Scope of Supply Chain

Chapter 2
The Scope of Supply Chain Management

2.1 Collaboration in Supply Chains
2.1.1 Insufficient Collaboration Results in the Bullwhip Effect
The key feature of SCM is close collaboration between two or more business
partners. One of the goals aspired to is to smooth processes and to avoid unpredictable
ordering behavior of the main customers; more specifically, to avoid the upstream
demand amplification already studied in System Dynamics models (Forrester
1961) and popularized as the bullwhip effect (Lee et al., 1997a, b). The first
company to report this phenomenon was Procter&Gamble, which it observed in its
diaper supply chain. The most prominent model showing the bullwhip effect is the
Beer Game (Sterman 1989). Delays in transferring order information and in
fulfillment (due to lead times) and the absence of information sharing are main
reasons for the bullwhip effect.
To reduce the bullwhip effect, the members of the supply chain may try to
improve their information systems and/or their physical systems. Since the speed
of data transfer technology has been dramatically improved in recent years, the
assumptions prevalent in the Beer Game about the delays in information transfer
can only stem from administrative processes in order management. Data is typically
not transferred in real-time, and the coordination effort resulting from the using of
different systems may also contribute to time-lags. Furthermore, if the demand is
static and normally distributed, there is no reason to order distinct volumes at
different time points. If the retailer ordered steadily, the other companies would not
have to react nervously to unexpected order volumes. Thus, the bullwhip effect is
at least partially homemade.
The main implication of studying the demand amplification is that transferring
Point-of-Sales (POS) data to the other partners in the supply chain will considerably
reduce the bullwhip effect. However, the question arises why a retailer should
share its POS data with other members of the supply chain. One argument is that
the supply chain is becoming more competitive, by realizing smoother planning,
scheduling, and execution processes. The retailer may also agree to provide the
POS data if it assumes that this supportive behavior will result in lower purchase
prices or, at least, improve its bargaining power. Furthermore, data about capacity,
capacity usage, and inventory may also be shared and be beneficial for the down-
stream companies. Simulation studies show that the information exchange typically
12
is more important for upstream than for downstream companies (Chatfield et al.,
2004).
With respect to collaboration, several maturity levels of supply chains have
been defined:
Stage 1: Functional Focus: Operating discrete supply chain processes with
Stage 2: Internal Integration: Company-wide aligned and integrated supply
chain processes continuously measured and steered to achieve common
Stage 3: External Integration: Collaboration with strategic partners (customers,
suppliers, and service providers) including joint objectives, shared plans,
Stage 4: Cross-Enterprise Collaboration: Information Technology and e-
business solutions resulting in real-time planning, decision making, and
execution of customer requirements (Roussel and Skov 2007).
The data recorded in the course of the survey shows that only a few companies
realize collaboration beyond stage 2; thus, today collaboration between inde-
pendent legal entities is not very common. However, it should be recognized that
the evolution does not necessarily follow this sequence and that some stages (in
particular stage 2) may be skipped.
SCM and sourcing decisions are closely related. The number of suppliers may
be reduced when a supply chain is designed. In an idealistic view, single sourcing
would be appropriate for parts that are offered by supply chain partners. However,
risk management may contradict a single sourcing policy. Globalization has a
huge impact on achieving supply chain goals. Sometimes offshoring decisions are
based on rather myopic views on direct production costs, neglecting such matters
as the total cost resulting in the supply chain and the impact on lead times.
2.1.2 Types of Collaboration
2.1.2.1 Information Exchange
Information access and data transfer are highly recommended in SCM systems.
Information exchange is bidirectional, while information transfer may be uni-
directional. As the company delivering data may not know whether the data trans-
ferred or exchanged is relevant for the recipient, the terms data exchange and data
transfer would be more suitable. Transfer or exchange of data does not necessarily
imply that the recipient is using this data. Therefore, data transfer does not imply
that the planning processes of the supply chain partners are based on consistent
data. A simplified morphological box distinguishing different types of data ex-
change is shown in Table 2.1.
2 The Scope of Supply Chain Management
are well documented and understood.

