Substantial benefits to the bottom line are possible if companies think beyond hanging a new certificate on the wall and understand the potential value of the revised requirements. Aligning processes around metrics that take into consideration the planning, sourcing, making and delivering of a product will result in financial benefits. The Supply Chain Operational Reference (SCOR) model can help a manufacturer in translating strategic vision to tactics that can be implemented.
Many leading manufacturing companies were represented in the development of the SCOR model as members of the Supply Chain Council, sanctioned by the American National Standards Institute (ANSI).
In brief, SCOR is a process reference model for effective communication among trading partners. Business process reengineering, benchmarking and process measurements are integrated into a cross-functional framework. While the scope of ISO 9000 does not typically look at accounting and finance functions, SCOR enables manufacturers to manage operational and financial performance.
A critical success factor of any major project is sponsorship. Executives must understand and support quality-based initiatives. For many CEOs, presidents and owners, it has been difficult to understand the benefits of ISO 9000 beyond customer requirements and marketing appeal. The tactical nature and level of detail in ISO 9000 has not lent itself to "full" comprehension, resulting in quality and management issues handled as separate matters by different levels of management.
The SCOR model translates business strategy to performance goals. Management must be involved to prioritize business performance needs, drive implementation and accelerate return on investment (ROI) by linking performance metrics to the profit and loss (P&L) statement.
Metrics
The SCOR model provides a balanced evaluation that is linked to the P&L. It compares a company?s performance data to competitors using industry-available benchmarking data. Business and ISO improvements are viewed in the same context as the P&L statement. Measurements are viewed as metrics, or goals, prioritized by each business unit. The model requires executives to set performance priorities in four categories. In a strategy session, executives are given "chips" to play and asked to prioritize one chip for superior performance, one for performance at an advantage over competitors and two for parity.
? Service, or delivery, metric. How well is the business unit performing, as compared to customer order requirements, on time and in full?
? Lead time, or responsive, metric. What is the business unit?s lead time, and how flexible is it in reacting to changing customer demands?
? Cost metric. What is the business unit?s cost structure in terms of planning, sourcing, producing and delivering?
? Asset utilization metric. How well does the business unit use its cash, including accounts receivable, inventory and accounts payable?
Benchmarking performance activity is the first step in the SCOR process. Labeled, "Analyze Basis of Competition," it helps to identify current issues and position of an organization for continual improvement in a measurable way for regaining ISO 9000 certification. This roadmap can be effectively aligned with the eight quality management principles taken from the ANSI document for attaining ISO 9000: 2000 certification.
The approaches
Identifying, understanding and managing interrelated processes as a system contributes to the manufacturer?s effectiveness and efficiency in achieving objectives.
SCOR, as defined, integrates the plan, source, make, deliver and return processes of a manufacturer. This definition, which is a systems-level approach to management, has an effect on the supplier?s supplier, to the manufacturer and to the customer?s customer. It is aligned when operational strategy, materials, and work and information flows that begin within each individual company, converge at the manufacturer and then feed into the manufacturer?s overall strategic plan.
By using this approach to restructure a quality management program, top management is engaged from the very beginning of the manufacturing process, using performance data balanced between operational and performance needs. They will have the information needed to make informed day-to-day, strategic decisions across the enterprise, rather than relying on isolated decision-makers in functional silos.
Desired results are achieved more efficiently when activities and related resources are managed as a process.
An example of this approach can be seen when a large customer calls to complain about a late shipment. Typically, many companies respond to this call quickly by pointing out a warehouse or logistics problem. Yet, using data derived from the SCOR model may instead indicate that the delivery reliability benchmark is on target and there is another issue upstream in the process, such as planning. This revelation allows a manufacturer to address the actual root of late shipments and allocate resources where they will most likely to have the desired effect.
The SCOR and ISO model provides a holistic way to analyze and adjust processes. Material flows, and work and information flows are the two key components for defining "As Is" flows and mapping out "To Be" flows that eliminate gaps.
Disconnects are identified gaps or barriers to reaching a performance goal. Using the previous example of late shipments, a few reasons for why the customer?s shipment may be late include:
? Organizational issues. The logistics function does not work well with manufacturing.
? Process problems. The forecasting process does not work well with the sales planning process.
? People issues. Incentives in one area are rewarding behavior that actually costs another area of the company.
? Technology issues. Multiple information systems with poor interfaces
By taking a processes approach, the manufacturer can determine the root cause of problems and see those effects on other processes, as well as the P&L.
People issues
The SCOR model allows a manufacturer to not only evaluate processes, but measure the effects of three key people issues: the customer, employees and leadership. Manufacturers depend on their customers. They need to understand current and future customer needs, and should meet and exceed expectations.For example, many companies structure their organizations around divisions, product lines or markets. Yet, some customers may want to buy from more than one division. This means they need to talk to more than one salesperson and deal with separate ordering, delivering and payment processes.
