li>Implement the JSA </li></ul>JSA
  30. 30. <ul><li>Review with your supplier “their” critical suppliers </li></ul><ul><ul><li>Discuss issues, concerns, possibilities </li></ul></ul><ul><li>Encourage your supplier to educate their supplier </li></ul><ul><li>Link the entire supply-chain and begin additional discussions to improve entire supply chain </li></ul>Integrating your supplier’s supplier should follow a similar but collaborative approach Educate their Supplier on SCOR Share Configurations Drive Intercompany Process Improvements Supplier Suppliers Supplier Your Company Supplier Suppliers Supplier Your Company JSA
  31. 31. Case Study © Copyright 1997 The Supply-Chain Council 14849–Module 4
  32. 32. To illustrate, we will walk through an integration effort between two companies <ul><li>ABC is a primary customer of XYZ </li></ul><ul><ul><li>Two manufacturing plants </li></ul></ul><ul><li>XYZ is a supplier of injection molded plastics </li></ul><ul><ul><li>Produces plastics products in two manufacturing facilities </li></ul></ul><ul><ul><ul><li>Savannah plant produces products to stock </li></ul></ul></ul><ul><ul><ul><li>Houston plant produces a major intermediate to stock </li></ul></ul></ul><ul><ul><li>Both manufacturing facilities purchase and receive their materials independently </li></ul></ul><ul><ul><li>After final production, all products are shipped from the Savannah plant </li></ul></ul>
  33. 33. Stage 1: ABC educates the supplier on SCOR, and shows them their configuration Customers Suppliers P1 Plan Supply Chain Plan P2 Plan Source P3 Plan Make P4 Plan Deliver Source Make Deliver S3 Source Engineer-to-Order Products S0 Source Infrastructure M0 Make Infrastructure D0 Deliver Infrastructure D3 Deliver Engineer-to-Order Products P0 Plan Infrastructure S1 Source Purchased Materials S2 Source Make-to-Order Products M1 Make-to-Stock - Process M2 Make-to-Order - Process M3 Make-to-Order - Discrete M4 Make-to-Stock - Discrete M5 Engineer-to-Order - Discrete D1 Deliver Stocked Products D2 Deliver Make-to-Order Products
  34. 34. Stage 1: ABC discusses its current SCOR processes and the threads that link them XYZ P2 P3 S1 S3 P4 Sub- Assembly D3 M1, M2 ABC Supply-Chain Configuration S3 D1 D2 M1 D2 S1 S1 S1 P2 P3 D1 P4 ABC
  35. 35. Stage 1: ABC identifies supply-chain redundancies Customers P2 P3 S3 P4 Sub- Assembly D3 M1, M2 S3 D2 D2 S1 S1 S1 P2 P3 D1 P4 ABC has two distinct internal supply chains without significant integration D1 S1 M1 XYZ
  36. 36. Stage 1: ABC identifies where it can leverage savings from vendors Independent sourcing from common supplier Customers P2 P3 S3 P4 Sub- Assembly M1, M2 D2 D2 S1 S1 S1 P2 P3 D1 P4 S1 D3 S3 D1 M1 XYZ ABC
  37. 37. Stage 1: ABC identifies supply-chain improvement opportunities Customers P2 P3 S3 P4 Sub- Assembly D3 M1, M2 S3 D2 D2 S1 S1 S1 P2 P3 D1 P4 Planning is not rolled-up across the supply chain D1 S1 M1 XYZ ABC
  38. 38. Stage 1: ABC creates and shares “to-be” supply-chain configuration sketch Customers S3 Sub- Assembly D3 S3 D3 D2 S1 S1 P4 D2 S1 M1 P3 P1 P4 D1 S1 P2 M1, M2 XYZ ABC
  39. 39. Stage 1: ABC helps XYZ understand its standard processes and the “threads” that link these processes Suppliers XYZ Coatings XYZ Final Production XYZ Intermediate Production Add-It Chemicals P2 P3 M1 D1 S1 P2 P4 P3 M2 D1 D6 S1 D3 S1 P1 P4 P1 Supplier’s Supplier Customer’s Customer S3 D1 XYZ ABC
  40. 40. Stage 1: ABC helps XYZ understand integration opportunities such as planning Suppliers XYZ Coatings XYZ Final Production XYZ Intermediate Production Add-It Chemicals P2 P3 M1 D1 S1 P2 P4 P3 M2 D1 D6 S1 D3 S1 P1 P4 P1 Supplier’s Supplier Customer’s Customer S3 D1 XYZ has two distinct internal supply-chain “threads,” indicating significant redundant planning activity XYZ ABC
  41. 41. Stage 1: ABC and XYZ discuss where new perspectives can help improve XYZ’s performance Suppliers XYZ Coatings XYZ Final Production XYZ Intermediate Production Ad-It Chemicals P2 P3 M1 D1 S1 P2 P4 P3 M2 D1 D6 S1 D3 S1 P1 P4 P1 Supplier’s Supplier Customer’s Customer S3 D1 The final production plant views the intermediate plant as any other supplier Each plant sources independently even though they share a key supplier XYZ ABC
  42. 42. Stage 1: XYZ determines where internal schedule integration can provide benefit Suppliers Customers XYZ Coatings XYZ Final Production XYZ Intermediate Production Add-It Chemicals P2 P3 M1 D1 S1 P2 P4 P3 M2 D1 D6 S1 D3 S1 P1 P4 P1 Supplier’s Supplier Customer’s Customer S3 D1 Both plants manufacture to stock The production schedule within the final production plant does not drive the production schedule in the intermediate plant
