supply chain project

- 1 -Spring 2010 | WICHITA STATE UNIVERSITY

A Systems Perspective of Balanced Scorecard and SCOR Assessment of Supply Chains

By

Sumanth Pandith Surendra


Project Objectives

Modeling complexity in the supply chain system. Mapping and analyzing interdependencies among the sub-system’s

in a supply chain using Supply Chain Operations Reference-Model (SCOR) model.

Applying ISM (Interpretive Structural Modeling) technique for analyzing the complex structure.

Supply chain performance management using Balanced Scorecard (BSC) and SCOR models.

Integration of BSC and SCOR models for optimizing the performance management.


Introduction to Systems Engineering

A system is defined as a set of interacting or interdependent entities which forms an integrated whole.

A system is complex when it contains complex interdependencies among its entities or sub-systems.

Systems engineering is a field which deals to manage these complex interdependencies in a system.

The need for systems engineering arose when there is increase in complexity of the system.


Introduction to Supply Chain

A supply chain is defined as the network of manufacturers, suppliers, distributers, retailers.

A supply chain typically involves materials and information flow.

Source: Wikipedia


Supply chain from system’s perspective

A supply chain is seen as a system with its sub-systems (entities) and their interactions.

The interactions is known as interdependencies. Supply chain is said to be complex if the interdependencies among

the sub-systems are complex. The sub-systems in a supply chain could be planning, production

and distribution departments. The information flow and the material flow among the sub-systems

are the interactions or the interdependencies.


A typical supply chain system with interdependencies

SalesSales

ProductionPlanning

General LedgerGeneral Ledger

PurchasingPurchasing

CustomersCustomers

VendorsVendors

InventoryInventory Shop Floor execution

A/RA/R A/PA/P


Need for a model

A system is modeled for analyzing complex interdependencies. Some of process models used in systems engineering for modeling

are: Control flow graphs. Functional flow block diagram. Binary decision diagram. IDEF diagrams N2 charts.


SCOR Model

SCOR (Supply Chain Operations Reference-Model) is a process reference model used for modeling supply chain system.

SCOR was first developed by Supply Chain Council (SCC). SCOR is a management tool used for process modeling and

performance management. SCOR has 5 distinct processes for supply chain modeling. Plan, Source, Make, Deliver and Return are the 5 sub-systems in a

supply chain.


SCOR model for a supply chain showing the sub-systems

The First level hierarchy of the Supply Chain System with sub systems.


MESTT (Meta Data Enabled Systems Thinking Tool)

Reports

Database

yEd

Query

ISM

GraphmlInterpreter

Input


Perform Systems Thinking (Source MESTT Project)

Data Mangement System

MES

SE Generated Information

Resolved Issue

Realization Plan

Operational Architecture

Issue Query

Physical ArchitectureOriginating Requirements

Issue QueryIdentified Issue

Graphics Formatted Report

Graphic Report

Derived Requirements

Systems Engineer

Data Report

Data Formatted Report

yEd Graphics Interface

1.1.1

Manage Data

1.1.2

Provide GraphicInterface

1.1.3

AnalyzeRelationships

Date:Friday, November 02, 2007

Author:University User

Number:1.1

Name:(University) Perform Systems Thinking


Decomposing subsystems into elements

Sub systems and its elements as activities as 2nd level hierarchy


Modeling the sub systems and system elements.


Interpretive Structural Modeling

Malone, 1975:

ISM “is used here to refer to the systematic application of some elementary notions of graph theory in such a way that theoretical, conceptual, and computational leverage is exploited to efficiently construct a directed graph, or network representation, of the complex pattern of a contextual relationship among a set of elements.”


Interpretive Structural Modeling

Management and interpretation of input from individuals or groups. Computer-assisted learning process. Network analysis / graph theory Better understanding of direct and indirect relationships among a

system’s components


Interpretive Structural Modeling (ISM) analysis

Circular layout with the most dependent entity in the whole system


Hierarchical layout in left to right position


Circular layout in single cycle form


Circular layout with the centrality measures calculation


1st order Reachability nodes (elements) in the system


Implications from the ISM study for the complex system

It is evident that by analyzing the interdependencies in the system we can reduce the complexity of the system.

MRP is the most dependent entity among the sub systems of Planning, Sourcing, Making & Delivery.

Increases the visibility in the supply chain system. Improves communication and co-ordination among the sub systems. Increases responsiveness in the system and feedback loops are

managed efficiently.


Balanced Scorecard (BSC)

BSC is a management tool used for performance management in an organization.