objectives.
functional management of resources. Supply chain processes and data flows
common processes, and performance metrics.
13
Table 2.1 Types of data exchange
Data
characteristics
Occurrences
Source of data Last element
in supply
chain
(retailer,
OEM)
Tier-1
supplier
Tier-2 supplier
Recipient of data Next
organization
upstream
Next but
one/two
organizations
upstream
Next
organization
downstream
Next but
one/two
organizations
downstream
Category of data Actual data Forecast data Planning data Meta data
Amount of data All data Selected data,
defined
statically
Rule-based
selected data
Granularity of
data
Elementary
data
Aggregated
data
Type of provision Data access
(pull)
Data transfer
(push)
Timeliness Time-point Period
Up-to-dateness Real-time
data
Delayed
data, delay
time-based
Delayed data,
delay rule-
based
Delayed data,
delay
resolved
ad hoc

Actual data may be about (e.g.)
sales volumes at POS,

warranties,
capacity usages,
events, and
compliance issues.
Planning data concern (e.g.)
strategies,
investments in physical systems and information systems,
events such as promotions, announcements of end-of-life products, or of
new product introduction,
procurement,
production,
scheduling,
distribution, and
financial matters.
inventories,
14
Meta data may be exchanged to coordinate
quality control, and
the use of IS, in particular the
customization of IS,
data models,
process models, and
numbering systems.
Another type of data transfer tries to improve the capabilities of the suppliers,
Collaborative forecasting is based on data exchange or transfer, but does not
a consensus on future data that may be used in local planning or in collaborative
planning efforts.
The Delphi method is a well-known procedure for collaborative forecasting of
toward a consensus when those involved are informed about opinions expressed
by other experts. However, the result of applying the Delphi method is not a
forecast accepted by all concerned. The Delphi method is typically not used in
routine forecasting of operative data but in forecasting future trends. Application
of the Delphi method can be supported by specific IT systems.
Achieving a common forecast of quantitative data, for example about future
demand for certain products or product groups, is a difficult task. Planning typically
means considering distinct scenarios that differ in the assumptions and data un-
derlying them. A company may look at several scenarios, and the common forecast
may be just one of several considered. An agreement to use only a consensus
be enforced.
2.1.2.2 Collaborative Forecasting
forecast may reduce the value of local planning processes considerably and cannot
necessarily result in collaborative planning. This distinction is also emphasized in
future trends. Results show that divergent opinions of experts converge some way
the CPFR model (cf. Section 2.1.2.4). The goal of collaborative forecasting is to find
materials and agricultural best practices. To translate its words into actions, Nestl
employs over 800 agronomists, technical advisers, and field technicians. Their job
world to improve their production quality, as well as their output and efficiency.
They do this on a daily basis in as many as 40 countries. This specialist team has
pioneered the development of sustainable local fresh milk and coffee production
(Nestl 2006).
Mini case: Nestl supports sustainability in the supply of agricultural raw
for example with respect to product quality.
is to provide technical assistance to more than 400,000 farmers throughout the
15
2.1.2.3 Collaborative Planning
Collaborative Planning aims to coordinate the plans of several partners in the
supply chain. The associated models can be managed by one or more of the firms
involved or by a trusted service provider.
Several types of models may be used. Spreadsheet models and simulation models
may be developed to show the consequences of different decisions in certain
planning scenarios (What-If Models). How-to-Achieve Models change the pers-
pective by stipulating target values and determining the corresponding value of an
independent variable. Decision models are used to determine the best solution by
optimizing algorithms or to find a satisfactory solution by applying heuristics.
Collaborative planning differs from individual planning in several ways (Table
2.2, partially based on Windischer and Grote 2003).
Table 2.2 Comparison of individual planning and collaborative planning
Individual planning Collaborative planning
Recognizing the sequential order
of events
Communication of anticipated events
Recognizing goals Lateral agreements on goals
Recognizing the availability of
alternatives
