Archie Lockamy

Effects of Process Maturity and Uncertainty on SC Performance

Daniel Dumke — Mon, 31 Jan 2011 16:16:00 +0000

Process orientation may or may not be a very hip topic right now. Nevertheless effective processes are a foundation for company performance. Lockamy, Childerhouse, Disney, Towill and McCormack (2008), analyze and explain the impact of process maturity and uncertainty on supply chain performance, the full paper can be obtained here free of charge.

In close collaboration with several businesses they conducted an empirical study on this topic, which I present in the following.

Business Process Orientation and Quickscan

Business process orientation can be described using the dimensions process management, process jobs and process view.

Process management & measurement means that the company is using metrics on aspects of the process such as output quality, cycle time, process cost and variability, in contrast to traditional accounting measures.

Process jobs focus on processes as opposed to functions, and are cross-functional in responsibility.

Finally, process view is the cross-functional, horizontal picture of a business involving elements of structure, focus, measurement, ownership and customers.

Relationship between Process Capabilities and Maturity (Lockamy et al., 2008)

The authors used the Quick Scan methodology with over 20 different supply chains. It consists of the following four methods: questionnaire analysis, process mapping, semi-structured interviews, modelling from numerical data.

Each quick scan took about two weeks at the site of the client and resulted in: a current status of the organization and the supply chain, evaluation of the maturity of its practices and processes and its ability to meet current and future customer needs, furthermore details on the management of uncertainty and interfaces beteween these areas.

Supply Chain Maturity and Uncertainty

Supply chain maturity is described here using five cumulative levels:

Ad Hoc, marks an unstructured supply chain with badly defined processes. Typical are no process measures and few “process jobs”.

Defined, stands for a level where processes and the supply chain has been defined. Process performance is measured sometimes.

Linked, describes a level where supply chain management jobs have been established and performance measures are conjointly evaluated with clients and vendors.

Integrated, traditional functions beginn to disappear, supply chain measures and management is embedded into the organization. This leads to reduced SC cost.

Extended, collaboration is routine, competition is based on a multi-firm supply chain.

Supply Chain Management Maturity Model (Lockamy et al., 2008)

Supply chain uncertainty is defined similar to Christopher and Peck (2004) and devided into process, control, supply, demand uncertainty. Based on other empirical study it can be stated that:

Supply chain uncertainty significantly contributes to poor customer service levels, excess inventory, long lead times, increased quality inspections, and bureaucratic decision-making processes.

Results

After collecting all data during the quick scan on the process maturity and experienced supply chain uncertainty levels the author drew the following conclusions:

Reductions in supply chain uncertainty can be achieved by increasing the maturity levels of processes employed within the supply chains

By increasing supply chain maturity levels and by correspondingly reducing uncertainty, firms can improve overall supply chain performance

Levels of maturity in the area of process structure and jobs can significantly reduce the level of control uncertainty within supply chains

Reductions in demand and control uncertainty can be achieved by increasing the maturity levels of process measures utilised within supply chains

Process Maturity vs. Supply Chain Performance (Lockamy et al., 2008)

Conclusion

One would think that better processes lead to better supply chain performance. But it is hard to objectively measure the maturity of a specific process. How do you grade them. For example maybe a process is documented, but to which level of detail and how are current is it? There are processes that work perfectly without having a process chart available which documents the exact interfaces.

So evaluating processes is always an extremely subjective task. I trust the reputation of the participating author that they used all due diligence necessary. Nevertheless it would have been great to see more details on how the evaluation has been conducted.

Reference:

Lockamy, A., Childerhouse, P., Disney, S., Towill, D., & McCormack, K. (2008). The impact of process maturity and uncertainty on supply chain performance: an empirical study International Journal of Manufacturing Technology and Management, 15 (1) DOI: 10.1504/IJMTM.2008.018237

Christopher, M., & Peck, H. (2004). Building the Resilient Supply Chain The International Journal of Logistics Management, 15 (2), 1-14 DOI: 10.1108/09574090410700275

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Identifying important Activities within the SCOR Processes

Daniel Dumke — Mon, 16 Aug 2010 10:07:00 +0000

The Supply Chain Operations Reference (SCOR) model has been developed by the Supply Chain Council to provide a best-practice framework for supply chain management practices and processes with the goal to increase performance.

