Supply Chain Management Diagnostic and Improvement Approach

Abstract This paper presents the outcome of a benchmarking-based approach to improving the supply chain management performance of companies.  The work was carried out with Scottish electronics manufacturing companies, predominately from the SME sector.  Conceived and managed by Scottish Enterprise this eight company pilot was a pre-cursor to full implementation of a diagnostic and improvement approach to enhancing the supply chain management understanding and skills to add to the competitive edge of the electronics cluster in Scotland.  The paper details the standard methodology used, focuses on the diagnostic phase of the intervention with companies and details the outcome of the work.  The paper brings out generic findings both of the application of the diagnostic approach as well as the performance benchmark attained.

  1. Introduction

Focus on the performance of the supply chain and how it is managed has increased considerably in recent years.  Manufacturers having adopted lean principles within their organisations are turning their attention to the wider demand and supply networks to make further performance improvements. Frohlich and Westbrook (2002) state: "the most admired (and feared) competitors today are companies that link their customers and suppliers into tightly integrated networks" and companies such as Dell and HP who have focused on their supply chain design and operation are performing significantly better than their competitors (eg. Davies 1993, Lee & Billington 1992).

There are a number of ways to mapping out and measuring the performance of a supply chain.  The Supply Chain Operations Reference (SCOR) (Supply Chain Council, 2006) model is one such way and has established itself as a powerful means of communicating supply chain structure and performance.  The SCOR process model is summarised in Figure 1. A company has plan, source, make and deliver activities that when linked together with other companies forms the supply chain model.  The SCOR model has a wealth of performance and practice measures associated with it and the Performance Measurement Group (PMG, 2006) offers a benchmarking service to compare a company’s performance against a benchmark of companies across the globe.

Recognising the potential impact of improvements to supply chains, Scottish Enterprise, the economic development agency for Scotland, set about devising, promoting and implementing a supply chain performance improvement programme to increase the capabilities and competitiveness of Scottish electronics manufacturing companies.  The programme would engage companies in a programme of fact-based management to examine, prioritise and improve their supply chains. This paper describes this SCOR-based supply chain management improvement approach incorporating benchmarking and reports on the findings of its application.

Figure 1. The SCOR process model (Supply Chain Council, 2006)

 

2. SCM diagnostic and improvement approach

The diagnostic and improvement approach was conceived as a means of increasing supply chain management (SCM) understanding and skills.  The approach was to audit the current position using fact-based management techniques, develop an action plan based on the results of the diagnostic and then implement a programme of improvement to enhance performance.  This is shown in Figure 2.

Figure 2. Overview of the audit and improvement approach

 
Figure 3. The five diagnostic tools feeding into the analysis and action planning.

The Supply Chain Operations Reference (SCOR) model was used as a basis for the terminology throughout.  The supply chain mapping workshops developed a supply chain focus in the company and acted as a reference point for the subsequent stages.  The mapping was based on the Plan, Source, Make and Deliver parts of the SCOR model.  The SCOR-based performance measurement looked at internal efficiency as well as external effectiveness, see Figure 4.  The results of the performance measurement were submitted to the Performance Measurement Group (PMG) benchmarking database to compare each company’s results against average and best in class. 

  Figure 4. The SCOR performance measures used (Supply Chain Council, 2006)

The practice measurement was carried out to understand the maturity of the practices used in company and later relate this to the performance being achieved.  Again the practices were benchmarked.  The approach would therefore allow companies to challenge their performance and understand the maturity of the practices in their company that were driving this performance.  The customer requirements analysis provided a focus on current and future customer needs.  This was then related back to the strengths and weaknesses in the company’s performance.  It is this stage that might highlight that the customer was looking for on-time delivery as a priority but the company was underperforming in this area.  The final stage of e-business maturity looked at the status of the IT systems in the company and how that could impact on the practices and performance to achieve the customer requirements.

This diagnostic methodology was developed specifically for a quick intervention into a group of companies, most of which were in the SME category.  The research approach used was that of action research where the individual (known as a supply chain counsellor) working with the company would apply a standard diagnostic approach and work with them to develop and implement action plans.  The standard improvement approach enabled results to be collected easily and aided generalisation.

