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SCOR: Open Measures for Inventory network Administration

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  1. SCOR: Open Standards for Supply Chain Management Supply Chain Council, Inc.

  2. What Keeps You Up at Night? Stock Market Volatility, Oil Prices, Labor, Political Instability, Security Reducing Inventory/ Working Capital/ Asset Management Reducing Total Supply Chain Costs Supply Chain Resiliency & Sustainability: Risk Management & Green Competing in a Global Market Providing Superior & Consistent Customer Service While Increasing Revenue & Margin Business As Usual Has Been Cancelled…Now What? SCC & SCOR HRdergi Conference 2010

  3. Superior Supply Chain Management (SCM) has Long Been a Source of Competitive Advantage % of Revenue Best-in-class Companies’ Outperform Their Median Competitors with a 50% Cost Advantage Source: PRTM/The Performance Measurement Group SCC & SCOR HRdergi Conference 2010

  4. But SCM is Paramount in Times of Economic Uncertainty • In 2007, US business logistics costs rose to an all time high of $1.4 trillion (10.1% of US nominal Gross Domestic Product ) 3 • Supply-chain generally accounts for between 60% and 90% of all company costs1 • A 2% improvement in process efficiency for supply-chain processes has 3000% - 5000% the impact of a 2% improvement in efficiency for… IT… HR… Finance1… Sales… 1 Exclusive of Financial Services companies2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries 3 CSCMP 19th Annual State of the Logistics Industry Focused initiatives in Supply Chain Management can result in 30-35% cost reductions, liberation of working capital, and revenue increases of 3-5%! SCC & SCOR HRdergi Conference 2010

  5. And SCM Improvement Creates Shareholder Value The Supply Chain Impacts . . . All Financial Metrics . . . & Shareholder Value Liberate Working Capital • Improve customer service and response • Optimize inventory flow, utilization & productivity Improve Capital Efficiency Reduce Fixed Capital • Best-in-class customer relationships • Differentiated service capabilities Increase Shareholder Value Increase Revenue and Margin Increase Profit • Best-in-class strategic supplier partnerships • Leverage of outsourcing of business processes • Unique supply chain models Optimize Cost Model Effective Supply Chain Management can increase a Return on Capital Employed by 30% and More! SCC & SCOR HRdergi Conference 2010

  6. THE ROLE OF THE SCOR MODEL IN OPTIMIZING SUPPLY CHAIN PERFORMANCE SCC & SCOR HRdergi Conference 2010

  7. What is a Supply Chain? SCC & SCOR HRdergi Conference 2010

  8. What is a Supply Chain Supplier processes Product Management Customer processes Product Design DCOR™ Sales & SupportCCOR™ Supply Chain SCOR™ SCC & SCOR HRdergi Conference 2010

  9. Plan What is SCOR®? Supply Chain Supply Chain Process, arrow indicates material flow direction Process, no material flow Information flow Source Make Deliver Supplier processes Customer processes Customer processes Supplier processes Return Return • SCOR is a supply chain process reference model containing over 200 process elements, 550 metrics, and 500 best practices including risk and environmental management • Organized around the five primary management processes of Plan, Source, Make, Deliver and Return • Developed by the industry for use as an industry open standard - Any interested organization can participate in its continual development 9 SCC & SCOR HRdergi Conference 2010

  10. The SCOR® model – a cross-industry open standard Plan Return Return Source Deliver Return Return Return Return Return Return • The five integrated processes provide a boundary-free view of the true end-to-end Extended Supply Chain • Supports intra- and cross-enterprise optimization of arbitrary scale Make Deliver Source Make Deliver Source Deliver Make Source Customer’sCustomer Your Company Supplier Customer Suppliers’Supplier Internal or External Internal or External SCC & SCOR HRdergi Conference 2010

  11. SCOR Processes – Five Levels of Decomposition EDI Supply-Chain Source S1Source Stocked Product S1.2Receive Product XML Standard SCOR definitions Company/Industry definitions SCC & SCOR HRdergi Conference 2010

  12. Supply Chain Balanced SCORcard Standard Strategic (Level 1) Metrics Customer Internal † upside and downside adaptability metrics SCC & SCOR HRdergi Conference 2010

  13. SCOR Benefits Companies SCOR can be used to describe supply chains that are very simple or very complex using a common set of definitions and enabling a common understanding It helps companies: • Form an integrated measured strategy which translates overall business objectives clearly and comprehensively to all operational business entities • Create a common balanced scorecard by which customers can measure their performance and by which SCC members can measure suppliers’ performance • Compare the performance of supply chain and related operations within their company or against other companies • Determine what processes to improve and by how much to improve them either eliminating waste, or by improving process reliability • Guide the consolidation of internal supply chains (which results in significant cost reductions from eliminating duplicative assets) • Create standard processes and common information systems across business units (which generates major cost savings, cycle-time and quality improvements) SCC & SCOR HRdergi Conference 2010

