SCOR Model November 2014

MSC ISLI KEDGE

Alpha Case Study

Mr. John PAUL

Team Members:
Beau HAAKE
Konstantinos KANAKOPOULOS
Ocane MAITRE
Cline ORLUC

SCOR Model November 2014

Question 1: SCOR Level 1 Metric Calculations for the NEW Product Line
Results:
Level 1 Strategic Model
RL.1.1
RS.1.1
AG.1.1
AG.1.2
AG.1.3
AG.1.4
CO.1.1
AM.1.1
AM.1.2
AM.1.3

Perfect Order Fulfillment

Order Fulfillment cycle time
Upside Supply Chain Flexibility
Upside Supply Chain Adaptability
Downside Supply Chain Adaptability
Supply Chain Value-at-risk
Total Cost to serve
Cash to Cash cycle time
Return on Supply Chain Fixed Assets
Return on Working Capital

Forecast N+1

0%
22 days
90 days
6.7%
6.7%
$ 1 525,000
69.8%
73.5%
81 (80.1) days 196 (195.8) days
1.44
1.20
1.42
0.59

Explanations:

RL.1.1 Perfect Order Fulfillment

Definition: The percentage of orders that are on time, in full, with complete and accurate
documentation and no shipping damage.
We know that for the new product there have been a total of 200 orders, but 100 have been
delivered as partial or not on time, and that 100 orders had shipping damage or inaccurate
documentation. Therefore, the perfect order fulfillment for the new product is 0%.
RS.1.2 Order fulfillment cycle time
Formula:
[Sum Actual Cycle Times For All Orders Delivered] / [Total Number Of Orders Delivered]
We know that for the 200 deliveries 100 products are make-to-stock and 100 are makeexpedited. It takes 7 days for the 100 make to stock products to be delivered (Order receipt to
order entry 1 day, Order entry to start build 1 day, Start build to order ready for shipment
2 days, Order ready for shipment to customer receipt 3 days).
It takes 37 days for the 100 make-expedited, as we have to include the manufacturing time:
delivered (Order receipt to order entry 1 day, Order entry to start build 1 day, Start build to
order ready for shipment 2 days, Order ready for shipment to customer receipt 3 days,
Make Cycle 30 days)
Therefore Order fulfillment cycle time = (100*7+100*37)/200= 22 days

SCOR Model November 2014

AG.1.1 Upside Supply Chain Flexibility
By using the calculation of: Max (Upside Source Flexibility, Upside Make Flexibility, Upside
Deliver Flexibility, Upside Return Flexibility) we need to find the longest time to achieve an
unplanned sustainable 20% increase in quantities delivered.
Manufacturing takes 30 days to increase by 20%, OEM supplier can increase with no extra
lead time as before, but it takes 2 days for the delivery capacity to be increased by 20%, and it
takes the European suppliers 90 days to increase their production capacity by 20%. Therefore
the longest time would be the European supplier. The Upside Supply Chain Flexibility is 90
days.
AG.1.2 Upside Supply Chain Adaptability
By using the calculation of: Min (Downside Source Adaptability, Downside Make
Adaptability, Downside Deliver Adaptability, Downside Return Adaptability) we need to find
the least sustainable quantity increase that can be achieved in 30 days.
Manufacturing can increase its production by 20% in 30 days, OEM supplier is not affected
and the European suppliers can increase its quantity by 20% in 90 days, which means 6.67%
in 30 days. Because the least sustainable quantity increase in 30 days comes from the
European suppliers the Upside Supply Chain Adaptability is 6.67%.
AG.1.3 Downside Supply Chain Adaptability
By using the calculation of: Min (Downside Source Adaptability, Downside Make
Adaptability, Downside Deliver Adaptability, Downside Return Adaptability) we need to find
the least sustainable quantity decrease that can be achieved in 30 days.
Manufacturing can decrease its production by 20% in 30 days, OEM supplier is not affected
and the European suppliers would be influenced as in AG.1.2, which means 6.7% in 30 days.
Because the least sustainable quantity decrease in 30 days comes from the European suppliers
the Upside Supply Chain Adaptability is 6.67%.
AG.1.4 Supply Chain Value-at-risk
Based on the definition, the supply chain value-at-risk represents the sum of the probability of
risk events times the monetary impact of the events for all the supply chain functions.
If we consider the risk matrix and calculate the VAR in the different process areas
(Probability* Impact), we can determine the overall supply chain VAR:
Process
Area
Source
Plan
Make
Deliver

Risk Identification
Event
Stop manufacturing - Strike
Out of stock
Break down in the equipment
High price of fuel

Risk Assessment
Annual Probability
Impact
1%
$ 10 000 000
10%
$ 1 000 000
5%
$ 1 500 000
50%
$ 2 500 000
Total Risk Magnitude VAR

