Supply-Chain

Practice

Maturity

ModelandPerformance

AssessmentPresented

by:Bob

Moncrieff,

Director,

PRTM

Mark

Stonich,Principal,

PRTMDate: November

6,

2001ThePerformanceMeasurementGroup,LLC

Pittiglio

Rabin

Todd&

McGrathIntroduction?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/012The

purpose

of

today’s

webcast

isto:Introduce

PMG’s

supply-chain

Performance

Scorecard

&

MaturityModelPresent

initial

results

of

PMG’s

inaugural

Supply-Chain

Practice

and

Information

Technology

AssessmentHighlight

preliminary

findings

of

best-practice

implementation

and

business

performancecorrelationReview

a

real-world

example

of

a

practice

and

performance

assessment

that

PRTM

and

PMG

recently

conductedSpur

discussion,

analysis,

and

action

within

your

companies

and

industriesAgenda?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/013Supply-Chain

Scorecard

BackgroundIntroduction

to

PMG’sSupply-Chain

Maturity

Model

Dominantand

Emerging

PracticesPreliminary

Findings

—

Discrete

Electronics

Equipment

studyPracticeand

PerformanceAssessment—Case

Study5

min5

min15

min15

min15

minSupply

Chain

Performance

Versus

Comparison

PopulationKey

PerspectivesMetrics0%-

20%Major

Opportunity20%

-

40%Disadvantage40%-

60%Median60%-

80%Advantage80%

-

100%Best-

in-ClassYourOrg.On-Time

Delivery

to

Request

%68.8%88.2%87.1%On-Time

Delivery

to

Commit

%74.7%95.0%94.2%Order

Fulfillment

Lead

Time11.06.48Customer-

facing

Metrics:Upside

Production

Flexibility42.010.810Total

Supply-Chain

Management

Cost9.0%3.8%3.9%Cash-to-Cash

Cycle

Time93.642.725.4Internal-facingMetrics:Inventory

Days

of

Supply74.937.730Net

Asset

Turns2.010.85.5The

Supply-Chain

Score

Card

consists

of

two

elementsDOMINANT

PRACTICESSupplyChain

Practice

AssessmentStage

1:

Functional

FocusStage

2:

Internal

Stage

3:

External

Integration IntegrationStage

4:

Cross-

Enterprise

CollaborationPLANStrategyDemand

Planning

Supply

PlanningDemand/Supply

Balancing

&

Decision-makingSOURCE

StrategyCommodity&ProcessManagement

SupplierDevelopment/Management

Organization&

InfrastructureMAKEManufacturing

StrategyProduction

SchedulingMaterial

Issue,

Movement

andTracking

ManufacturingProcess

ControlDELIVER

EnableOrder

Entry

&

SchedulingWarehousing,

Transportation

and

DeliveryInvoicingandCashCollectionOVERALL

Supply

Chain

StrategySupply

Chain

PerformanceManagementSupply

Chain

ProcessesSupply

ChainOrganization=

Best

inClass=

Median=

ABC

Co.Performancemeasurements

highlightwhereimprovedcapability

willdeliver

valueto

the

business?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/014Maturityframeworksdefinethe

enabling

practices

that

will

drive

performance

improvementThe

Supply-Chain

Maturity

ModelSMS

tag

es

o

f

Op

eratio

n

al

C

ap

ab

ility?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/016S

u

p

p

ly

C

h

ain

P

erfo

rm

anc

eDiscreteSupply-

Chain

processes

and

dataflowswell

documentedand

understoodResources

managedatdepartmentlevel

andperformance

measuredat

functional

levelStage2:

InternalIntegrationStage1:FunctionalFocusCompany-wide

processanddata

modelcontinuously

measuredatthe

company,process,

and

diagnostic

levelsResources

managedatbothfunctionaland

cross-functionallevelsStrategic

partnersthroughout

the

globalSupply

Chaincollaborate

to:Identify

jointbusinessobjectives

andaction

plansEnforcecommonprocesses

anddata

sharingDefine,

monitor,and

react

toperformancemetricsITandeBusinesssolutionsenablea

collaborative

Supply-Chain

strategy

that:Alignsparticipatingcompanies’businessobjectives

andassociated

processesResults

in

real-time

planning,decision-making,and

executionof

supply

-chainresponses

tocustomer

requirementsCompanies

progress

throughstagesof

The

Supply-

ChainMaturity

ModelSMStage3:

ExternalIntegrationStage4:

