The SCOR model as an effective tool for measuring Supply Chain Performance

Table of Content

Table of Content

List of Figures and Table

Table of Abbreviations

1 Introduction
1.1 Initial Situation and Problem Statement
1.2 Core question and Objective
1.3 Structure and Methodology

2 Terms and definitions
2.1 Supply Chain Performance Measurement
2.2 Importance of performance measurement in the Supply chain
2.3 Characterization of different Supply Chain Performance Evaluation Models

3 SCOR as an effective reference model for the Supply Chain Management
3.1 Historical development, purpose and objectives of SCOR
3.2 Structure and levels of the SCOR model
3.3 Process Types
3.3.1 Plan
3.3.2 Source
3.3.3 Make
3.3.4 Deliver
3.3.5 Return
3.4 Process categories and characteristics
3.4.1 Planning
3.4.2 Execution
3.4.3 Enable
3.5 Key performance indicators in SCOR
3.6 Advantages and disadvantages of the SCOR Model
3.7 Strengths and weaknesses
3.8 Benchmarking of Supply Chain performance measurement systems

4 Practical application of the SCOR Model
4.1 Case Study of Evonik Industries
4.2 Typical results of the SCOR project implemented at Evonik Industries

5 Conclusion

Literature- and List of sources

Books and Journals

Attachment

Attachment 1: Comparison of supply chain performance measurement systems

List of Figures and Tables

Figure 1: Cause effect relationship between performance measurement and corporate success

Figure 2: Levels of the SCOR-Model

Figure 3: SCOR model Processes

Figure 4: Geographic Map of Evonik Industries

Figure 5: Thread Diagram of Evonik showing material flow with process categories

Figure 6: Exemplary illustration of EVA driver for a ROCE target of 16%

Table 1: Comparison of different supply chain evaluation models

Table 2: Performance Attributes of SCOR -Model And Level 1 Measurement Variables

Table 3: KPIs in SC-SCORcard

Table 4: Important key performance indicators of the SCOR model

Table 5: Advantages and Disadvantages of SCOR Model

Table 6: Strengths and Weaknesses of SCOR Model

Table 7: Comparison of supply chain performance measurement systems

Table of Abbreviations

illustration not visible in this excerpt

1 Introduction

1.1 Initial Situation and Problem Statement

The 21st Century has been characterized by drastic advances in product devel- opment and shorter product life cycles. The customer nowadays places a lot of emphasis on delivery times. Thus, rushing the right products to the end-user has been the main objective of most companies. More so, in order to maintain strate- gic advantages companies have to improve their prices in order to maintain their market shares. Supply Chain management is thus the strategic weapon needed by most global firms nowadays to stay on top of their game. Given that raw mate- rials and the manufacturing processes take place at different locations and even continents. The coordination of information, materials and financial flow is there- fore imperative. In order, for the smooth and swift flow of data and products to be ensured. Assessing and measuring the performance of processes along the en- tire supply chain is thus recommended. So, that every Supply Chain partner in the SC-Network will benefit from the partnership. Therefore the question arises: Which instrument can be effectively used to measure the performance of a Sup- ply Chain.¹ Companies have to measure their Supply Chain Performance in order to have a clear sense of direction. By setting goals based on performance varia- bles, measuring them and following them up. It is possible to create an improving business pattern that is in line with the company´s strategic goals.² Companies have to measure and assess the processes involved along their entire supply chain. By so doing they can improve their efficiency, share best practices and improve their overall supply chain performance. There are many instruments used for measuring supply chain performance. Nevertheless using the most ef- fective of them will guarantee better results.

1.2 Core question and Objective

This Thesis is devoted to answer three successive interrelated questions:

- What are the purpose and the constituents of the SCOR model?
- What are the Strengths and weakness of the SCOR model?
- What differentiates the SCOR model from other Supply chain perfor- mance measurement systems and Supply Chain evaluation models?

The main objective of this Thesis, is to Analyse the Supply Chain Operation Reference(SCOR) model as an effective instrument for measuring Supply Chain Performance. At the end a conclusion will be drawn based on the investigation carried out and a future perspective will be mentioned.