  14. SCOR®: CASE IN POINT SCC & SCOR HRdergi Conference 2010

  15. ADVA Optical Networking The Challenge • €370.2M Revenue Enterprise1 • Rapid growth in demand for storage, voice & data transport • Focus on capturing this growth while maintaining profitability • Needed to identify inventory drivers and optimize inventory levels to enable ADVA to reach inventory reduction targets whilst improving customer satisfaction in Order Fulfillment Cycle Time (OFCT) and On-time Delivery (OTD) • Created a transformation plan that would allow ADVA to proactively plan, drive and manage the inventory levels and better achieve the balance of cost and service The Solution • Using SCOR, ADVA identified performance gaps in key metrics between current and required to reach parity status • Also using SCOR, identified process disconnects, drivers of inventory and projects required for improvement • Grouped and prioritized proposed projects based on potential impact and amount of effort/risk • Agreed to project list including: • New S&OP Process • Supplier scorecards and quarterly business reviews with suppliers, • Information transparency and others Benefits Achieved • Gross inventory reduced from €59 million to €38 million in 10 months • Inventory days of supply reduced 47% from initial scorecard 1Hoovers.com SCC & SCOR HRdergi Conference 2010

  16. Core Value1 • Improvement of operating results of an average of 3% in the initial SCOR implementation phase by means of cost reduction and improvement in customer services • Increase in profitability (between 2x and 6x) with regards to project investments costs within first 12 months of implementation • Reduction in IT costs through minimizing system customization and making better use of standard functionality • Continuous actualization of process change portfolio by continuous conversion of Supply Chain improvements with the objective of increasing annual profits by 1% to 3% 1Poluha (2007) Application of the SCOR Model in Supply Chain Management New York, USA SCC & SCOR HRdergi Conference 2010

  17. Douglas Pharmaceuticals Limited The Challenge • Significant growth from 2003 to 2007 • 300% increase in new product development • 122% growth in production volume • 61% growth in employees • Created the “perfect storm” of supply chain issues • Converted to new ERP in August 2006 • “Burning Platform”: • Customer DIFOT (Export) Down to 20% • Product Lead Times Up to 8 months • New Product Introduction Lead Times Up to 9 months • Stock Turns Down to 2.1x • YTD Sales Down 30% • Available Spare Capacity Unknown • Customer complaints impact new licensing opportunities and future earnings growth • Impact on 2007/8 earnings and shareholder value: • EBIT (15.9%) • Enterprise Value ($25.2M) The Solution • “Turning point” for organization – DIY not always best • Board mandated review at its April 2007 meeting • Process established to evaluate options • SCE program initiated using SCOR • 17 week SCE program between May and September 2007 SCC & SCOR HRdergi Conference 2010

  18. Douglas Pharmaceuticals Limited – continued The Solution • Benchmarking and Defect Analysis: • Established emphasis on reliability and supply chain cost • Confirmed size and relative importance of current performance gaps • Provided early direction on root causes • Generated basis for calculating opportunity cost • Created immediate visibility over supply chain performance • Built confidence to move onto Phase Two • 24 problem areas impacting reliability and COG • Portfolio of 50 improvements addressed key problem areas • “Drive Chain” now forms basis of an enterprise wide transformation program Benefits Achieved SCC & SCOR HRdergi Conference 2010

  19. Typical Potential Improvements1 1Hughes & Michels (1998) Transform your supply chain. Releasing value in business. London, UK SCC & SCOR HRdergi Conference 2010

  20. SAAB AB Challenge • US$3.1B Aerospace Technology Enterprise1 • Three strategic business segments: aeronautics, defense and security solutions, systems and products • Challenged to execute profitable and customer adapted logistics intensive businesses • The degree of coordination of logistics operations highly impact Saabs cost level for logistics • Coordination enables CEL processes to ensure delivery to customers demands • Needed to build competitive operations, planning, logistics, and support • To do so, wanted to move to a full lifecycle-based support concept The Saab Common Solution • One backbone system (today based on ERP and/or Best of Breed) • Cross-functional collaboration and common trust • Increased Interoperability • Align SCM Strategy with Corporate Strategy • Key Enablers • Common Supply Chain Frameworks and Roadmaps • Standardization • Codification • Information Systems 1Hoovers.com SCC & SCOR HRdergi Conference 2010

  21. SAAB Coordinated Effective Logistics (CEL) Solution • Step by step approach - no “big bang” • Multiple supply chains and methods • Lack of structured methods and processes • Knowledge tied to individuals • Lack of information sharing • Use of the SCOR model • Common definitions and process mapping • Sustainable and structured methodology being used as framework for realization of all logistics and SCM activities within Project CEL throughout all of its phases; from cradle to the grave • Project management • Change management • Engineering technique Benefits Achieved • Creating a Saab Common Logistics and Supply Chain Management Framework • Delivering incremental capabilities • Using SCOR Methodology, Processes and Metrics hierarchy • Initial business cases have identified savings of 73 FTEs and a total of US$15M SCC & SCOR HRdergi Conference 2010

