Connecting Supply Chain Processes
This chapter goes deeper into the process-focused perspective of supply chains and shows how to set targets, measure performance, and make better management decisions using the SCOR framework.
In This Chapter
What you will learn
- Breaking the supply chain into processes
- Organizing processes with the SCOR framework
- Creating metrics and targets for your supply chain
Understanding Supply Chain Processes
What counts as a process and the six universal categories
Supply chain management is such a new field that there aren't official rules or standards for many of these processes. A consortium of companies has been working together in the last few years to develop a shared framework called the Supply Chain Operations Reference Model (SCOR Model). As these companies have begun to incorporate the SCOR Model into their management systems, it has become easier for all of us to communicate more effectively about what's really happening in our supply chains.
I define a supply chain process as any activity or series of activities that adds value to a product or service. Making a hamburger is a supply chain process, for example, because customers are willing to pay more for a cooked patty with lettuce and tomato inside of a sliced bun than they are for the individual ingredients. Serving a hamburger is a supply chain process, too; customers who eat a hamburger in a restaurant, with a server carrying it to their table, will pay more than when they purchase the same burger at a drive-through. Anything that adds value — anything that moves or changes a product or service in some way that a customer is willing to pay for — is a supply chain process.
When you start thinking about supply chains in terms of processes, you begin to see more clearly how all of the pieces fit together. You have a process to order the components before you can make your products. Then you have manufacturing processes, sales processes, and delivery processes. Each of the processes in a supply chain depends on, and connects with, other processes. Supply chain processes never exist in a vacuum or a silo; they are all interdependent.
Although the details of most supply chain processes vary wildly among industries and companies, it turns out that they can be lumped into a surprisingly small number of categories. In fact, most supply chain processes fall into one of these six categories:
These high-level process categories don't address absolutely everything that's done in a supply chain, but they do cover most of the important steps necessary for creating and delivering value.
Every supply chain activity — no matter how different the industry — fits into one of six categories: Plan, Source, Make, Deliver, Return, or Enable. These categories are the universal language of supply chain management.
Introducing the SCOR Model
How the six processes connect your company to suppliers and customers
The SCOR Model is a framework that you can use to map out the processes in any supply chain. It contains six top-level processes — the key activities that are involved in creating and delivering value to a customer. Because each of these processes contains many levels of sub-processes, they are sometimes called process groups.
All supply chain activities should be planned, so the Plan process connects with all of the others. Then, there is a logical sequence from Source, where you buy materials, to Make, where you manufacture products, to Deliver, where you get those products to your customers. At any point in the Source, Make, or Deliver processes you may need to send some of your products back up the chain, so the Return process sits underneath all of them. And because the SCOR Model is designed to describe a supply chain, not just an individual company, these processes also have to link to your customers and suppliers. So the Source process for your company connects to the Deliver process for your suppliers. And the Deliver process for your company connects to the Source process for your customers. In order to make all of that work, you need to have the right talent and information technology in place to Enable these processes.
Animated dots show product/information flow from suppliers through to customers.
Consulting companies, analysts, and various industries have developed their own supply chain process models over the years. These frameworks may use different words, but they encompass the same concepts as SCOR. For example, analyst firm Gartner includes similar process steps in their Supply Chain Talent Attribute Model, but they have added New Product Development and Customer Management as processes. And the U.S. Department of Defense replaces Make with Repair in its process framework. So when you understand the principles of the SCOR Model, then understanding the other models should be easy.
A good way to illustrate how the SCOR Model works is by looking at how it would apply to a supply chain that you already know. For example, imagine that you are suddenly in charge of the supply chain for a hamburger restaurant.
Plan
You need to estimate how many hamburgers you are going to make, decide where you are going to make them, and determine what your supply chain priorities are. You may need to choose whether to focus on quality and freshness, customer service and convenience, or low cost. These choices will influence the other decisions and trade-offs that you make throughout the supply chain.
Source
You need to decide where you will buy your ingredients and supplies. You need to negotiate with your suppliers in order to get the best prices, along with the best quality and service. It might be better to have suppliers that are close by, so that transporting products is fast and cheap. Or it might make sense to choose suppliers that are farther away but can provide the products at a lower cost or in larger quantities.
Make
You need to manage the process of making your hamburgers. It will help if you can define the stages of your manufacturing process, and how long each of them will take. You may also need to decide whether you should make the hamburgers by hand, or if you can buy a machine that can make them better, faster, and cheaper than a person.
Deliver
You need to manage the logistics of getting your hamburgers into your customers' hands. That means you'll need to decide whether you want customers to pick up their hamburgers at a counter, or whether a server will carry the hamburgers to their table. Or perhaps you need to have a drive-through window, or deliver your hamburgers to your customers' homes or offices.
Return
For many products, it's important to think about what will happen to them after your customer is finished using them. In the case of hamburgers, you may need to think about washing the plates and recycling napkins.
Enable
Last but not least, you need to decide what else you need in order to make the supply chain work. You may need to hire people with specific skills, which means you need to think about how you will find them, and how you will measure their performance. And there may be other processes that you need to have in place for your supply chain to achieve its goals, such as marketing programs or accounting policies.
Using a process framework like the SCOR Model is a good way to analyze the steps involved in making a supply chain work. A framework can help you pinpoint the trade-offs in your supply chain and ensure that your decisions align with the results that your customers value. But most importantly, using a process framework gives you the ability to identify and focus on the metrics that are critical for managing your supply chain effectively.