3. The programme implementation

The approach was used in eight companies in the electronics sector in Scotland 2003-2004.  Most of these companies were classified as SMEs.  The programme was conceived and funded by the electronics team in the Scottish economic development agency, Scottish Enterprise.  The programme used four “Supply Chain Counsellors” (including the authors of this paper) to assist the companies to carry out the diagnostic in a structured manner and then develop action plans and implement them.  The pilot phase of the SCM improvement programme has been evaluated and a second phase is being out for implementation in early summer 2005.

The standard plan for the intervention was for a supply chain counsellor to spend a total of five days working with each company over a period of eight weeks to carry out the diagnostic and then a further five days to facilitate the action planning and improvement programmes.  The plan was built around what was anticipated to be the rate-determining step, namely the collection of performance data in the second stage of the diagnostic.  For each of the five diagnostic stages the counsellor would work with the company’s management team to build awareness of the importance of the stage, to provide a structured approach to carrying out the stage and to use workshops to gather the data (e.g. develop supply chain process maps or capture the customer requirements).  The performance assessment stage required staff to work to retrieve the appropriate data outside the workshop time.
Once the data had been captured the performance assessment and practice maturity assessment data were submitted to the Performance Measurement Group (PMG) to compare the data against their worldwide benchmark.  The counsellor would then analyse the outcomes of each of the five diagnostic stages to ascertain the weaknesses in the supply chain, the practice improvements necessary and judge the likely impact on the supply chain performance.  This was fed back to the company and action-planning workshops were used to build and initial improvement programmes.  The remainder of the paper focuses on the diagnostic phases of the improvement programme.

4. Case study of the diagnostic

The case company employed approximately 100 people with a turnover of around £10M and a modest profit.  The company wanted to be part of the improvement programme to verify and engage in its plans to develop a supply chain strategy and gain better control over its inventory. The five tools presented in Figure 3 were used for the diagnostic.  This section details the results of the application of those tools and provides highlights of their application.

Figure 5 below shows the overall supply chain map for the company (shown as Company X).  The supply chain map shows a fairly simplistic supply chain at the first tier but it highlighted that the company was spending a significant amount of effort controlling the whole supply chain going two and three tiers up the supply side.  For the company the map gave a clear view of the overall operation and highlighted areas of risk where there were single suppliers for critical parts. 
 

Figure 5. Supply chain map of the company using the SCOR model notation

The audit of the supply chain performance was the rate-determining step and added significantly to the diagnostic lead-time.  The difficulties and priorities associated with collecting the data added two to three weeks to the overall project. Figure 6 shows the results of this stage.  Note the data in Figure 6 has been altered to maintain confidentiality but preserve the overall pattern.  The company has close to best-in-class performance in many customer-facing and internal facing categories and although it has the ability to significantly increase output within a month its product lead times are long compared to the benchmark.  Additionally the cost of managing the supply chain is high by comparison.  These findings reflect the situation in Figure 5 where there is a long supply chain to manage and move product through.
 

Figure 6. The company’s supply chain performance against average and best-in-class benchmarks

The next step was to understand the practices within the company and how they could be changed to influence performance.  Figure 7 shows the performance of the company against categories of practice maturity ranging from operating in functional silos to collaborating extensively with other enterprises.  The benchmark data has been omitted for clarity.  The audit shows the company to be relatively weak on strategy and performance management and although it works extensively with suppliers the level of sophistication of its supplier development and management is also relatively weak.

 
Figure 7. The maturity of the company’s supply chain practice

Figure 8 looks at the customer side of the supply chain and shows the key requirements for each customer.  It shows a majority of their customers are looking for flexibility and on-time delivery, with two of the customers moving from requirement for on-time delivery against the agreed date to on-time delivery against their requested date.  Now looking back and comparing the findings here it shows that customers are wanting flexibility that the company may struggle to achieve efficiently given their overall lead times as well as the company being weaker on the delivery to request date compared to delivery to commit.
 

Figure 8. The current and future priorities of the company’s customers.

The last stage of the diagnostic was to examine the maturity of the company’s e-business systems and ascertain whether improvements in the systems could improve the practices and in turn improve the performance.  Figure 9 shows the results of the e-business maturity audit.  Although the company was rated as a beginner in many categories and made extensive use of email and spreadsheets it was judged that improvements here would not have a significant impact on practices. Additionally, the company was very good at carrying out appropriate system improvements in a timely manner.

Figure 9. Review of the company’s e-business systems maturity.

Detailed feedback and proposals were given to each company.  In this company’s case it can be summarised that their plans to develop a supply chain strategy and focus on inventory were valid actions to take, but it also highlighted the need to examine the cost of managing their supply chain and even though they were managing a significant number of tiers they were relatively weak on being able to move product through the supply chain quickly.