Information exchange about the
availability of alternatives
Recognizing the adequacy of plans
resolving
Recognizing the adequacy of common
plans
Monitoring planned actions and
diagnosing errors in individual plans
Monitoring and diagnosing errors in
common plans
Revising individual plans Coordination of planning and feedback
about modifications
Canceling individual plans Common reflection and common decisions
to cancel plans
Depending on the amount of information transparency agreed upon, several
types of collaborative planning can be distinguished. One of them is Open Book
Planning. The collaborating entities deliver data into a common planning model.
The semantics of this data (i.e., the definitions used in the data models) must be
carefully coordinated. The data and the results obtained by the planning procedure
become visible to all participating entities. A very high level of trust is necessary
between the partners for this approach to be realized. Even entities belonging to
the same group may have objections against (detailed) Open Book Planning. The
Open Book may be accessible only to selected members of the supply chain.
However, in such a situation it may be even more difficult to make sure that the
other entities deliver correct planning data.
Another approach is to install a trusted service-provider as the entity collecting
data for the planning model and delivering the planning results to the supply chain
partners. In this case the cooperating entities are treated equally with respect to
information transparency. However, results of a planning model are usually not
16
implemented without further consideration. The purpose of decision models is to
provide insight, not numbers. Insight is based on understanding relationships bet-
ween input data and output data. It may be difficult to gain insight if the effects of
modifying input data cannot be discussed in detail because the input data is clande-
stine.
A common planning model may become complex owing to its size and the
details considered, and it may be difficult to find appropriate algorithms for deter-
mining an optimal solution or even for applying a sound heuristic. Decomposition
has been recommended to reduce the complexity of decision models. In this case it
is not necessary to exchange all details of the data relevant to the planning model,
but only some results obtained from local planning models.
Decomposed decision models are solved in an iterative way. The results of the
planning model P
ir
of entity i in iteration r are used by the collaborating entity j in
iteration r + 1. Entity j will consider the effects of P
ir
on its own situation and
decision variables and develop plan P
j, r + 1
, which is communicated to entity i.
Thus, the planning results of one entity appear as input data in the plan of the
other entity.
For obvious reasons only a limited number of such organizational iterations can
be realized. The optimal solution, which could be determined by an Open Book
model, will typically be missed. However, numerical experiments show that even
a small number of organizational iterations may result in solutions that are quite
close to the optimum of the Open Book model and, from the perspective of the
supply chain, far better than local solutions obtained without collaborative plan-
ning (Dudek 2004; Dudek and Stadtler 2005).
2.1.2.4 Collaborative Planning, Forecasting, and Replenishment (CPFR)
Several frameworks for structuring collaboration tasks exist. The best known is
the CPFR
CPFR model distinguishes eight collaboration tasks. For collaboration between a
retailer and a manufacturer the tasks are exemplified in Table 2.3.
2.1.2.5 Collaborative Scheduling
As scheduling decisions are often short term and taken close to execution, real-
time information exchange and contingency management among geographically
dispersed entities may be beneficial (Jia et al., 2002; Boyson et al., 2003).
The schedule of transports may determine production schedules, and a need for
the exchanging of information between distribution and production schedulers
results (Chen and Vairaktarakis 2005). The customer may receive information
about successfully finished operations and the time intervals for which remaining
operations are scheduled. This could be done via alerting mechanisms (e.g., sending
e-mails or messages to a PDA), by providing information on the Web, or even by
allowing access to (parts of) the partners scheduling system.
Interindustry Commerce Solutions (VICS) Association. Fig. 2.1 shows that the

framework. CPFR is a reference model developed by the Voluntary
17
Fig. 2.1 Visualization of the CPFR
process (VICS 2004)

