The five Rs of marketing are described as “having the right products, in the right place at the right time in the right quantity and at the right price”. Recently a large public company was in the spotlight for doing exactly the opposite – headlines in a national newspaper read “Computer failures force ‘X’ to give profit warning”.
The article went on to say that an internal review following implementation of a new computer system found that the £50M
system was not ordering enough stock to fulfil X’s 50,000 weekly orders. This left customers waiting longer than usual or with packages despatched without all their components.
The company announced that its UK retail business would post a substantial loss this year, resulting in City analysts cutting its full year profit forecast from around £100M and its shares plunging 20p to 105p.
The company had a legacy system installed in the 1960s, which was cumbersome, difficult to maintain and was not providing management with sufficient information to improve the business. Therefore a new system seemed the answer. However, the present situation underlines the pitfalls in not planning and implementing the process.
This is a dilemma that many supply chain companies are facing. It is very difficult if not impossible to do a parallel test on old and new systems in tandem. The only real solution is to set up a test bed scenario, and to test the complete system end to end.
This can be expensive, time consuming and on the face of it delays any potential pay back on the investment. However, in X’s case and with considerable hindsight if the company had put a team of say ten to 20 people aside for a year in a test environment then the profits would have been virtually unaffected and ironically the system would have been producing the five Rs much earlier.
To avoid such pitfalls, many companies are now implementing process reference models which for the supply chain are called Supply Chain Operations Reference Model (SCOR).
A SCOR can become a powerful tool in the hands of management providing the boundaries of any model are carefully defined and planned. SCOR spans the following:
All customer interactions from order entry through to paid invoices.
All product (physical material and service) transactions from supplier’s supplier through to customer’s customer.
All market interactions, from the understanding of aggregate demand to the fulfilment of each order SCOR does not attempt to describe every business process or activity, including sales and marketing; research & development; post-delivery support. There are links in the supply chain process:
Balance resources with requirements and establish plans for the whole supply chain, including returns with the execution processes of source, make and deliver.
The supply chain unit plan with the financial plan.
Schedule deliveries; receive, verify and transfer product and authorise supplier payments.
Identify and select supply sources when not pre-determined.
Manage business rules and assess supplier performance.
Manage inventory, capital assets, incoming product supplier network and agreements.
Schedule production activities, issue product, produce test and release product.
Finalise engineering for engineer to order product.
Manage rules, performance, data, WIP facilities, transportation and product network.
All order management steps from processing, customer enquiries to routeing shipments and carriers.
Warehouse management from receiving and picking to load and despatch product.
Receive and verify product at customer site.
Manage, deliver, business rules performance, finished stock transportation.
All returns of defective product steps from authorising return, scheduling return, receiving, verifying, return replacement or credit.
Return excess product as above.
Manage return business rules.
A change in a supply chain often ‘ripples’ through each of the above linkages thus affecting other areas.
The impact of change can be felt both up and down the supply chain. A change in supply caused by a ‘production planner’ may impact a ‘materials planner’ or ‘inventory planner’ and a ‘delivery planner’.
Furthermore such a change may impact both a customer’s and supplier’s supply chain planning. It is therefore vital to develop a plan that aligns supply resources to meet demand and to aggregate all sources of supply with all sources of demand.
SCOR is a powerful process reference model, designed for effective communication among supply chain partners and helps management focus of management issues.
SCOR metrics enable management to SCOR PROJECT ROADMAP