1.3 Structure and Methodology

The underlying Thesis consist of five Chapters. The first and Second Chapter will be dealing with a vivid explanation of terms relevant to Supply Chain perfor- mance measurement. After which, Supply Chain performance management will be illustrated. Here the requirement for Supply Chain Performance measurement and its importance will be mentioned. Furthermore, three Supply Chain Evalua- tion models will be presented and benchmarked against each other.

The Three Chapter will proceed with a detailed portrait of the SCOR model. Its development, purpose and objectives will be described. Moreover the Process types and process categories of the SCOR model will also be illustrated. The Key Performance indicators(KPIs) and Performance attributes of the SCOR model will be mentioned likewise. In order to further the analysis of our Core question, a contrasting of the SCOR model with respect to its Advantages and disad- vantages and its strengths and weaknesses will be displayed and analyzed. Fi- nally, in Chapter 3. a benchmarking of supply chain Measurement Systems will done.

The Fourth Chapter deals with a practical application of the SCOR model. This will be carried out by narrating a SCOR project implemented at the Evonik Indus- tries AG(Stock Company).The Project will further illustrate the rewards gained by the ,company after implementing the SCOR Model in some of their business units. In the ,Final Chapter.5 a conclusion will be drawn, based on all our analysis and the core question of, analyzing the SCOR model as an effective instrument for measuring supply chain performance will thus, be answered. Due to formal limitations this thesis, is mainly based on secondary statistical data.

2 Terms and definitions

This Chapter begins with an explicit definition of terms related to supply chain Performance measurement. Followed by the requirement for performance man- agement and the importance of supply Chain performance management. And the Chapter will close, with the characterization and comparison of three supply chain evaluation models.

Performance measurement is an efficient, multidimensional, management and measurement control tool based on qualitative and quantitative indicators. It ideally aligns with the corporate strategy.³ Performance management enables the development and application of quantifiable measurement variables with differing dimensions (e.g. cost, time, quality, innovations ability, customer satisfaction), which help to evaluate the effectiveness and efficiency of performances and the potential of different units in an organization.⁴

The Reference Model is a universal or generic model with a conceptual approach used as a blueprint to develop information systems. They have to be adapted to the requirement of individual Cooperations e.g. SAP´s reference model. They collect characteristics identical to companies within and across the industrial sector. Thereby they provide best practices for conducting business. There is no particular enterprise represented by them but rather a class of domains.⁵ Reference models should be generally valid and display a degree of abstraction in order to be suitable for a variety of situations.⁶

The Process Reference Model is a system, which integrates known concepts of Business Process Reengineering, benchmarking and the measurement of process efficiency into a cross functional framework. It contains standardized descriptions of sub-processes, best practices and standardized metrics for measuring the process efficiency.⁷

Key Performance indicators (KPIs) are measurement variables or processes in an organization that builds up factors which play an essential role in the present and future success.⁸

Benchmarking is the process of understanding, identifying, and adapting outstanding practices from within or from other organizations to improve performances. It consists of comparing procedures and processes to that of the best, in order to identify ways an organization can make improvements. Benchmarking enables goals and better standards to be set, which will more likely satisfy the customer requirements.⁹ In fact, it helps developing and examining processes, products, strategies and organizational structures.¹⁰

2.1 Supply Chain Performance Measurement

KPIs play a crucial role in managing a company, likewise performance figures. KPIs make corporate processes transparent by interlinking diverse data's. This helps to compress important facts and enable quick as well as an easy understanding of complex correlations.¹¹

The implementation of KPIs faced criticism in the past because:

- Utilized KPIs focused more on financial variables
- KPI selection was based on information availability rather than needs
- KPIs were limited to past oriented data

Taking these criticisms into consideration has led to the requirement for implementing KPIs:

- They should have close connection with the corporate strategy
- They should be consistent and precisely defined
- KPIs should fit to the priority and objectives of the corporation
- KPI should consider both performance and cost equivalent metrics and link them to the corporate strategy.¹²

2.2 Importance of performance measurement in the Supply

chain

Companies need the right quantification and measurement in order to achieve their aim e.g. Process improvement .This is only possible with the use of a corresponding performance measurement approach.¹³

Performance measurement systems have risen in importance because they help logistic, supply chain managers to increase visibility of the areas and units which are not directly under their control.¹⁴ Information obtained from performance measures assist managers to appropriate decisions at the convenient times.¹⁵

Logistics and supply chain performance measurement have emerged to be a major business area where companies can obtain a competitive advantage. Supply chain performance measurement is a key strategic factor for increasing organizational objectives such as good customer care and profitability.