Table 2.3 Collaboration tasks between a retailer and a manufacturer (cf. VICS 2004)
Replenishment
Manufacturer Tasks Collaboration Tasks Retailer Tasks
Strategy and Planning
Demand and Supply Management
Execution
Analysis
Account Planning
Market Planning
Collaboration Arrangement
Joint Business Plan
Vendor Management
Category Management
Market Data Analysis Sales Forecasting POS Forecasting
Planning
Order Planning/Forecasting Demand Planning
Production and Supply
Planning
Logistics/Distribution Order Fulfillment
Order Generation
Logistics/Distribution
Store Execution
Supplier Scorecard
Exception Management
Performance Assessment Customer Scorecard
Execution Monitoring
Buying/Re-buying
18
2.1.2.6 Collaborative Execution
resources and the redesign of physical processes. In this case not only information
and planning systems are influenced by SCM but also the physical execution
systems.
Changes of physical systems have been suggested by such production manage-
ment concepts as Just-in-Time (JIT), Lean Production, and Agile Manufacturing.
JIT needs close collaboration between the partners, and reducing setup times is an
important precondition for the realization of JIT procedures. Cross-docking is a
concept intended to minimize handling times at distribution centers by tight co-
ordination of inbound and outbound transports. Track&Trace systems show the
progress made in bridging the spatial distance between supplier and recipient and
allow the recipient to prepare for arrivals, but also to adjust production schedules
if an item required should arrive too late. Visibility of real-time data for business
partners is regarded as one of the main properties of a real-time enterprise. Many
SCM systems support the visualization of data.
Mini case: In the chemical industry, changes in the schedule of one plant can
affect several other plants, and ripple effects may increase the magnitude of changes
in plants downstream. For instance, in the Bayer company the plant schedules are
highly interdependent. The results of the nightly centralized scheduling run are
broken-down into plant-specific models where decentralized planners use these
models for local changes. The local scheduling persons should
be able to work on a smaller model of the facilities they are allowed to
schedule but at the same time be able to share data with and view infor-
mation from other plants,
be able to see the schedule changes of relevant production steps in other
plants,
make other plants aware of schedule changes, and
reduce conflicts and find a mutually agreeable solution for product chains
running through multiple plants with the help of a chain planner.
Complex communication mechanisms are set up to achieve these goals. Central
coordination mechanisms are combined with complementary information exchange
amongst decentralized decision makers between the scheduling runs (Berning
et al., 2002).
Mini case: Several companies with basically decentralized organizational struc-
tures achieved significant improvements through central coordination of material
handling. For instance, the largest Swiss retail company Migros helped to develop
an Application Service Providing (ASP) platform for achieving better visibility and
regional warehouses, and its supermarkets (Knolmayer and Dedopoulos 2006).
transparency of the associated pallet flows between its suppliers, the central
Collaborative execution may be closely connected with reassignment of tasks and
19
2.1.2.7 Collaborative Monitoring and Controlling
Many criteria have been proposed for measuring and evaluating the perfor-
mance of a companys logistical system. Examples are
(differently defined) service levels,
response delay, the difference between the delivery day initially requested
by the customer and the negotiated day,
lateness, computed from the differences between negotiated delivery day
and actual delivery day,
(differently defined) stocks, e.g., work in progress (WIP) as a percentage
of sales,
mean and variance of throughput times, and
percentages of scrap in production and corrupted inventory.
The Supply Chain Operations Reference (SCOR
) model developed by the

Supply-Chain Council (SCC) defines more than 200 Key Performance Metrics at
the highest of four levels. SAP SCM provides more than 300 KPI that are based

oriented performance attributes are distinguished (cf. Supply Chain Process Im-
provement 2007):
Customer-facing performance attributes
Reliability
o
Delivery performance
o
Perfect order fulfillment
o
Fill rates
Responsiveness (Order fulfillment lead times)
Flexibility
o
Supply chain response time
o
Production flexibility
Internal-facing
Costs
o
Costs of goods sold
o
Total SCM costs
o
Warranty/returns processing costs
Asset management efficiency
o
Cash-to-Cash cycle time
o
Asset turn.
Mini case: In the 1980s, General Motors Service Parts Operation used sophisticated
Operations Research methods for inventory and transportation management in its
relationships with dealers. However, the service to consumers was consistently
poorer than the service of most of its competitors, because the dealers inventory
systems were out of control, resulting in outdated data and metrics and wrong
stock-keeping decisions. This illustrates the fact that a supply chain is only as
good as its weakest link (Hausman 2004).
on the SCOR
metrics. Three classes of customer-facing and two classes of internally