BSC develops performance metrics based on four categories in an organization and they are:

Customer Perspective. Financial Perspective. Internal business perspective. Innovation and learning perspective


Drawbacks of conventional performance management approach

Lack of Balanced approach Lack of understanding Lack of distinction of metrics at various organizational levels Lack of formal structure for metrics


Performance management for supply chain

Gunasekaran et al. (2001) developed metrics three different organizational levels such as strategic tactical and operational levels.

Further, categorized into financial and non-financial metrics.

Level Performance metrics Financial Non financial

Strategic Total cash flow time X

Rate on return on investment X

Flexibility to meet particular

customer needs X

Delivery lead time X

Total cycle time X

Buyer/supplier relationship level X

Customer query time X

TacticalExtent of cooperation to improve

quality X

Total transportation cost X

Forecasting methods X

Product development time X

Operational Manufacturing cost X

Capacity utilization X

Information carrying cost X

Inventory carrying cost X


BSC for supply chain performance management

Financial Metrics

Net Profit vs. Productivity ratio

Rate of ROI

Budget variations

Supplier relationship level

Delivery performance

Supplier cost saving initiatives

Delivery reliability

operational expenses

Supplier rejection rate

Customer satisfaction metrics

Customer query time

customer perception

Products range and services

Order lead time

Flexibility

Delivery lead time

Delivery performance

Invoicing efficiency

Delivery reliability

Responsiveness

Delivery quality

Defect free deliveries

(Source: Gunasekaran et al., 2001)


Internal Business Process Metrics

Total supply chain cycle time

Total cash flow time

Supplier lead time

Product development cycle time

Purchase order cycle time

Planned process cycle time

MPS Effectiveness

Capacity Utilization

Total Inventory costs

Incoming stock level

Work in Progress

Scrap value

Finished goods inventory

Innovation & Learning Metrics

Supplier involvement for problem solving

Supplier cost saving initiatives

Employee Morale

Order Entry Methods

Accuracy of forecasting techniques

Range of products and services

Flexibility of service systems in meeting customer needs

(Source: Gunasekaran et al., 2001)


SCOR application for Supply Chain performance measurement

SCOR is also applied for the performance measurement of the supply chain activities and processes.

SCOR model helps to describe the supply chain in five different dimensions such as reliability, responsiveness, flexibility, and cost and asset management efficiency.

Using SCOR we can have the structured hierarchy for the performance metrics across the whole supply chain.

Decompose the metrics from top which may be called as level 1 metrics to the next level which may be called as level 2 metrics.


Performance Attributes and Level 1 Metrics (Scott Stephens Dec 2001)

Performance attribute Performance attribute definition Level 1 metric

Supply chain delivery reliability

Performance of supply chain in delivering right product to the right place at the right time in the right condition in the right quantity with the right documentation to the right customer

a) Delivery performance b) Fill rates c) Perfect order fulfillment

Supply chain responsiveness Velocity at which a supply chain provides products to the customer

Order fulfillment lead times

Supply chain flexibilityAgility of a supply chain in responding to

marketplace changes to gain or maintain competitive advantage

a) Supply chain response time b) Production flexibility c) Cost of goods sold d) Total supply chain management costs e) Value added productivity f) Warranty/returns processing costs

Supply chain costsCosts associated with operating the supply

chain cash to cash cycle time

Supply chain asset management efficiency

Effectiveness of an organization in managing assets to support demand satisfaction, this includes the management of all assets like fixed and working capital

Inventory days of supply asset turns


Level 1 and Level 2 Metrics

Level 1 Metrics Level 2 Metrics

Delivery Performance Scheduled Orders to Customer Request

Delivery Performance Delivery Performance to Request Date

Delivery Performance Delivery Performance to Commit Date

Delivery Performance Perfect Order Fulfillment to Delivery

Delivery Performance Fill Rate by Order or Product Line

Order Fulfillment Lead Time Customer Signature/Authorization to Order Receipt

Order Fulfillment Lead Time Order Receipt to Order Entry Complete

Order Fulfillment Lead Time Order Entry Complete to Start Manufacture

Order Fulfillment Lead Time Start Manufacture to Order Complete Manufacture

Order Fulfillment Lead Time Order Complete Manufacture to Customer Receipt of Order

Order Fulfillment Lead Time Customer Receipt of Order to Installation Complete

Order Fulfillment Lead Time Total Order Fulfillment Lead Time

Upside Production Flexibility Metrics Upside Production Flexibility: Principal constraint