Performance measures are crucial for steering the firm through the challenging and competitive global market, thereby permitting the company to monitor its progress with regard to its strategy by identifying potential improvement and benchmarking itself against its competitors.

Performance measurement is important in Supply Chain Management (SCM) because, it helps managers make good decisions and also helps companies to monitor progress and identify improvement possibilities.

The effect of performance measurement on corporate success is portrayed in the figure below.

illustration not visible in this excerpt

Figure 1: Cause effect relationship between performance measurement and corporate success .¹⁶

From figure 1, it can be deduced, that an effective performance measurement system improves SCM and contributes to overall corporate success. Thus, per- formance measurement improves SCM, through a better resource allocation, a high return on management as well as a better visibility. Therefore SCM increas- es the competitive advantage and performance measurement in turn improves SCM.¹⁷

Performance measurement improves SCM and contributes to corporate success. It is thus imperative for a Supply Chain Performance instrument (For Example: SCOR Model) to be used in companies to insure corporate success.

2.3 Characterization of different Supply Chain Performance Evaluation Models

Two Supply chain Performance Evaluation Models will be briefly described in this section. The first one is the Balanced Score Card (BSC) and the second one is the EFQM Excellence Model.

The BSC was introduced in the 1990s. It supports the corporate strategy with balanced measures and consists of four areas: customer, finance, internal processes, innovation and growth. It also incorporates human dimensions for measuring performance. Its objective is to establish causalities between the performances of each analytical axis.

The EFQM Excellence Model was defamed in 1992. It begins with a 50 questions questionnaire on test persons placed along the scale of excellence. It consists of areas relating to personnel management and progress, process efficiency and continuous improvements in production and services.¹⁸ The EFQM model con- sists of nine criteria’s divided only into two categories: enabler and results. It’s a generic management model that displays the relevant elements of a company.¹⁹

The BSC supports corporate strategy with balanced measures, whereas the EFQM model is a generic model and portrays vital elements of a company.

In this figure the supply chain evaluation models BSC, SCOR and EFQM are brought into comparison based on the weighting of certain criteria:

illustration not visible in this excerpt

Table 1: Comparison of different supply chain evaluation models.²⁰

By observance it can be deducted, that the SCOR model is more network and most business process oriented than the BSC and EFQM models. SCOR fulfills most of the key requirements on performance measurement for Supply Chain networks, than the other two models. The SCOR model is thus a most effective tool among the three, because, it considers all essential supply chain partners and focus all processes along the entire supply chain. Thus, Processes could be adapted and improve through best practice exchange along the entire supply chain network.

KPIs help to create transparency in companies and by so doing they help managers in making right decisions. Nevertheless, KPIs have to be linked to the corporate strategy in order for them to be effective. Moreover, Performance measurement positively influences supply chain management and thereby help to improve the corporate success. The SCOR model considers and accommodates all SC-partner and it makes use of past and future data, thus, a more network and business oriented evaluation model.

3 SCOR as an effective reference model for the Supply Chain Management

To proceed with the analysis for the effectiveness of the SCOR model, this Chap- ter begins with the a historical description and purpose of the SCOR model. Then, levels and structure of the SCOR will be illustrated. The process types and Process categories including the performance attributes and key performance indicators of SCOR will be vividly described. A tabular illustration of both the ad- vantages and disadvantages of the SCOR Model as well as its weaknesses and strengths will further our analysis of the effectiveness of the SCOR Model as a tool to for measuring supply Chain Performance. This Chapter will be finalized by an benchmarking of the SCOR model with the different performance measure- ment systems.