20
The Supply Chain Performance Indicator, which has been defined by The
Performance Measurement Group (2007), considers a broad spectrum of business-
related metrics which shows the high impact of good SCM practices on business
results. With respect to the large number of metrics it is recommended that the most
relevant ones be selected. These may be visualized on a dashboard, using Kiviat
graphs, spider diagrams, or Balanced Scorecards (Kaplan and Norton 1996).

and a Customer Chain Operations Reference (CCOR) model have been defined by
the SCC. These models also define many metrics. A projection of some metrics to
Balanced Scorecard Categories is suggested by Bolstorff (2006). Ways of projecting
For supply chains, two different controlling approaches exist. On the one hand,
each entity in the supply chain can define its own criteria and eventually present
the values achieved in a Balanced Scorecard; however, if this information is passed
on to partners, a shared meaning should be accomplished, and this can only be
reached when there is agreement upon the definition of data elements and co-
ordinated procedures are applied. On the other hand, common metrics for the
whole supply chain may be defined and eventually presented in a Supply Chain
Scorecard; coordination of meta data becomes even more relevant when this
approach is followed (cf. Ackermann 2003; Kleijnen and Smits 2003).
2.1.2.8 Collaborative Reassignment of Tasks
The most far-reaching type of collaboration is a coordinated restructuring of
functions and processes, which may result in reassignment of task responsibilities
mediation or disintermediation may be considered when tasks are reallocated; one
Quality control can be moved from the customer to the supplier after a common
by applying Electronic Bill Presentment and Payment (EBPP) systems (SAP 2001)
as part of Financial Supply Chain Management.
Vendor Managed Inventory (VMI) is probably the most common reassignment
of responsibilities. The customer is no longer placing orders and, therefore, no due
dates for delivery are fixed. The vendor is responsible for providing concerted
inventory service levels. SAP recommends considering VMI if
key customers constitute a high percentage of the vendors sales figures,
the products are standardized and requested repeatedly,
product growth is not excessive, meaning that the requirement patterns are
stable and the vendor can assume that requirements will not occur spon-
taneously, and
the transaction costs for order processing and production planning are high
(SAP 2007).

the SCM metrics into terms of income statements, balance sheets, and Economic
In addition to the SCOR

Value Added indicators have also been suggested (Camerinelli and Cantu 2006).
model, a Design Chain Operations Reference (DCOR)
quality management system has been agreed on. Financial flows can be reorganized
example of such an approach is the Fourth-party Logistics Provider (4PL) concept.
from one supply chain partner to another. In redesigning a supply chain, inter-
21
Intentia (2001), a former vendor of ERP systems, describes benefits of VMI as
follows:
Supplier benefits
Visibility of the customers POS data simplifies forecasting.
Promotions can be more easily incorporated into the inventory plan.
Customer ordering errors, which in the past would often lead to a
return, are reduced.
Stock level visibility helps identify priorities (replenish stock versus a
stockout).
The supplier can see the potential need for an item before the item is
ordered.
Customer benefits
Fill rates from the supplier, and to the end consumer, improve.
Stockouts and inventory levels often decrease.
Planning and ordering costs decrease since the responsibility is shifted
to the supplier.

right time.

Dual benefits
ations.
Both parties strive to offer better service to the end consumer. All
parties involved benefit when the correct item is in stock when the end
consumer needs it.
customer.
Extremely high benefits are reported from realizing VMI relationships. SAP
pendent third-parties (Table 2.4, cf. SAP 2007).