Cross-EnterpriseCollaborationThepracticesateach

stagearedefined

intermsof

the

SCOR

Model: Plan,

Source,

Make,

Deliver,

and

Overall ?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/017S

tag

es

o

f

O

p

e

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olla

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truc

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te

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yP

ro

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uc

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S

c

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d

ulingMate

rial

I

s

s

ue

,Mo

v

e

&

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ra

c

kingManufac

turing

P

ro

c

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ntro

lD

eliv

erE

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b

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rd

e

r

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ntry

&

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c

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d

ulingW

a

re

ho

us

ing,

T

rans

p

ortation

&

D

e

liv

e

ryI

nv

o

ic

ing

&

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a

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o

lle

c

tio

nOve

rallS

up

p

ly

-C

ha

in

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te

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up

p

ly

-C

ha

in

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e

rfo

rm

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nc

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ge

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ntS

up

p

ly

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ha

in

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ro

c

e

s

s

e

sS

up

p

ly

-C

ha

in

O

rg

aniz

a

tio

nMaterial

Issue,

Move

&TrackingManufacturing

Process

ControlDeliver EnableOrderEntry&SchedulingWarehousing,

Transportation

&

DeliveryInvoicing

&

Cash

CollectionOverall Supply

Chain

StrategySupply

Chain

Performance

Management

Supply

Chain

ProcessesStages

of

Operational

CapabilityEachpracticeareaisassessedacrossfour

operational

elementsStage

1FunctionalFocusStage

2Internal

IntegrationStage

3External

IntegrationStage4

Cross-EnterpriseCollaborationPlanStrategyDemand

PlanningSupply

PlanningDemand/Supply

Balancing

&

Decision

MakingSourceMakeStrategyCommodity

&

Process

ManagementSupplier

Development/ManagementOrganization

&

InfrastructureManufacturing

Strategy

Production

SchedulingStage

1Functional

FocusStage

2Internal

IntegrationStage

3External

IntegrationStage

4Cross-EnterpriseCollaborationArms-length

and/or

poorlydefinedsupplierpartnership

relationships.

No

formal

supplierrelationshipmanagement

process

in

placeLittle

supplier

segmentationCommodity

strategiesdetermine

supplier

relationships.Formal

supplier

relationships

aredefinedreflectingcross-

functionalrequirementfor

buyer/supplier

communicationJoint

service/partnershipagreements

for

objectives

and

incentives,

performance

targets,

benefit

sharing

agreements,

and

Terms

and

ConditionsOnline,

virtual

management

ofsupplyrelationshipsfordata

visibility,collaborativeplanning,

performancetracking,andvirtual

workplaceSupply

Chain

OrganizationSamplepractices

for

Source: Supplier

Development/Management ?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/018Dominant

and

Emerging

Practices?Copyright

2001ThePerformanceMeasurement

Group,

LLC10Theaverageparticipantis

approachingStage2

—

Internal

Integration 403020100Average

Stage

for

Dominant

and

Emerging

Practices50Stage

1Stage

2Stage

3Stage

4Dominant EmergingCompanies

plan

to

advance

onefull

stage

ormoreby

the

end

of2002,

achieving

greater

external

integration20006903MV

—

11/06/012002

ProjectionDeliverFew

companies

have

made

majoradvancesin

integratingtheirdeliver

capabilities?Copyright

2001ThePerformanceMeasurement

Group,

LLC1160%50%40%30%20%10%0%Stage

1TransitionalStage

2Stage

2TransitionalStage

3Stage

3TransitionalStage

4Stage

4%

of

PopulationOnaverage,Planpracticesarecurrentlythemost

advancedPlanOver60%ofcompanies

haveintegratedplanning

processes…Source…while60%havenotyet

integratedtheirsourcing

practicesMakeMakepracticesmirror

Sourcepracticesintheir

distribution60%50%40%30%20%10%0%Stage

1TransitionalStage

2Stage

2TransitionalStage

3Stage

3TransitionalStage

4Stage

4%

of

Population60%50%40%30%20%10%0%Stage

1TransitionalStage

2TransitionalStage

3TransitionalStage

4Stage

2Stage

3Stage

4%

of

Population60%50%40%30%20%10%0%6903MV

—

11/06/01Stage

1TransitionalStage

2Stage

2Transitional

Stage

3

TransitionalStage

3 Stage

4Stage

4%

of

PopulationPlan

Practices

DistributionSource

Practices

DistributionMakePractices

DistributionDeliverPractices

DistributionButemerging

practices

focusmoreon

Source

and

DeliverPlanCompaniesaretargetingexternalplanningintegrationSourceeSourcingcapabilities