Upside Production Flexibility Metrics Key Components or Material Availability

Upside Production Flexibility Metrics Direct Labor Availability

Upside Production Flexibility Metrics Internal Manufacturing Capacity

Supply Chain Response Time Forecast Cycle Time

Supply Chain Response Time Replan Cycle ( Sales & Operations Planning ) Time

Supply Chain Response Time Intra-Manufacturing Replan Cycle Time

Supply Chain Response Time Total Sourcing Lead Time

Supply Chain Response Time Release-to-Ship Time


Level 1 Metrics Level 2 Metrics

Total Supply Chain Management Costs Order Management Cost

Total Supply Chain Management Costs Material Acquisition Cost

Total Supply Chain Management Costs Inventory Carrying Cost

Total Supply Chain Management Costs Supply-Chain-Related Finance and Planning Cost

Total Supply Chain Management Costs Supply-Chain-Related IT Cost

Total Supply Chain Management Costs Total Supply-Chain Management Costs

Cash-to-Cash Cycle Time Days Sales Outstanding

Cash-to-Cash Cycle Time Average Payment Period for Production Materials

Cash-to-Cash Cycle Time Total Inventory Days of Supply

Cash-to-Cash Cycle Time Inventory Days of Supply (Raw, WIP, Finished Goods)

Cash-to-Cash Cycle Time Inventory Turns

Cash-to-Cash Cycle Time Cash-to-Cash Cycle Time

Forecast Accuracy Unit Forecast Accuracy

Forecast Accuracy Dollar Forecast Accuracy

Financial Metrics COGS as a Percentage of Revenue

Financial Metrics Year over Year change in COGS

Financial Metrics Profitability (EBIT) as a Percentage of Revenue

Financial Metrics Expenses (SG&A) as a Percentage of Revenue

Financial Metrics Sales Growth (1 Year)

Financial Metrics Net Asset Turns

Value Added Productivity Value Added Productivity per Employee

Value Added Productivity Value Added Productivity per Payroll


Level 1 and level 2 metrics linking the performance metrics across the whole supply chain


Delivery performance metric and associated metrics


Total order fulfillment lead time metric and associated metrics


Upside Production flexibility metric and associated metrics


Supply chain response time metric and associated metrics


Total supply chain management costs and associated metrics


Financial metric and associated sub level metrics


Cash to cash cycle time metric and associated metrics


SCOR level 1 and level 2 metrics mapped onto BSC


Advantages of linking the SCOR metrics to the BSC

Combining SCOR and BSC the performance metrics can be linked to the individual business processes.

Performance metrics in supply chain can be categorized hierarchically so as to track them easily.

Performance measures could be carried not only at the organizational level but also at the process level.

Track the performance linking with the organizational business processes.

We can track the impact of supply chain metrics on the organizational performance.


Conclusions

Reduce complexity in the supply chain system. Increase visibility in the system. Increase responsiveness in the system. Improve communication and co-ordination. Track the most dependent element in the system. Manage the information flow and material flow effectively. Better performance management by integrating SCOR and BSC. Track performance metrics at both strategic and operations levels.


(Source: Eugene A. Asahara)


References T. R. Browning (2001), Applying the Design Structure Matrix to System Decomposition and

Integration Problems: A Review and New Directions. IEEE Transactions on Engineering Management, 48, 292-306.

R Bhagwat., & M. K. Sharma (2007), Performance measurement of supply chain management: A balanced scorecard approach. Computers & Industrial Engineering, 53, 43-62.

S-J, (Gary) Chen., & E. Huang (2007), A systematic approach for supply chain improvement using design structure matrix. Journal of Intelligent Manufacturing, 18, 285-299.

C. Chandra., S. Kumar (2001), Enterprise Architectural Framework for Supply-chain Integration. Industrial Management & Data Systems, 6, 290-303.

M. Fayez., L. Rabelo., M. Mollaghasemi (2005), Ontologies for supply chain simulation modeling.

Proceedings of the winter simulation conference, 2364-2370. Gordon Stewart (1997), Supply Chain Operations reference model (SCOR): the first cross-industry

framework for integrated supply-chain management. Logistics Information Management, 10, 62-67. M. M. D. Hassan (2005), Engineering Supply Chains as Systems. Systems Engineering, 9, 73-89.


References

R. S Kaplan., & D. P Norton (1996), Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review, Jan-Feb, 1-10.

Z. Li., A. Kumar., & Y. G. Lim (2002), Supply Chain Modeling- a co-ordination approach. Integrated Manufacturing Systems, 13, 551-561.

A. Roder., & B. Tibken (2006), A methodology for modeling inter-company supply chains and for evaluating a method of integrated product and process documentation. European Journal of Operations Research, 169, 1010-1029.

Scott Stephens (2001), Supply Chain Operations Reference Model version 5.0: A New Tool to Improve Supply Chain efficiency and Achieve Best Practice. Information Systems Frontiers, 3:4, 471-476 .


THANK YOU!!!!


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