SCOR helps manufacturers make it easier to do business by defining the company and structure from a customer?s perspective. Understanding customer expectations is important in defining the requirements of organizational performance.
For example, if a company decides that a product for a specific customer must be the lowest cost in the marketplace, then cost will be the highest performance metric. That means flexible delivery may be an advantage, but not a priority. As a result, it makes no sense to speed up raw material shipments or expedite deliveries because the customer cares more about cost than delivery. However, the manufacturer needs to be at least as good as its competitors in delivery or sales will suffer.
Once the customer?s expectations have been measured and prioritized, the manufacturer must do the same for those who will meet the customer needs. Employees? full involvement enables their abilities to benefit the entire company.
A major challenge of the new ISO standard is communicating the business improvement opportunities that are identified as the "To Be" processes, which necessitate changes in people?s jobs throughout the company. For example, the accounts payable clerks of one company had a daily goal to empty in-baskets of invoices rather than have them pile up. Further up the ladder, the CFO had asset management concerns that the SCOR model identified in the cash-to-cash cycle metric. The average accounts payable invoice was being paid in 21 days even though the company?s standard terms were 30 days.
What began as responsiveness to suppliers ended up costing the company in interest charges. When the accounts payable clerks understood the reason behind paying invoices under standard terms, they were happy to be instrumental in saving the company millions of dollars. With the savings accumulated during 1 year, this company self-financed an acquisition.
Leaders establish unity of purpose and direction to the organization. They should create and maintain the internal environment so people can become fully involved in achieving the stated objectives.
Typically, ISO certification has been the responsibility of quality or production managers who have focused on technical metrics at tactical levels, such as reducing scrap rate or product returns. Yet, these measurements do not translate into overall performance goals without being linked to the P&L and strategic vision. That is why it is essential for top management to be involved in continual improvement activities and have the P&L visibility to set priorities based on metrics. Strategic decisions can then be supported at tactical levels, as the SCOR metrics move down through the company.
For example, top managers of one manufacturer had a goal to buy more over the Internet, to reduce direct and indirect materials cost. By consolidating the purchase order and order-entry functions to an Internet-based strategy, and changing the way people worked throughout the company, the key metrics indicated an improved transaction productivity, quality of match and cycle time. This would not have been the case if employees in the purchasing department decided on their own to buy over the Internet, because the tactic would not have linked to the company?s overall strategy and P&L.
Using the facts
Effective decisions are based on the analysis of data and information. As a company examines its material, and work and information processes, the SCOR framework provides the data to help managers concentrate on the process elements with the biggest problems. For example, a company?s yield on purchase orders might be 2% based on various discrepancies. The major cause of this yield loss may be one of several process elements, but the data indicates that 98% of all purchase orders are kicked out of the system because the vendor is not on file. This fact plainly indicates a need to clean up the vendor master list.
Based on a strategic plan to increase revenues through acquisition, executives can use the SCOR model to determine if accelerating an acquisition will provide improved flexibility or delivery responsiveness, thereby improving revenues or market share.
In other instances, many manufacturers continue to do business with suppliers who let them down because there has never been good data for making decisions on selection criteria, or an effort made as to how to effectively work together.
Supplier performance directly affects a manufacturer?s performance based on the expectations of that manufacturer?s customers. These expectations should drive supplier requirements. For example, if a company?s requirement is 10 days to respond to unplanned demand, customer expectations will not be met if its supplier?s response is always 45 days. With this response, the company could add inventory?and cost?but would be better served if purchasing objectives were aligned with business requirements and work was done with suppliers to eliminate the delivery bottleneck.
Continual improvement
Continual improvement of the manufacturer¿s overall performance should be a permanent objective. In the past, manufacturers made improvements to satisfy a standards requirement that did not add value to the bottom line. ISO 9000: 2000 requires manufacturers to have a system of measurement in place by the end of 2003, to demonstrate overall performance improvement, or face losing ISO certification.
As a method with predictable costs and benefits, the SCOR model can help manufacturers achieve such goals as:
¿ Two- to six-times ROI in 12 months.
¿ Typical improvements achieving 3% of sales.
¿ Full leverage of capital investment in systems.
¿ Creation of an e-investment roadmap.
¿ Alignment of business requirements with central functions.
¿ Self-funding of technology investments.
The final step of the SCOR and ISO strategy is implementing the changes based on a master schedule of activities from the "To Be" list, with project management, timeline, milestones, technology selection and detailed plans for each change. The process can be technical but some improvement may be attainable in a matter of weeks. Its strength is the way that it helps companies identify the right projects to work on, how to get them done and then to measure success. That is how manufacturers will maintain ISO certification in the future.
TECH TIPS
• SCOR model ties ISO 9000: 2000 requirements for continual improvement to a manufacturer’s P&L statement.
• Evaluating the processes of both suppliers and customers helps manufacturers prioritize operations to meet the overall company strategy.
• Communication to all employees, and leadership from executive management, are important in setting operations priorities.