(TransitionalStage4is

targeted

by

30

–

40%

of

respondents)MakeOver50%ofcompaniesare

targetingadvanced

planning

formanufacturingand

automated

controlsDeliverMany

companies

are

looking

toestablishadvancedorder

management

practices60%50%40%30%20%10%0%Stage

1TransitionalStage

2Stage

2TransitionalStage

3Stage

3TransitionalStage

4Stage

4%

of

PopulationPlan

Practices

Distribution60%50%40%30%20%10%0%Stage

1TransitionalStage

2Stage

2TransitionalStage

3Stage

3TransitionalStage

4Stage

4%

of

PopulationSource

Practices

Distribution60%50%40%30%20%10%0%Stage

1TransitionalStage

2Stage

2TransitionalStage

3Stage

3TransitionalStage

4Stage

4%

of

PopulationMakePractices

Distribution60%50%40%30%20%10%0%Stage

2Stage

3Stage

4?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0112Stage

1TransitionalStage

2TransitionalStage

3TransitionalStage

4%

of

PopulationDeliverPractices

DistributionOverall: Practicesforalmosthalfoftherespondents

arestill

functionally

focusedWhile

companies

focuson

developing

their

supply-chain

strategy……theyarenotreinforcingitwiththesamelevelofperformance

management,

process

improvement,

and

organizational

alignmentOVERALLStage1:

FunctionalFocusStage2:

InternalIntegrationStage3:

ExternalIntegrationStage4:

Cross-EnterpriseCollaborationS

upply-C

ha

in

S

tra

te

gyS

upply-C

ha

in

P

e

rform

a

nc

e

Ma

nage

m

e

ntS

upply-C

ha

in

P

roc

e

sse

sS

upply-C

ha

in

Orga

niz

a

tion1Departmental

focusDiscreteSC

processesare

documentedanddata

flows

identified234=

D

o

m

inant

=

E

m

e

rg

ing

Functional

strategies

aligned

withformalSC

strategic

planningCross-functional

processes

measuredand

improvedusing

corporate

scorecardCollaborative

SC

strategiesand

measures

establishedCross-

organizational

data

sharingFlexibleIT

architecture

supports

integrationacross

business

partnersEnterprise-wide

processanddata

modelforallmajor

development,

supply

chain,andcustomer

management

activitiesOVERALLAverage

Stage?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0113Plan: Thesepracticesarethemostadvancedofthe

supply-chain

elementsAs

expected,

supply

planning

activitiesseemmoreintegrated

than

demand

planningStrategicplanningisalso

advanced,

but

not

always

integrated

with

tacticalbalancing

activities=

D

o

m

inant

=

E

m

e

rg

ing

PLANStage1:

FunctionalFocusStage2:

InternalIntegrationStage3:

ExternalIntegrationStage4:

Cross-EnterpriseCollaborationS

tra

te

gyDe

m

a

nd

P

la

nningS

upply

P

la

nningDe

m

a

nd/S

upply

B

a

la

nc

ing

&

De

cision

Ma

king1234Functional

demand/supplyplanningNointegrated

processes

and

toolsConsistent,

companywidedemand/supply

aggregation

and

planningFunctional

accountabilityContinuous

improvement

using

historical

performanceStrategic

partnerships

with

customersand

suppliersFacilitated

by

direct,

collaborative,

electronicdata

exchangeGoverned

by

formal

performance

agreementsDynamic

company-

widedemand

forecastingand

capacity

planningJoint

demand/supply

decision-making

using

global

dataPLANAverage

Stage?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0114Source: Practicesshowthemostaggressivegoals

formaturityCommoditymanagementisnotwelladopted,butacommonfocusarea

forthe

next

18

months=

D

o

m

inant

=

E

m

e

rg

ing

SOURCEStage1:

FunctionalFocusStage2:

InternalIntegrationStage3:

ExternalIntegrationStage4:

Cross-EnterpriseCollaborationS

tra

te

gyC

om

m

odity

&

P

roc

e

ss

Ma

na

ge

me

ntS

upplie

rDe

ve

lopm

e

nt/Ma

na

ge

me

ntO

rga

niz

a

tion

&

Infra

struc

ture1Informal

processesSupplier

relationships

poorly

definedNo

integrated

tools

toaccess

procurement

data2Cross-functional

commodity

management

teamsSupplierrelationshipsdefinedCommon

ERPsystemsused

effectively3Collaborative

product

development/

process

improvementdone

withstrategic

commodity/supplierpartnersConsortia

buyingOn-line

data

access

for

supply

partners4Integrated

supply

networkeEnabled

systems

automate/

optimizesupply

transactionsSOURCEAverage

Stage?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0115MAKEAverage

StageMake: Manufacturingprocesscontrolpracticesarethe

mostadvancedDespitesubstantialfocusonpull-basedmanufacturing,Build-to-Stockisstill

the

predominant

manufacturing

strategyfor

respondentsManycompanies

are

targeting

build

and

configure-to-order

practices

in

the

near

futureMAKEStage1:

FunctionalFocusStage2:

InternalIntegrationStage3:

ExternalIntegrationStage4:

Cross-EnterpriseCollaborationMa

nufa

c

turing

S

tra

te

gyP

roduc

tion

S

c

he

dulingMa

te

rial

Issue,

Move

,

&

T

ra

c

kingMa

nufa

c

turing

P

roc

e

ss

C

ontrol=

D

o

m

inant

=

E

m

e

rg

ing

1Manualmaterial

andproduction

control

driven

by

rudimentary

MRP/MPS

toolsBuild-to-Stockpractices2ERP-based

optimizationofinternalscheduling

and

inventories3Customer-driven,APS(linkedto

suppliers)Automated

product

quality

controlDemandpull

manufacturing,

real-time

inventory

control4Multi-tier

APSElectronic

tracking

of

as-built

configurationsInstantaneousproduct

configuration

changes?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0116DELIVERAverage

StageDeliver: OrderEntryimprovementsareandwill

continue

to

bea

focuseBusinesspractices

are

promising

significant

integration

oforder

entry

and

schedulingInvoicing

and

cash

collection

continues

to

bealabor

intensive

processes=

D

o

m

inant

=

E

m

e

rg

ing

DELIVERStage1:

FunctionalFocusStage2:

InternalIntegrationStage3:

ExternalIntegrationStage4:

Cross-EnterpriseCollaborationEnableOrde

r

E

ntry

&

S

c

he

dulingW

a

re

housing,

T

ra

nsporta

tion,

&De

live

ryInvoic

ing

&

C

a

sh

C

olle

c

tion1Noformal

standardsfororder

management,

channelrules,

productdelivery,or

invoicingSignificant

manualintervention

required2Formaloutbound

logistics

processesAutomatedordermanagement

and

invoicingChannelrulesand

deliveryquality

definedVariable

order

entry

andscheduling

across

products3Productand

delivery

information

isavailable

throughoutthe

supply

chainDifferentiated

order/service

level

agreements

formalized4Optimized

warehousing

transportation,tracking,and

deliveryReal-time

commitmentsto

customer-specific

order/service

levels?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0117Stage

1FunctionalFocusStage

2Internal

IntegrationStage

3External

IntegrationStage

4

Cross-

Enterprise

CollaborationStages

of

Operational

CapabilityPlanStrategyDemand

PlanningSupply

PlanningDemand/Supply

Balancing&

Decision

MakingSourceStrategyCommodity

&

Process

ManagementSupplier

Development/ManagementOrganization

&

InfrastructureMakeManufacturing

StrategyProductionSchedulingMaterial

Issue,

Move

&

TrackingManufacturing

Process

ControlDeliverEnableOrder

Entry

&

SchedulingWarehousing,

Transportation

&

DeliveryInvoicing&

CashCollectionOverallSupply-ChainStrategySupply-Chain

Performance

ManagementSupply-Chain

ProcessesSupply-Chain

OrganizationMostcompaniesaremovingtowardscompleteinternal

integrationandexpecttoshifttoexternalby

next

year=

D

o

m

ina

nt

=

E

me

rg

ing

Dominantandemergingpracticesof

thesurvey

population?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/01181234Anticipated

2002

practice

improvements

are

optimistic?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0119Participantsexpect

to

move

from

internal

to

external

integration

practices

by

the

end

of

2002Most

companies

are

in

the

beginning

stages

of

maturitydespite

the

focuson

supply-

chain

improvements

in

the

last

five

yearsCompanies

have

placed

more

focus

on

the

operational

elements

of

Plan,

Deliver,

Source,

and

Make

(in

that

order)

than

on

the

overall

strategies

that

govern

themOverallStrategy

needs

more

attentionPlan

and

Deliver

practices

will

continue

to

be

the

focus

of

our

respondents,

more

so

thanSource

and

MakePreliminary

Findings:DiscreteElectronicEquipment

SectorPopulation

segmentationThepopulation

wassegmented

into

twogroups

for

performance

comparison:Less

Mature(Transitional

Stage2

&

Below)

