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Advanced Operational Benchmarking. Strategic Benchmarking John Paul Professor & Research Fellow BEM School of Management, Bordeaux, France, Managing Director , iCognitive, Singapore. www.icognitive.com. Agenda. Introduction of Traditional Benchmarking - PowerPoint PPT Presentation
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Advanced Operational BenchmarkingStrategic Benchmarking
John PaulProfessor & Research Fellow BEM
School of Management, Bordeaux, France,Managing Director, iCognitive, Singapore.
www.icognitive.com
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• Introduction of Traditional Benchmarking
• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP)– Data Envelopment Analysis (DEA) – Result Control Process
• AOB Benefits and IT Overview
Agenda
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Traditional BenchmarkingSupply Chain Operational Reference (SCOR) Model
SCOR Model
Building Block Approach
Processes Metrics
Best Practice Technology
Enable
Supplier
Plan
Customer Customer’sCustomer
Suppliers’Supplier
Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver
Internal or External Internal or External
Your Company
Source
Return ReturnReturn
Return Return Return Return Return
Plan PlanPlanPlan
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Traditional Benchmarking
SCOR Level One Metrics SCORCard
Performance results for SEA Pharmaceutical Industry
Metrics Calculations4
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Best-in-class
Median
Statistical Analysis of Traditional Benchmarking
• Best-in-Class is based on Pareto’s 80-20 rule • Best-in-Class is defined as the average performance of the
top 20% of companies• Median is defined as the average performance of the 40th
to 60th percentile of companies5
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Decision Making Support of Traditional Benchmarking
• The benchmarking is done based
on each metric individually
• Not designed to identify a
company’s overall performance
• Looking at the past
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• Introduction of Traditional Benchmarking
• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP)– Data Envelopment Analysis (DEA)– Result Control Process
• AOB Benefits and IT Overview
Agenda
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Introduction to Advanced Operational Benchmarking (AOB)
• AOB combines the classic benchmarking with advanced mathematical models – Allow company to predict the outcome of an action– Theoretically evaluate various dynamic properties of
complex problem8
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• Introduction of Traditional Benchmarking
• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process
• AOB Benefits and IT Overview
Agenda
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•Make sure the best population to compared with is well selectedObjective 1
•Make sure the consistency and relevancy of criteria and parametersObjective 2
• Identification of Overall championObjective 3
• A popular tool used by decision makers when the choice of alternatives is influenced by both quantitative and qualitative data.
• Capture both subjective and objective evaluation measures
Analytical Hierarchy Process - AHP
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AHP Implementation in AOB
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• Step 1: Determine the criteria factors and the alternatives
• Step 2: Hierarchy of decisions and establish priority
• Step 3: Pairwise comparison Scale
• Step 4: One-One Comparison
• Step 5 : AHP Results
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AHP Implementation in AOB
• AHP results by Performance attribute classification
Company A
Company B
Company C
Company D
Company E
Company F
Company G
Company H
Company I
Company J
Company K
Company L
Company M
Company N
Company O
0.1364
0.0934
0.1025
0.1870
0.1467
0.2022
0.2032
0.1075
0.0846
0.1595
0.0887
0.1804
0.0809
0.0811
0.1459
0.2105
0.3806
0.1900
0.5807
0.1932
0.3844
0.1127
0.5253
0.5291
0.3484
0.5634
0.1500
0.3813
0.2579
0.1925
0.0855
0.1165
0.1054
0.0295
0.2565
0.0494
0.1174
0.0213
0.0309
0.4138
0.1283
1.1667
0.2218
0.1345
0.1227
AHP results by Performance Attributes 2008Cost Asset Management Profitability
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• Introduction of Traditional Benchmarking
• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process
• AOB Benefits and IT Overview
Agenda
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Data Envelopment Analysis - DEA
DEA Approach
• Measures the relative efficiency of the Decision Making Unit (DMU)
• DEA gives virtual frontier to measure the efficiency• Compare each DMU to the optimum virtual best DMU• DEA sets the performance targets by defining
Hypothetical efficient DMU15
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Data Envelopment Analysis - DEA• DEA Frontier and CRS model
Crite
ria B
Extreme Limit in The Market
– The Frontier
Criteria A
Input oriented CRS model
θ*= Min θ∑ λj xij ≤ θxio i = 1,2,….,m;
∑ λj yrj ≥ yio r= 1,2,….,s;
λj ≥ 0
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DEA – Implementation in AOB
• Inputs and outputs are selected base on high level that has direct impact on Supply chain operations and profitability.
• Step 1: Defining Inputs and Outputs
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DEA – Implementation in AOB
• Step 2: Actual and Targets( based on Hypotheticall Efficient DMU)
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DEA – Implementation in AOB
• Step 3: Model Results for growth and operational Efficiencies
CRS Input oriented model is used
Company D is the relatively most efficient company in terms of growth
Companies need to reduce their inputs or improve their outputs to achieve higher efficiency
Potential targets are set for each inefficient company
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• Introduction of Traditional Benchmarking
• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process
• AOB Benefits and IT Overview
Agenda
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Result Control Process
Process review
to clearly identify and analyze the overall benchmarking by using data input from previous models.