3.1 Historical development, purpose and objectives of SCOR

In 1996 the SCOR model was introduced by the SCC (a non-profit organization) founded by Rabin Pittiglio, ARM research and Todd & Mc Grath as a consulting company. SCOR was originally made of four business processes: plan, source, make and deliver. These were interlinked across the supply chain participants and applied in the company. In 2001 the “return” was added as the fifth process. Three components make up the SCOR framework: Business process engineer- ing, Benchmarking and best practices analysis.²¹ Reference models were devel- oped through the understanding that existing process descriptions could not sys- tematically record the complexity of the SC. Companies did not have a compre- hensive tool with which to design the numerous tasks of a competitive supply chain.²²

The purpose of SCOR purpose is to devise improved business process models for the SC that could be implemented across a variety of industries, and could be supported by a set of agreed metrics and best practices.²³ The SCOR model en- ables complex SCM processes to be visualized and analyzed. Moreover, it ena- bles the assessment of the own company SC performance and locate areas with performance improvement potentials. SCOR establishes a uniform language, which facilitates the communication intra and inter organizational.²⁴ Further pur- poses of the SCOR are:

- Describing the supply chain under consideration
- Creating understanding for processes, which are relevant to SC configu- ration
- Improving of the understanding for SC configuration problems²⁵
- Evaluating and comparing of the supply chain performance
- Designing and integrating SCs beyond the parts of the logistic chain
- Creating an appropriate positioning for Software implementations in SCs and determining their functionality. It should describe the requirement cri- teria for the selection of most appropriate software systems.²⁶
- enabling the exchange of experience among SC participants²⁷

*The purpose of SCOR is to create a uniform language which eases communi- cation among all SC participants and enables the exchange of best practices.

3.2 Structure and levels of the SCOR model

The SCOR Model has an ideal-typical cross-sector approach for a uniform description of processes within a supply chain. It consists of four hierarchical levels, which pursue different objectives. This Figure portrays the levels:

illustration not visible in this excerpt

Figure 2: Levels of the SCOR-Model.²⁸

At level 1,the processes to be analyzed are assigned to the corresponding standard SC process: namely Plan, Source, Make and Deliver. Then the splitting of the sub-processes starts in level two. E.g. the core process delivery is splitted into stockable products and order specific product deliveries. The third perspec- tive enables a further improvement as well as an interconnection with the input and output values of the process. At this level, the KPIs for process measurement are assigned. Here they are not closely stated. All other improvements are sum- marized at level four.²⁹

*At the SCOR level one processes are analyzed and allocated to the standard of supply chain processes.

The model defines five performance attributes, which each present a different characteristic in the individual process categories and elements. According to Table.2 in accordance with their significance, there are concretized with increasing detailed Performance indicators.

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¹ Cf.: Wemken,S.,2013,P.2

² Cf.: Arbjorn, J.et al., 2010,P.71.

³ Cf.: Pleier, N., 2008,P.39.

⁴ Cf.: Richert, J.,2006,P.27.

⁵ Cf.: Fettke, P., Loos, P., 2007,P.2-4.

⁶ Cf.: Röderstein, R., 2009.P.12.

⁷ Cf.: Kurbe, K., 2011 ,P.449.

⁸ Cf.: Richert ,J., 2006, P.31.

⁹ Cf.: Handfield, R, Nichols Jr, E,. 2002,P52.

¹⁰ Cf.:Biedermann,H.,2008,P.92.

¹¹ Cf.: Fandel, G.et al.,2009,P.265.

¹² Cf.: Weber ,J, Wallenburg, C.,2010,P.332-333.

¹³ Cf.: Giese, A, 2012., P.35.

¹⁴ Cf.: Grant,D,2012.,P.151.

¹⁵ Cf.: Grant,D,2012.,P.152.

¹⁶ Cf.: Richert ,J.,2006,P.37.

¹⁷ Cf.: Richert, J,2006.,P.37.

¹⁸ Cf:. Kazemkhanlou., H , Ahadi, H.,2014.p278-279.

¹⁹ Cf.: Schreyer,M,2008.,P.54-55.

²⁰ Cf.: Horvath., P, Möller, K.,2004,P.161.

²¹ Cf.: Lambert, D., 2008,P.305.

²² Cf.: Lawrenz, O., et al ,2001,P.116.

²³ Cf.: Camerinelli, E.,2009,P.119.

²⁴ Cf.: Marbacher., A, 2001,P.314.

²⁵ C.f.: Chandra.,C ,Grabis.,J,2007,P.169.

²⁶ C.f.: Weber ,J, Wallenburg,C,2010,P.162-163.

²⁷ C.f.: Corsten .,H,Gössinger.,R,2008,P.149.

²⁸ Cf.: Fandel, G ,et al.,2009,P.49.

²⁹ Cf.: Giese, A, 2012,P.150.