60 locations in 25 countries, implemented the SAP Inventory Collaboration Hub
in 2005. The costs of order processes and administration expense were reduced by
more than 50%. Many A and B materials are stored via Supplier Managed In-
ventory agreements. Capital lock-up was reduced by lower warehouse inventory
and safety stocks (Brauchle 2006).
The overall service level is improved by having the right product at the
The supplier is more focused than ever on providing superior service.
Data entry errors are reduced owing to computer-to-computer communic-
Overall processing speed is improved.
A true collaborative partnership is formed between the supplier and the
claims very optimistic figures that have been reported by SAP customers or inde-
Mini case: Knorr-Bremse, a leading producer of brake systems with more than
22
Table 2.4 Potential benefits of VMI (SAP 2007)
Business benefits Vendor/customer Value potential
Increased revenue/sales Vendor and
customer
Lower inventory levels Vendor
Increased service levels Vendor
Operating costs through full truckloads Vendor
Increased service levels Customer
Inventory turns Customer
Increased service levels Customer

When considering the potential of VMI one has to realize that it is based on the
transfer of detailed data, e.g., POS data and inventory data. Such data transfer may
be realized with or without entering on a VMI relationship. An advantage of VMI
is that no due dates are fixed by the customer, which makes the vendor flexible
with respect to its execution processes. However, the vendor may lack some in-
formation which is available only locally at the site of its customer. VMI partnerships
should incorporate the obligation to transfer either such local information or at
least forecast data based on it. Several simulation studies on VMI systems show
significant cost reductions for the entire supply chain (Disney and Towill 2003a,
b). As suppliers have access to actual sales and/or inventory data provided by the
customers, the Bullwhip Effect can be reduced, resulting in a smaller variability of
demand data (Smros et al., 2003). Thus, safety stocks, particularly of suppliers,
can be reduced.
Sometimes a distinction is made between Vendor Managed Inventory and Supplier
Managed Inventory (SMI). In the CPFR
context four alternatives are distin-

guished (Table 2.5). The difference between VMI and SMI is primarily one of
viewpoint: VMI involves the management of finished goods inventories outbound
from a manufacturer, distributor, or reseller to a retailer, whereas SMI manages
the flow of raw materials and component parts inbound to a manufacturing
process (Pohlen and Goldsby 2003). IT ownership and IT architectures differ. In
the SAP environment there is also a difference in the ownership of the collaborative
application system for VMI the application system is owned by the supplier and
for SMI, by the customer.
Table 2.5 Assignment of responsibilities (cf. VICS 2004)
Alternative Sales forecasting Order planning Order
generation
Conventional approach Retailer Retailer Retailer
Co-managed inventory Retailer Retailer Manufacturer
Supplier managed inventory Retailer Manufacturer Manufacturer
Vendor managed inventory Manufacturer Manufacturer Manufacturer
100200%
70%
From 89% to 98%
28%
From 93% to 99%
2770%
From 93% to 99%
23
2.2 Business Architectures for Supply Chain Management
2.2.1 Supply Chain Planning Matrices
systematic frameworks. In the research literature several (slightly different versions
2002; Fleischmann and Meyr 2003; Fleischmann et al., 2005; Meyr et al., 2005).
A detailed description of the matrix is given by Fleischmann et al. (2005,
p. 88). In our opinion, Supply Chain Planning Matrices have some disadvantages.
The arrows in the top row imply that a certain flow occurs independently of the
type of production system. However, for make-to-order production the sequence
of the columns Production, Sales, and Distribution should be Sales,
Production, and Distribution, and order-specific design activities for make-to-
engineer production should appear. Furthermore, the execution and controlling
processes are disregarded in the framework and the collaboration with other
companies is not visualized in the matrix. We try to improve these shortcomings
Fig. 2.2 A supply chain planning matrix