  43. 43. Stage 1: XYZ uses its performance scorecard to identify quantitative gaps Example company performance XYZ balanced “SCORcard”
  44. 44. Stage 1: After identifying opportunities, a “to-be” XYZ supply chain is configured XYZ Coatings Suppliers Add-It Chemicals D1 D1 S3 P2 P3 S1 S1 P1 S1 M3 M4 P4 XYZ Final Production XYZ Intermediate Production D1 D3 D2 Reconfiguration is a collaborative effort XYZ ABC
  45. 45. Stage 2: ABC and XYZ work together to compare configurations Customers S3 Sub- Assembly D3 S3 D3 D2 S1 S1 P4 D2 S1 M1 P3 P1 P4 D1 S1 P2 M1, M2 XYZ XYZ ABC XYZ Coatings Suppliers Add-It Chemicals D1 D1 S3 P2 P3 S1 S1 P1 S1 M3 M4 P4 XYZ Final Production XYZ Intermediate Production D1 D3 D2 XYZ ABC
  46. 46. Stage 2: ABC and XYZ use SCOR to identify appropriate best practices for integration
  47. 47. Stage 2: ABC and XYZ also use SCOR to identify appropriate integration metrics Metrics tell you where to start
  48. 48. Stage 3: Discuss opportunities to integrate ABC — XYZ supply chain <ul><li>Integrate planning processes between the two entities </li></ul><ul><li>Synchronize the manufacturing strategies </li></ul><ul><ul><li>With integrated planning can a “pull-based,” make-to-order flow be implemented across the supply chain? </li></ul></ul><ul><li>Create Joint Service Agreements (JSAs) between the two entities </li></ul>
  49. 49. Stage 3: Use SCOR to orchestrate improvement discussions with supply-chain partners The results of these discussions are an agreed-to set of supply-chain practices, derived from benchmark performance and industry best practices Process Elements N Process Elements 2 Process Elements 3 Process Elements 1 Current Practices Best Practices Current Performance Desired Performance “ Supplier” “ Customer” Process Elements N Process Elements 2 Process Elements 3 Process Elements 1 Current Practices Best Practices Current Performance Desired Performance
  50. 50. Stage 3: Discuss mutual benefits <ul><li>Common goals </li></ul><ul><ul><li>Reduced inventories </li></ul></ul><ul><ul><li>Consistent production = better on-time delivery </li></ul></ul><ul><ul><li>Lower costs </li></ul></ul><ul><li>Efficient tool for communicating and reacting to changes within either entity’s supply chain </li></ul>
  51. 51. Stage 3: Build the plan to address opportunities Benchmark Validate Opportunities Build Value Proposition Negotiate JSA Investigate Tools Pilot Interim Review Pilot Roll-Out
  52. 52. Stage 3: Build the Joint Services Agreement <ul><li>Agree to performance metrics and targets for the supplier/customer relationships </li></ul><ul><li>Identify and implement mutual Best Practices </li></ul><ul><ul><li>Understand common practices performed at each company </li></ul></ul><ul><ul><li>Identify redundancies </li></ul></ul><ul><ul><li>Eliminate redundancies and share benefits </li></ul></ul><ul><li>Document a Joint Services Agreement </li></ul><ul><li>Pilot, refine and ready program for roll-out </li></ul>
  53. 53. Next Steps © Copyright 1997 The Supply-Chain Council 15662–Module 4
  54. 54. What you can do to get started New to SCOR SCOR Veteran <ul><li>Create your configuration </li></ul><ul><li>Benchmark </li></ul><ul><li>Identify internal opportunities </li></ul><ul><li>Engage you supplier in integration efforts (Stage 1, 2, 3) </li></ul><ul><li>Discuss roles between you and your supplier </li></ul><ul><li>Set specific cost sharing and benefit goals </li></ul><ul><li>Motivate your supplier to use SCOR to integrate with their supplier(s) </li></ul>
  55. 55. Summary <ul><li>Engage supplier in a three-stage integration effort </li></ul><ul><ul><li>Stage 1—educate supplier </li></ul></ul><ul><ul><li>Stage 2—understand each other’s configurations </li></ul></ul><ul><ul><li>Stage 3—plan improvement implementation </li></ul></ul><ul><li>Extend to Supplier’s Supplier </li></ul><ul><ul><li>Encourage upstream suppliers to use SCOR </li></ul></ul><ul><ul><li>Encourage upstream suppliers to benchmark their supply chain </li></ul></ul><ul><ul><li>Embrace the chain of chains as a competitive weapon </li></ul></ul>
  56. 56. Conclusion Module 4: Fall Conference Dallas, TX November 24, 1997

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