• Evaluation model and interpretation
It reflects the current strategic positioning of the company within the overall industry
• Recommendation based on decomposition
It identify improvement directions and set the base for future design.
• Implementation Steps
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Result Control Process
• Bi-Directional Analysis
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Result Control Process
• Bi-Directional Analysis
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• Introduction of Traditional Benchmarking
• Advanced Operational Benchmarking (AOB)– What is AOB?– Analytical Hierarchy Process (AHP) – Data Envelopment Analysis (DEA) – Result Control Process
• AOB Benefits and IT Overview
Agenda
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Process•Efficiency•EffectivenessPerformance •Efficiency•EffectivenessBest Practices•Efficiency•Effectiveness
AOB
AOB Benefits
• Measure Effectiveness and Efficiency
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AOB Benefits
• Measure Effectiveness and EfficiencyBetter positioning in the market place
Better objectives setting
Operational cost savings through intelligent spending 26
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AOB IT Overview
ScipoApplication server
Server-sideDataAccess
Server-sideBusinessLogic
Server-sidePresentation
ETL(Extract,Transform,Load)
ScormetricsLogic
ASP& ASPXpages
ScipoWeb server
ScipoDataMart
SQLserver
SCIPO
EnterpriseInformationSystems
SAP R/3
EnterpriseApplications
Databases
Client-sidePresentation
ASPXReports
ASPXReports
AHP
one-
one
co
mpa
rison
Grad
e en
gine
EME
(effe
ctive
ness
m
easu
rem
ent
Engi
ne)
Indu
stry
Ra
nge
SCHEM Tool
Inpu
t &
O
utpu
ts
Perf
orm
ance
Ta
rget
s
Effici
ency
M
easu
rem
ent
DEA
Mod
els
Joe ZHU DEA Excel Solver
Extreme Limit in The Market
– The Frontier
Effectiveness Results
Efficiency ResultsSCIPO : Supply Chain Information PortalSCHEM: Supply Chain Effectiveness Measurement
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Thank You!
Q&A!!!
[email protected]@icognitive.com
www.icognitive.com
iCognitive
28iCognitive
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Backup Slides
[email protected]@icognitive.com
www.icognitive.com
iCognitive
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SCOR Level One Metrics
Back
Traditional Benchmarking
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Traditional BenchmarkingTypical SCORCard
BackiCognitive
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Traditional Benchmarking
Scope for Improvem
ent BIC
South East Asia Pharma SCORCard
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Days of Sales Outstanding:
Inventory Days of Supply:
Days of Payables Outstanding:
Cash-to-Cash Cycle Time:
Asset turns :
Cost of Goods Sold:
Operating expenses:
[total annual cost of goods sold] / [total gross annual sales] result = percentage
[operating expenses] / [total gross annual sales] result = percentage
[5 point annual average of gross accounts receivable (AR)] / [total gross annual sales / 365] result = time (in days)
[5 point annual average of gross value of inventory at standard cost] / [annual cost of goods sold (COGS) / 365] result = time (in days)
[5 point annual average of gross accounts payable (AP)] / [total gross annual material purchases / 365] result = time (in days)
[inventory days of supply + days of sales outstanding – days of payables outstanding] result = time (in days)
[total gross annual sales] / [total net assets] result = turns per year
Operating income:
Return on Assets:
Net profit (after tax) : [net profit after tax] / [total gross annual sales] result = percentage
[Asset turns] * [Net profit – Sales] result = percentage
[operating income] / [total gross annual sales] result = percentage
Cost Asset Management Profitability
Traditional BenchmarkingMetrics Calculations
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AHP Implementation in AOB
• Step 1: Determine the criteria factors and the alternatives
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AHP Implementation in AOB
• Step 2: Hierarchy of decisions and establish priority
Select the best company with overall supply chain and business excellence
Cogs
Oper
ating
Exp
ense
s
Cash
-Cas
h Cy
cle T
ime
Cost
of G
oods
Sol
dOp
erati
ng E
xpen
ses
Cash
-Cas
h Cy
cle ti
me
Inve
ntor
y Day
s Of S
uppl
yD
of P
ayab
les O
utst
andi
ngD
Of S
ales
Out
stan
ding
Asse
t Tur
ns
Oper
ating
Inco
me
Cost
Asse
t Man
agem
ent
Profi
tabi
lity
Retu
rn O
n As
sets
Net I
ncom
e (P
rofit
)
Com
pany
A
Com
pany
B
Com
pany
C
Com
pany
D
Com
pany
E
Com
pany
F
Com
pany
G
Com
pany
H
Com
pany
I
Com
pany
J
Com
pany
K
Com
pany
L
Com
pany
M
Com
pany
N
Com
pany
OOne-One comparison between each alternatives is done for each criteria . Only one example (cost of goods sold) is shown due to space constraint.
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AHP Implementation in AOB
• Step 3: Pairwise comparison Scale
– A core characteristic of AHP model – allow to solve qualitative decision by using quantify technique
– The approach is to identify how important one criteria compare to another one is
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AHP Implementation in AOB
• Step 4: One-One Comparison ex: Cost of Goods Sold
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DEA – Implementation in AOB
• Step 2: Model Overview
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