in our pyramidal representation (cf. Section 2.2.3).
Several models have been followed to arrange the most relevant SCM processes in
of) Supply Chain Planning Matrices (Fig. 2.2) are presented (cf. Neumann et al.,
24
2.2.2 The Supply Chain Operations Reference Model
the Supply-Chain Council is attracting a lot of attention. Today the Council counts
about 1,000 corporate members worldwide and has established chapters in North
sponsor of its activities.
and system of notation for describing business processes. It is organized into four
levels to allow differently detailed views on business processes and focuses on
model to describe the current status of the system (as-is situation) or to define a
target status (to-be situation). Such models are often used in business process
performance of certain process elements. A company may decide to gather this
data for internal performance evaluation or also for benchmarking with other
companies. The SCC tries to motivate its members to deliver performance data for
best practices.
Plan
Source
Make
Deliver
Return
at four hierarchical levels. At the uppermost level, the process types are defined as
support companies in making basic strategic decisions regarding its operations in
the following, sometimes vaguely formulated areas:
1. Delivery performance,
2. Order fulfillment performance,
3. Fill rate (make-to-stock),
4. Order fulfillment lead time,
5. Perfect order fulfillment,
6. Supply chain response time,
7. Production flexibility,
8. Total SCM cost,
9. Value-added productivity,
10. Warranty cost or returns processing cost,

America, Europe, Greater China, Japan, Australia/New Zealand, South East Asia,
In practice, the Supply Chain Operations Reference (SCOR ) Model developed by
The SCOR model defines five process types

public (Supply-Chain Council 2008). SAP AG is a member of the SCC and a main

Brazil, and Southern Africa. In 2008, Release 9.0 of the SCOR model was made
The SCOR model is a process reference model, proposing a certain terminology
reengineering projects. The SCOR model also defines metrics used to measure the
inter-organizational processes. A company or a supply chain may use the SCOR
the SCOR metrics to support inter-organizational benchmarking and to recognize

shown in Table 2.6. According to the SCC, level 1 of the SCOR model aims to
25
Definition
Plan Processes that balance aggregate demand and supply to develop a
course of action which best meets sourcing, production, and delivery
requirements.
Source Processes that procure goods and services to meet planned or actual
demand.
Make Processes that transform products to a finished state to meet planned
or actual demand.
Deliver Processes that provide finished goods and services to meet planned
or actual demand, typically including order management, transportation
management, and distribution management.
Return Processes associated with returning or receiving returned products
for any reason. These processes extend into post-delivery customer
support.
At level 2, e.g., the Make process is refined to
Make-to-stock production,
Make-to-order production, and
Make-to-engineer production,
whereas the Return process is detailed to
Return defective product,
Return Maintenance, Repair, and Overhaul (MRO) product, and
Return excess product.
Level 2 also defines some enabling processes. A typical example of an enabling
process is to provide the necessary IT infrastructure for process execution.
In 2007, the SCC announced SCORmark
SM
, a members-only benchmarking

SCORmark
SM
benchmarking
to select the supply chain metrics most critical to its organization,
to determine the target performance desired for each supply chain attribute
to enter the relevant data required to calculate the performance for each
selected metric into the secure, confidential benchmarking portal.

11. Cash-to-cash cycle time,
12. Inventory days of supply, and
13. Asset turns.

portal based on the SCOR model, in association with APQC (Supply-Chain Council
2007). As part of the analyze phase of the SCOR model, a company may use
in the SCOR model, and
SCOR
process
Table 2.6 Level 1 Processes, as defined by the Supply-Chain Council
26
ARIS is a business process management tool developed by IDS Scheer and
today offered as part of SAPs NetWeaver infrastructure. Among other tools, an
ARIS EasySCOR Modeler has been developed (IDS Scheer 2007).
are discussed by Huan et al. (2004) and Poluha (2007).
2.2.3 A Supply Chain Pyramid
as a reference framework. With the pyramidal form we reflect the hierarchy of
by Hieber (2002).
zational levels. Strategic, tactical, and operational planning tasks are distinguished
are combined at one level. Source and procurement and make and production are

The data is validated in a seven-step process to produce a report with
an executive scorecard to quickly spotlight on any gaps in the targeted
performance levels for each supply chain attribute and
a detailed analysis for each specific metric selected, including best practice
information on the drivers of performance and peer group reporting as
available.