5. SCM improvement programme findings

Applying the diagnostic
The diagnostic was structured in terms of the standard approach to using the tools, the standard time plan that each supply chain counsellor would use as well as the training that each counsellor was given.  The overall effect was that four individuals carried out the work in similar timescales and encountered very similar issues during the intervention.  The net effect of applying a standard methodology and having regular review meetings between the counsellors meant that the inherently different styles that people adopt when working with companies was suppressed.

Although all companies saw their supply chain management as a cause for concern and were keen to participate in the improvement programme the time to start up each diagnostic and carry it out was much longer than expected.  The eight-week duration of the diagnostic was recognised from the outset to be tight and nearly all of the counsellors experienced delays in their interventions, particularly in the area of collecting the performance data. Collecting the performance data was delayed because it was an activity that the company had to carry out rather than being led by the counsellor during the workshops.  Additionally, seemingly basic data such as on time in full (OTIF) delivery data proved difficult to obtain in some cases and the total supply chain management cost (TSCMC) was consistently difficult to establish and verify.  The TSCMC measure covers the cost of the planning and logistics activity and is not something that companies typically measure.  As a result it was typically one of the weakest performance measures against the benchmark.

Use of benchmark data
Whilst companies would be attracted to the diagnostic and improvement programme due to its inclusion of benchmarking, in hindsight it has been recognised that the over-emphasis on the benchmark resulted in some companies focusing on the performance and practice benchmark data and questioning how they improve their relatively weak performance in certain areas.  Whilst the benchmark was there to prompt questions on performance it was not intended to provide a target to achieve “best in class” within a certain time period. 
The aim of the intervention was to engage the company on a fact-based management activity of examining their supply chain and making informed decisions on the improvement activity.  All the tools in the diagnostic had to be used together and whilst a company may be weak against certain performance measures these may not be the priorities for meeting current and future customer needs.

Benchmark data for Scottish electronics SMEs
The SCM improvement programme was devised and supported by Scottish Enterprise and therefore involved companies based in Scotland.  Many of the companies (or sites) were SMEs. Whilst working with SMEs presented problems of limited resources in the management team to spend on such programmes, there was also the problem of the benchmark data.  Patterns were emerging from the companies in the pilot such as consistently relatively poor TSCMC benchmark and generally good delivery and flexibility performance. 

The benchmarking data used was based on a worldwide sample of predominantly large companies.  It could be argued that size and location should not matter due to increasing levels of globalisation. However, many of the SMEs were completing in local markets and were not Original Equipment Manufacturers (OEMs) and often were providing a service to large local companies rather than designing and marketing their own products.  It was not possible to filter the benchmark data to address these particular sub-categories of electronics manufacturers.

Additionally, the programme ran over 12 months between 2003-2004.  Within that particular period of the economic cycle, many electronics companies were, and still are, finding trading conditions very difficult and there could be bias in the results as companies responded to this, for example reducing stocks.

Taking all these factors into account the programme managed to achieve supply chain savings of £4m per annum, as well as attracting an additional £6m in new revenues. It also helped Scottish companies to improve their ability to compete globally, gaining credibility and profile with international manufacturing partners.

6. Concluding remarks

This paper has described a supply chain management diagnostic and improvement programme conceived and managed by Scottish Enterprise using the support of a number of organisations including PRTM and Electronics Scotland.  The paper has focused on the diagnostic phase of the programme, presented a case study from it and reported on the general findings across all companies.

The approach was found to be efficient in terms of intervention to improve supply chain performance but most companies found data collection for the performance metrics difficult. There were also patterns in performance emerging for this group of predominantly SMEs that differed from the large company benchmark data.

The work was a pilot for improving the supply chain performance of the Scottish electronics sector.  An independent evaluation of the pilot deemed that it was successful and has resulted in a roll-out of a wider programme to work with other electronics companies during 2005.  The approach demonstrated that different individuals could deploy a standard audit and improvement methodology in a standard way to gain business improvement. The approach was found to be successful in engaging management teams in strategically reviewing their position based on simple high-level business metrics and subsequently using these to prioritise improvement activities. 

Acknowledgements
The authors would like to thank Scottish Enterprise for their support in this work

References

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Supply Chain Council (2006). Supply Chain Operations Reference (SCOR) Version 7.0.