  22. Raytheon IDS The Challenge • US$4.7B subdivision of US$23.1B Defense Services Provider1 • Rapid growth but antiquated processes and procurement focus in supply chain left IDS facing non-competitive operating costs • No skills within existing team to background and skills for transformational change required The Solution • SCOR/Six-Sigma program assessing all supply chain processes within IDS, with focus all SCOR process areas • 8550 people within Raytheon IDS, and 7600 supplier partners went through transformation for accomplishing five key challenges: • Improving world-class performance • Connecting every employee to the business • Creating purposeful, collaborative partnerships • Accelerating top-line, double-digit growth • Achieving predictable, best-in-class bottom-line performance Benefits Achieved • 37 Percent reduction in headcount but increase of college-educated population to 66% • 75% reduction in transactional processing for material acquisition • 25% improvement in SC Cost-to-Sales • $57M in bottom-line savings • 98% supplier conformance to contract 1Hoovers.com SCC & SCOR HRdergi Conference 2010

  23. Comparative Data1 1Stephens (2000) 1997 Comparative Study Pittsburg, USA SCC & SCOR HRdergi Conference 2010

  24. SASOL Supply Chain Optimization The Challenge • US$16B annual South African Petrochemical Concern 1 • Embarked on Supply Chain Optimization to identify synergies and improvement opportunities across multiple business units • Complex changing political environment and introduction of substantial Managerial class without deep experience The Solution • The SASOL Supply Chain Optimization Journey • Awareness – identified SCOR as a tool (2004) • Embarked on SCOR pilot project – tackling problem area to show benefits and understand process • First in-house project (to build internal success) • Approval for permanent Center of Excellence (CoE) competency • Prioritization of supply chain projects (project demand exceeds supply) • Project 2, 3, 4…..X • Embraced “The SCOR Way” (2007) Benefits Achieved • Ongoing CoE for supply chain optimization • Sample project generated IRR of 139% over the project lifetime • Estimated US$1B cost improvements over 3 year period 1Hoovers.com SCC & SCOR HRdergi Conference 2010

  25. Even More Companies SCC & SCOR HRdergi Conference 2010

  26. Even More Companies 40-Point spread between SCOR Companies and Major US Indices SCC & SCOR HRdergi Conference 2010

  27. SUPPLY CHAIN COUNCIL, INC. SCC & SCOR HRdergi Conference 2010

  28. SCC: An independent, non-profit global association • Formed in 1996 to create and evolve a standard industry process reference modelof the supply chain for the benefit of helping companies rapidly and dramatically improve supply chain operations • SCC has established the supply chain world’s most widely accepted framework – the SCOR® process reference model – for evaluating and comparing supply chain activities and their performance • It can be used to describe supply chains that are very simple or very complex using a common set of definitions and enabling a common understanding • It lets companies quickly determine and compare the performance of supply chain and related operations within their company or against other companies • SCC continually advances its tools and educates members about how companies are capitalizing on those tools • With membership open to all interested organizations SCC & SCOR HRdergi Conference 2010

  29. Global Scope With Over 800 Member Organizations Member Distribution Member Affiliation Also developing chapters in India and the Middle East SCC & SCOR HRdergi Conference 2010

  30. Industry Membership Scope SCC & SCOR HRdergi Conference 2010

  31. SCC Benefits Companies • Accelerates application of the SCOR open standard to all supply chain management practices • Provides resources in addition to SCOR for characterizing and measuring supply chain comparative performance • Supports knowledge networks of successful applications among participating companies • Facilitates continuous improvement of the SCOR open standard to keep it relevant and applicable across industry SCC & SCOR HRdergi Conference 2010

  32. SCC Benefits Individuals • Provides comprehensive training in the framework and its application in supply chain management • Provides professional credentials in the application of the SCOR standard • Provides research forums for individuals to learn and participate in advanced supply chain management practice • Supports event and virtual networking with accomplished professionals SCC & SCOR HRdergi Conference 2010

  33. SCC Benefits Academia • Supports access to the only universal supply chain management foundation and language for students • Provides credentialing through SCOR-S certification program to accelerate student placement in industry • Is the global language of supply chain research, cited in over 3000 academic papers and programs • Facilitates access to thousands of companies for research and collaboration worldwide SCC & SCOR HRdergi Conference 2010

  34. SCC Benefits Software and Consulting • Provides uniform standards and practices for consulting skills and software capabilities across industry • Facilitates the development of a global market for software and services focused on universal standards • Creates the ability for “off the shelf” business services methodology for small and large organizations • Provides uniform credentialing for skills of service providers in supply chain improvement programs SCC & SCOR HRdergi Conference 2010

  35. Call to Action - Possibilities • National • Development of a Turkish Language version of SCOR • Turkish Industry based benchmarking database • Training and Education in SCOR for Turkish Industry • Industry • Looking at value SCC and SCOR may bring to your company • Participation in European Leadership Team • Individual • SCOR briefing materials • Discussion with SCM Company Leadership • Education and Evangelism SCC & SCOR HRdergi Conference 2010

  36. Many Thanks For this presentation www.supply-chain.org/event/136 info@supply-chain.org