2001). The SAP Solution Manager is an implementation tool that allows mapping
SAP SCM systems automatically deposit the data from ERP and ongoing supply
chain transactions into SAPs Business Intelligence applications. These cal-
ERP and SAP SCM implementations. Once in operation, the SAP ERP and
culate the plan-source-make-deliver KPIs and deliver them to SAPs management
Software vendors included SCOR metrics in their SCM systems (Gassmann
Based on the Supply Chain Matrices and the SCOR model, we present a global view
Some deficiencies of the SCOR model as seen from an academic point of view
cockpit for role-based breakdowns of the SCOR model (Gould 2005).
of the SCOR models best practices against what the users want in their SAP
model, product design is enclosed in the pyramid to
avoid the formulation of a separate design model. Furthermore, the SCOR model
of the supply chain tasks in the form of a pyramid (Fig. 2.3) and use this pyramid
Compared with the SCOR
visualized in information pyramids; cf. Mertens 2007, p. 6). A slightly similar
Fig. 2.3 shows inbound- and outbound-collaboration tasks at various organi-
used synonymously. Execution is explicitly included in the pyramid.
lected CCOR). To emphasize the high importance of selling, we decided to split the
task reference model of transcorporate logistics in pyramidal form was proposed
decision rights, planning tasks, and the associated information needs (as often
does not explicity address sales activities (which later became part of the widely neg-
at the horizontal levels. For ease of presentation, operational planning and scheduling
27 2.3 Desirable Features of SCM Systems

F
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2 The Scope of Supply Chain Management 28
2.3 Desirable Features of SCM Systems
This section gives a short description of some functionalities that could be helpful
involved in supply chains.
Functions and processes in SCM systems have specific characteristics because

be stored. There is a need for special filtering and compression mechanisms
before data is fed into common databases, to avoid too great an increase in
single bodies of data often have to be aggregated into larger groups: for
instance, equipment into capacity groups, product characteristics into charac-
teristics groups, products into product groups;
bigger problems have to be decomposed before they can be treated with
optimization algorithms or heuristics; examples are the segmentation of
a long planning horizon into several shorter time segments, for which
solutions may successively be found although typically the global optimum
will be missed.

for SCM. We do not describe functions that are also essential for enterprises not
data of several networked enterprises, not only those of one company, must
the sizes of databases and data warehouses;
In Section 2.3 we formulate desirable properties of SCM systems. In Chapters 3
support by means of IT systems, and there are some uncovered spots on the
landscape. Product design activities are outside the scope of SAPs systems, but
there are interfaces to the most relevant CAD systems.
and 4 we discuss how these properties are covered by the SAP SCM 5.0 system.
SCM solution map is projected onto the SCM pyramid (Fig. 3.4). As we shall see,
delivery process into distribution and sales already in our Supply Chain Pyramid. We
controlling and support processes. Some strategic planning tasks are difficult to
processes are at least as important as return processes and therefore decided to men-
Supply Chain Visibility Model proposed by the IBM Institute of Business Value

(Butner 2007).
avoid arrows to indicate that sequences between sales and distribution activities de-
tion them explicitly in the SCM pyramid. These modifications are in line with the
The pyramid is refined stepwise in the remainder of the book. First, SAPs
tactical and operational planning are well covered by the SAP system, as well as
pend on the type of business relationships. Finally, we think that regular after-sales
2
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Scope of Supply Chain

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Chapter 2

The Scope of Supply Chain Management

are well documented and understood.

Mini case: Nestl supports sustainability in the supply of agricultural raw

for example with respect to product quality.

is to provide technical assistance to more than 400,000 farmers throughout the

process (VICS 2004)

) model developed by the

metrics. Three classes of customer-facing and two classes of internally

In addition to the SCOR

The supplier is more focused than ever on providing superior service.

Data entry errors are reduced owing to computer-to-computer communic-

Overall processing speed is improved.

A true collaborative partnership is formed between the supplier and the

context four alternatives are distin-

In practice, the Supply Chain Operations Reference (SCOR ) Model developed by

The SCOR model defines five process types

the SCOR metrics to support inter-organizational benchmarking and to recognize

in the SCOR model, and

cockpit for role-based breakdowns of the SCOR model (Gould 2005).

model, product design is enclosed in the pyramid to

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