The SCOR Model connects your company to the rest of your supply chain. Your Source connects to your supplier's Deliver. Your Deliver connects to your customer's Source. Understanding these linkages is how you see the whole picture — not just your own piece of it.
SIPOC Analysis
Mapping suppliers, inputs, processes, outputs, and customers
When analyzing what a supply chain process really does, it is often useful to identify five key attributes that are referred to by their acronym, SIPOC:
- Suppliers are people, groups, or systems that provide you with inputs to a process. This could include companies that you buy supplies from, but it could also include a computer system that provides you with necessary data.
- Inputs include anything that goes into a process, a system, or a machine. Inputs could include raw materials, components, packaging materials, information, and instructions.
- Process is the step in a supply chain that you are trying to analyze. The process could be a planning process (like setting inventory targets) or an execution process (like picking an item in a fulfillment center).
- Outputs are what a process produces. Outputs include the product or service that the process is supposed to deliver and may also include information. In many processes, the outputs also include waste.
- Customers are people, groups, or systems that use the outputs of a process. The customer in a SIPOC doesn't have to be the customer that buys your finished product.
A SIPOC analysis helps to show the dependencies between each of the processes in a supply chain. A good way to illustrate a SIPOC analysis is by looking at the process of picking orders in a fulfillment center:
The customer from one process becomes the supplier for the next — supply chains are a series of connected SIPOCs.
This example shows that you can think about a supply chain as being a series of SIPOCs. The customer from one process is the supplier for the next process. For example, the shipping department is the customer of the picking process, but in the next process — shipping — the shipping department is the supplier and the transportation provider is the customer.
Clearly articulating SIPOCs is important when looking at the impacts of automating a process, because you need to consider how suppliers and customers of the process could be affected by a change.
SIPOC makes the invisible visible. By mapping every process's Suppliers, Inputs, Process steps, Outputs, and Customers, you see exactly who depends on whom — and where automation or change will ripple through the chain.
Establishing Process Metrics
Quantitative vs qualitative — and which ones really matter
After you define the processes in a supply chain, the next step is deciding how to measure them. Metrics reduce the subjectivity of a process and bring everyone's focus to the things that really matter.
In many cases, metrics are quantitative, which means that they represent objective data that's easy to measure and verify. The amount of time that a process takes to complete, the number of units that it produces, and the amount of money that it costs are examples of quantitative metrics.
In other cases, metrics are qualitative. How satisfied your customers are with a process, how convenient is it, or how likely customers are to recommend it could be important metrics, but they're difficult to measure. Metrics that rely on someone's judgment or opinion are qualitative.
- Times
- Rates
- Values
- Amounts
- Frequencies
- Degree of satisfaction
- Likelihood of doing something
- Perceptions
- Desire or need
- Level of agreement
Some supply chain processes are best measured quantitatively, some qualitatively, and some both quantitatively and qualitatively. The key is to choose metrics that help you understand how well a process is functioning and whether it provides opportunities to add value or decrease waste.
In a fast-food restaurant, the following three metrics could be very useful:
Order-to-Delivery Cycle
How long it takes from the time a customer places an order until he or she receives the food. This is a quantitative metric — based on objective, measurable time data.
Perfect Order Proficiency
What percentage of orders are delivered on time and exactly as the customer asked (and paid) for them. This is a quantitative metric — based on objective order data.
Net Promoter Score
What percentage of customers were so pleased with their experience that they would recommend the restaurant to someone else. This is a qualitative metric — it measures how people feel and is therefore based on subjective data.
It's usually best to use a combination of quantitative and qualitative metrics to understand how your supply chain is performing and where you have opportunities for improvement.
Metrics reduce subjectivity and focus everyone on what matters. Use quantitative metrics to track objective performance, and qualitative metrics to capture how customers feel. The best supply chains measure both.
Building the Right Supply Chain
Capacity, responsiveness, flexibility, and cost — the four goals
There's really no such thing as a "perfect supply chain" because supply chain performance depends on so many factors. But there are clear differences between a good supply chain, and a bad one. A good supply chain will always give your customers what they want for a price that they're willing to pay, while leaving a sufficient profit margin for your company.
That definition may sound simple, but actually designing and managing a supply chain that can profitably meet your customers' expectations is tricky for a couple of reasons. First, the real world is full of surprises that force you to choose whether to spend more money to fill an order or take a chance on disappointing your customers. Second, over time, your customers' priorities will change, and your business will evolve, so your supply chain will need to adapt to those changes.
Four goals can help you evaluate how your supply chain should be designed: capacity, responsiveness, flexibility, and cost. All of these goals are important, but many supply chain decisions will require you to make trade-offs between them.
Closely related to capacity is the concept of availability, which is the capability of a system to provide products or services when customers want them. Customers don't really care about your supply chain's capacity; what matters to them is product or service availability. But companies often focus on capacity because the more capacity you have, the easier it is to maintain high availability.
Supply chain responsiveness is important for driving top-line revenue, because it is often a critical factor in a customer's purchasing decision.
Supply chains also need to have flexibility when it comes to supply. In other words, your supply chain has to be able to deliver value to your customers even if your suppliers have low availability.
Every supply chain design decision is a trade-off between capacity, responsiveness, flexibility, and cost. Rank these four goals by how much your customers value each one — that ranking becomes the compass for every supply chain decision you make.
Chapter 1 Quiz
Test your understanding before moving on to Chapter 2
Answer all 10 questions drawn from the chapter content. You need at least 7 correct answers (70%) to pass. Review the sections above before starting if you need to.