SCOR

The SCOR model consists of five major process categories: Plan, Source, Make, Deliver and Return

Starting from that best practice processes are defined up to level three.

Supply Chain Operations Reference Model (SCOR, SCC 2000)

Research Question

In 2004 Lockamy and McCormack published an exploratory study on the question

What are the most important supply chain management planning practices in the Plan, Source, Make, Deliver decision area that relate to supply chain performance?

Results

From literature and the questionnaires nine general practices are derived, that might influence performance.

Planning processes
Collaboration
Teaming
Process measures
Process credibility
Process integration
IT support
Process documentation
Process ownership

Using factor analysis the authors find that “Planning processes” and “Collaboration” is especially important for supply chain performance within all SCOR process categories. The aggregated results are shown in the following table.

Results Lockamy and McCormack (2004)

Reference:

Lockamy, A. III, & McCormack, K. (2004). Linking SCOR planning practices to supply chain performance: An exploratory study International Journal of Operations & Production Management, 24 (12), 1192-1218 DOI: 10.1108/01443570410569010

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Internal

Acting on Supply Chain Disruptions

Daniel Dumke — Thu, 22 Apr 2010 07:43:33 +0000

Supply Chain Risk manifests itself in many ways. Today the German airlines restored their regular flight schedule again after six days of no or limited air traffic, after the latest eruption of the Eyjafjallajökull vulcano on Iceland.

The consequences of such events only rarely become evident, but in the background emergency plans have to be executed (or developed).

Case

10 years ago a disruption affected the supply chain at Ericsson, luckily the effects of this event on Ericsson have been published. Its about the so called “Albuquerque accident” in 2000, which was documented by Norrman and Jansson (2004).

Disruption

The Albuquerque accident was a small (30 sqm area), short (10 minutes) fire within one of the clean rooms of a supplier at Ericsson. The supplier was responsible for a important RF-chip for the cell phone production. The consequences therefore were very severe. It took the supplier three weeks to get the production running again and after six month the yield was only 50% of the pre incident rate. The cost for Ericsson were estimated at $200 million (which was compensated by insurance companies).

Analysis

A review in the Wall Street Journal concluded that Ericsson

took too long to take action after the incident
its reporting to upper management was flawed
had no alternative suppliers for this component
has not been prepared for this kind of accident

So how did they react?

Results

The goal was to minimize the risk exposure within the supply chain.

To achieve this they took action on two sides:

Organisation
Assigning clear responsabilities and establish a matrix organization
Processes
Reinforce processes for risk identification, risk assessment, risk treatment, incident handling & business continuity planning

Business impact

Since the financial consequences of the disruption were carried by the insurance companies it was at first harder for Ericsson to renew the insurance policies, but just the other way around after implementing those strict SCRM program mentioned above. As a result Ericsson was paying less afterwards.

It is noteworthy, that after experiencing this disruption Ericsson percieves that the concepts of agility, responsiveness and leanness are inducing higher risks.

Conclusion

The article seams strongly influenced by Ericsson and the objective research and presentation might be questioned. I am definitively missing some more insights on the a priori analysis, since it is one corner stone of the design of the measures. Within the article only a short excerpt from the WSJ has been quoted.

Other authors (as Lockamy et al. (2008)) find a much more positive connection between business performance and supply chain risk management, so this should be further analyzed.

Reference:

Norrman, A., & Jansson, U. (2004). Ericsson’s proactive supply chain risk management approach after a serious sub-supplier accident International Journal of Physical Distribution & Logistics Management, 34 (5), 434-456 DOI: 10.1108/09600030410545463

Lockamy, A., Childerhouse, P., Disney, S., Towill, D., & McCormack, K. (2008). The impact of process maturity and uncertainty on supply chain performance: an empirical study International Journal of Manufacturing Technology and Management, 15 (1) DOI: 10.1504/IJMTM.2008.018237

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