—Companies

that

have

not

yet

achieved

internal

integrationof

theirsupply-chainprocessesMore

Mature

(Mature

Stage

2

&

Above)

—

Companies

that

have

achieved

internal

integration

and

are

pursuing

externallinkagesDominant

Stage

of

Study

Population30%25%20%15%10%5%0%Stage

1Transitional2Stage

2Transitional3Stage

3Transitional4Stage

4%

of

Respondents35%

TransitionalStage2and

BelowMature

Stage2andAbove?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0121Maturecompanieshavebetterdeliveryperformance

butstill

can

improveCompanies

at

Transitional

Stage

2and

below

haveaharder

time

meeting

marketdemand10%

lower

On

Time

Delivery

to

Request

average

than

the

Mature

Stage

2

and

AbovecompaniesThe

same

disadvantage

applies

to

their

Deliveryto

Commit

performanceOnaverage,DelivertoCommitis7%betterthanDelivertoRequest

performance

averages10%

to

14%lower

than

best-in-class

in

either

caseOn

T

im

e

De

live

ry

Pe

rfo

rm

ance79

.7%

82

.3%

88

.6%

74

.0%

75%

96

.6%

98

.4%

25%

0%

50%

100%

O

T

D

to

R

equest

O

T

D

to

C

o

m

m

it%

On

T

im

eT

rans

itional2

and

B

e

low

M

a

tu

re

2

and

A

bove

Popu

la

tion

B

IC?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0122UpsideProductionFlexibilitypresentsasubstantial

opportunity

forcompaniesat

allmaturity

levelsTheprincipal

constraint

is

Key

Components

and

Material

Availability,

as

opposed

to

Internal

Manufacturing

Capacity

or

Direct

Labor

AvailabilityMature

Stage2

and

above

companies

haveafull

one-week

advantage……butare

well

behindBest-in-Classby

9–

10

daysUps

ide

P

roduction

Flexib

ility

P

rim

ary

C

ons

traint

49

.142

9

.310

0K

e

y

C

o

m

p

o

n

e

n

ts

or

M

a

te

ria

lA

v

a

ilab

ility20

30

40

50

60

DaysT

rans

ition

a

l2

an

d

B

e

low

M

a

tu

re

2

a

n

d

A

b

o

v

ePo

pu

la

tion

B

IC?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0123HigherlevelsofintegrationleadtolowerTotalSupply-

ChainManagement

CostTo

ta

lS

u

pp

ly-C

h

a

in

M

a

na

ge

m

e

nt

C

ost

3

.7%

4

.3%

5

.1%

2

.6%

0

.3%

1

.7%

0

.4%

2

.6%

0

.7%

0

.5%

0%

T

ra

ns

ition

al2

an

d

B

e

lo

w

M

a

tu

re

2

an

d

A

bov

eMore

Mature

companies

spend

almost

3%-of-revenueless

than

their

functionally

focused

counterparts(22%

advantage)They

have50%lowerMaterialAcquisition

CostsSpend

significantlymore

on

supply-chain-related

IT

yielding

cost

savings

as

well

as

performanceimprovementsButspendmore

on

Order

Management

Costs2%

4%

6%

8%

10

%12

%14

%%

of

R

even

u

eSC

IT

C

o

st

SC

F

inan

ce

&

P

lan

n

ing

C

ost

In

v

e

n

to

ry

C

a

rry

ing

C

o

s

tM

a

te

rialA

c

q

u

is

tion

O

rder

M

ana

ge

m

e

nt

C

o

s

t?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/012412.3%9.6%Moreintegratedsupply-chainpracticesleadtolower

costs

and

higher

profitability… Practicematurity

increases

the

efficienciesofmaterial,

labor,

and

overhead

spendingProfitability6.8%8.7%0%3%6%9%EBIT

as

%

of

Revenue%

of

RevenueCosts70.1%58.6%0%25%50%75%COGS

as

%

of

Revenue%

of

Revenue=

Transitional

2

&

Below=Mature2

&

Above?Copyright

2001ThePerformanceMeasurement

Group,

LLC

6903MV

—11/06/0125…and

achievesa

higherrateof

salesgrowthSubstantially

higher

sales

growth

highlightsthepositive

impact

thatintegratedsupply-chainpracticeshave

oncustomeradoptionand

loyaltyBetter

supply-chain

flexibility

and

responsiveness