Supply Chain Management (SCM) 101: Supply Chain Strategy SCOR Model Plan Source Make Deliver Return Enable

What This Is

The Supply Chain Operations Reference (SCOR) model is a framework for designing, managing, and measuring supply chain performance. It consists of five primary processes: Plan, Source, Make, Deliver, and Return. The SCOR model helps organizations to identify areas for improvement, optimize supply chain operations, and increase customer satisfaction. For example, Amazon uses the SCOR model to manage its global supply chain, ensuring timely delivery of products to customers worldwide.

Key Frameworks & Formulas

• SCOR Model: A framework for designing, managing, and measuring supply chain performance, consisting of five primary processes: Plan, Source, Make, Deliver, and Return.
• Plan Process: Defines supply chain strategy, sets performance targets, and allocates resources.
• Source Process: Manages procurement of raw materials, components, and services.
• Make Process: Manages production of finished goods, including manufacturing, assembly, and packaging.
• Deliver Process: Manages the movement of finished goods from the manufacturer to the customer.
• Return Process: Manages the return of products from customers to the manufacturer.
• Enable Process: Manages the support functions that enable the other four processes, including IT, finance, and human resources.
• Service Level (SL): The percentage of demand that is met on time, calculated as (On-Time Deliveries / Total Deliveries) x 100.
• Lead Time (LT): The time it takes for a product to move from the supplier to the customer, calculated as (Order Receipt Time + Production Time + Transportation Time).
• Safety Stock (SS): The inventory held to mitigate stockouts and overstocking, calculated as Z × σ × √L, where Z is the Z-score, σ is the standard deviation, and L is the lead time.
• Economic Order Quantity (EOQ): The optimal order quantity that minimizes total inventory costs, calculated as √(2DS/H), where D is the demand rate, S is the ordering cost, and H is the holding cost.

Step-by-Step Application

1. Calculate Safety Stock: Determine the Z-score, standard deviation, and lead time for a product. Use the formula SS = Z × σ × √L to calculate the safety stock.
2. Implement a Warehouse Layout Change: Assess the current warehouse layout and identify areas for improvement. Use the SCOR model to determine the impact of the change on the Source, Make, and Deliver processes.
3. Optimize Inventory Levels: Use the EOQ formula to determine the optimal order quantity for a product. Consider the demand rate, ordering cost, and holding cost.
4. Manage Returns: Develop a return process that meets customer expectations and minimizes costs. Use the SCOR model to identify areas for improvement in the Return process.
5. Measure Supply Chain Performance: Use the SCOR model to measure supply chain performance, including service level, lead time, and inventory levels.

Common Mistakes

• Mistake: Failing to consider the impact of the SCOR model on all five primary processes.
• Correction: Use the SCOR model to analyze and optimize all five processes, ensuring that changes to one process do not negatively impact others.
• Mistake: Not considering the Enable process when implementing changes to the supply chain.
• Correction: Ensure that changes to the supply chain do not negatively impact the Enable process, which supports the other four processes.
• Mistake: Failing to calculate safety stock using the correct formula.
• Correction: Use the formula SS = Z × σ × √L to calculate safety stock, considering the Z-score, standard deviation, and lead time.

Exam / Certification Tips

• Tricky Distinctions: Understand the differences between push and pull strategies, efficient and responsive supply chains, and Incoterms responsibility.
• Common Question Patterns: Expect questions on the SCOR model, supply chain performance metrics, and inventory management.
• Key Concepts: Focus on the five primary processes, the Enable process, and the key formulas and frameworks.

Quick Practice Problem

Scenario: A company has a demand rate of 100 units per day, an ordering cost of $10, and a holding cost of $5 per unit. What is the optimal order quantity using the EOQ formula?

Answer: EOQ = √(2 x 100 x 10 / 5) = 20 units

Explanation: The EOQ formula is used to determine the optimal order quantity that minimizes total inventory costs.

Last-Minute Cram Sheet

• SCOR Model: A framework for designing, managing, and measuring supply chain performance.
• Plan Process: Defines supply chain strategy, sets performance targets, and allocates resources.
• Service Level (SL): The percentage of demand that is met on time.
• Lead Time (LT): The time it takes for a product to move from the supplier to the customer.
• Safety Stock (SS): The inventory held to mitigate stockouts and overstocking.
• Economic Order Quantity (EOQ): The optimal order quantity that minimizes total inventory costs.
• Enable Process: Manages the support functions that enable the other four processes.
• Push vs Pull: Push strategies focus on producing and shipping products, while pull strategies focus on meeting customer demand.
• Efficient vs Responsive: Efficient supply chains focus on minimizing costs, while responsive supply chains focus on meeting customer needs.
• Incoterms Responsibility: Incoterms determine the responsibility for transportation costs and risk.
• ⚠️ Postponement: Delays final configuration, not production – it’s a push-pull boundary strategy.
• ⚠️ Safety Stock: Is not a buffer against stockouts, but a buffer against overstocking.
• ⚠️ EOQ: Is not the same as the reorder point.