Risk Zone
VaR
$ 100 000
$ 100 000
$
75 000
$ 1 250 000
$ 1 525 000

M
M
L
H

SCOR Model November 2014

CO.1.1 Total Cost-to-serve

Taking into consideration the definition of Total Cost-to-serve as the sum of the supply chain
cost to deliver products and services to customers and that it ..includes the cost to plan the
supply chain, cost to source materials, products, goods, merchandize and services, cost to
produce, manufacture, remanufacture, refurbish, repair and maintain goods and services if
applicable, cost to manage orders, customer inquiries and returns, and cost to deliver
products and services at the agreed location, we calculated CO.1.1 metric using the P & L
Statements (Current Year Projection) parameters below:
COGS (Cost Of Goods Sold) ($ 540MM)
Order Management Cost ($ 63MM)
Sourcing Cost ($ 32MM)
Fulfillment & Returns ($ 86MM)
The part of Administrative Cost that has to do with the supply chain only ($ 14MM)
Using the formula: [Sum of cost] / Sales
We found a Total Cost-to-serve of 73.5%.
In order to check out whether Alpha Company has improved on this metric, we used the same
methodology for Last Years collected data. As for the part of Administrative Cost that has to
do with the supply chain only, we supposed that Alpha Company spend for the supply chain
was the same percentage of Administrative Cost as it was forecasted for the current year,
namely (14/52)* 100%= 26.9%. As a result, the part of Administrative cost that concerns us is
26.9% * 30MM = 8.07MM.
So Total Cost-to-Serve for Last Year was 69.8%
AM.1.1 Cash-to-cash cycle time
We define Cash-to-cash cycle time as the time it takes for an investment made to flow back
into a company after it has been spent for raw materials, which is represented through the
formula:
[Inventory Days of Supply] + [Days Sales Outstanding] [Days Payable Outstanding] , using
a 5 point moving average1: [(sum of the 4 previous quarters + projection of next quarter)/5].

Inventory Days of Supply = [5 point rolling average of gross value of inventory at

standard cost] / [annual COGS / 365]
Days Sales Outstanding = [5 point rolling average of gross Account Receivable (AR)] /
[total gross annual sales / 365]
Days Payable Outstanding = [5 point rolling average of gross Account Payable (AP)] /
[total gross annual material purchases / 365]

By replacing the equations above ((176/(540/365))+(292/(1000/365))-(22/(270/365)), we

found a Cash-to Cash Cycle of 195.8 days. This metric reflects the poor level of
responsiveness of Alpha Company.

1 As we were missing the details of the actual year (each quarter separated) for the inventory, AR, and AP, we
couldnt do the 5-point moving average. Due to some possible seasonality we decided not to split the quarter
equally and instead we took the full year data.

SCOR Model November 2014

AM.1.2 Return on Supply Chain Fixed Assets
We consider the Return on Supply Chain Fixed Assets as an indicator that measures the return
an organization receives on its invested capital in supply chain fixed assets. This includes the
fixed assets used in Plan, Source, Make, Deliver, and Return.
We used the formula: [Supply Chain Revenue COGS Supply Chain Management Costs] /
Supply-Chain Fixed Assets
The fixed assets related to Supply Chain is $ 220M for current year projection. The Supply
Chain Management Costs are once again:
Order Management Cost ($ 63MM)
Sourcing Cost ($ 32MM)
Fulfillment & Returns ($ 86MM)
The part of Administrative Cost that has to do with the supply chain only ($ 14MM)
The return that Alpha receives on its invested capital in supply chain fixed assets is 1.20 or
120%, according to the Current Year Projection.
AM.1.3 Return on Working Capital
Return on Working Capital is a measurement which assesses the magnitude of investment
relative to a companys working capital position verses the revenue generated from a supply
chain.
Considering the formula: [Supply Chain Revenue COGS Supply Chain Management
Costs] / [Inventory + Accounts Receivable Accounts Payable]

Inventory: 5 point rolling average of gross value of inventory at standard cost

Sales: Outstanding the amount of accounts receivable outstanding expressed in dollars =
5 point rolling average of gross accounts receivable (AR)
Payables: Outstanding expressed in dollars, the amount of purchased materials, labor
and/or conversion resources that are to be paid (accounts payable) = 5 point rolling
average of gross accounts payable (AP).

We found that the AM.1.3 metric of SCOR Model for Alpha is 0.59.

SCOR Model November 2014

Question 2: Determine Competitive Requirements

Results of the TO-BE performance attribute for the new product line 2:
Performance
Attributes

Performance vs
Competition

Reliability
Responsiveness
Agility
SCM Costs
SCM Assets Utilization

Parity
Advantage
Superior

Explanations:
Taking into account the bad results of the new product line and the possible future impact on
the companys ability to invest, we considered that Alpha should not try to become superior to
its competitors in all the different attributes but first start to importantly invest in one of them
that would later become its competitive advantage.
RL Reliability
Alphas current reliability rate is low compared to the market (0% perfect order fulfillment for
Alpha against 80% for the average). For this reason, considering the important gap with the
competition, achieving the same result as the average would be a good objective for the near
future as customers keep complaining. Alpha would have to improve to minimize complaints,
plan and forecast better, make some regular quality control. This will increase revenue.
RS Responsiveness
Once again Alphas result is far behind competition with 22 days order fulfilment cycle time,
against 7 days for the median. Alphas objective should be to reduce it by 50% by keeping
more stocks or reducing manufacturing time.
AG - Agility
Agility is based on four indicators AG.1.1, AG.1.2, AG.1.3 and AG.1.4 which are lower than
the median competitors. As the three first are behind the competitors, reaching the level of the
market is the companys objective. For example it should try to better integrate its suppliers or
plan more accurately to avoid any sudden surprises.
CO Supply Chain Costs
We considered this indicator as being the fastest one to potentially become a real competitive
advantage given the actual good results (73% for Alpha CO.1.1 against 96% for the median
competitors). In order to achieve this objective, the company should keep reducing either
indirect or direct costs.
AM - Asset Management

2 Competitors analysis is based on slide 102 of the SCOR Walkthrough presentation

6

SCOR Model November 2014

Asset Management attribute at Alpha is somehow mitigated: AM.1.2 is good with 1.20 against
0.8 for the median competitors, while AM.1.1 is really bad with 196 days against 80 days for
the median competitors and AM.1.3 is not too far away from the median. Overall we consider
that the company should invest in this performance attribute for the future.