1. Advanced Operational Benchmarking Strategic Benchmarking John Paul Professor & Research Fellow BEM School of Management, Bordeaux, France, Managing Director, iCognitive, Singapore. www.icognitive.com

2. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 2 iCognitive

3. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Traditional Benchmarking Supply Chain Operational Reference (SCOR) Model SCOR Model Building Block Approach ProcessesMetrics Best PracticeTechnology Enable Supplier Plan Customer Customer’s Customer Suppliers’ Supplier Make DeliverSourceMake DeliverMakeSource Deliver Source Deliver Internal or External Your Company Source Return Plan 3 iCognitive

4. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Traditional Benchmarking SCOR Level One Metrics SCORCard Performance results for SEA Pharmaceutical Industry Metrics Calculations 4 iCognitive

5. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 40 th to 60 th percentile of companies 5 iCognitive

6. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 6 iCognitive

7. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 7 iCognitive

8. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 problem 8 iCognitive

9. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 9 iCognitive

10. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Make sure the best population to compared with is well selected Objective 1 Make sure the consistency and relevancy of criteria and parameters Objective 2 Identification of Overall champion Objective 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 10 iCognitive

11. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AHP Implementation in AOB 11 iCognitive 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

12. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AHP Implementation in AOB AHP results by Performance attribute classification 13 iCognitive

13. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 14 iCognitive

14. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 DMU 15 iCognitive

15. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Data Envelopment Analysis - DEA DEA Frontier and CRS model Extreme Limit in The Market – The Frontier Extreme Limit in The Market – The Frontier Input oriented CRS model θ * = Min θ ∑ λ j x ij ≤ θx io i = 1,2,….,m; ∑ λ j y rj ≥ y io r= 1,2,….,s; λ j ≥ 0 Input oriented CRS model θ * = Min θ ∑ λ j x ij ≤ θx io i = 1,2,….,m; ∑ λ j y rj ≥ y io r= 1,2,….,s; λ j ≥ 0 16 iCognitive

16. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 17 iCognitive

17. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved DEA – Implementation in AOB Step 2: Actual and Targets ( based on Hypotheticall Efficient DMU) 18 iCognitive

18. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 19 iCognitive

19. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 22 iCognitive

20. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 21 iCognitive

21. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Result Control Process Bi-Directional Analysis 22 iCognitive

22. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Result Control Process Bi-Directional Analysis 23 iCognitive

23. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 24 iCognitive

24. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Process Efficiency Effectiveness Performance Efficiency Effectiveness Best Practices Efficiency Effectiveness AOB Benefits Measure Effectiveness and Efficiency 25 iCognitive

25. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AOB Benefits Measure Effectiveness and Efficiency 26 iCognitive

26. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AOB IT Overview Scipo Application server Server-side Data Access Server-side Business Logic Server-side Presentation ETL (Extract, Transform, Load) Scor metrics Logic ASP & ASPX pages Scipo Web server Scipo Data Mart SQL server SCIPO Enterprise Information Systems SAP R/3 Enterprise Applications Databases Client-side Presentation ASPX Reports ASPX Reports AHP one- one comparison Grade engine EME (effectiveness measurement Engine) Industry Range SCHEM Tool Input & Outputs Performance Targets Efficiency Measurement DEA Models Joe ZHU DEA Excel Solver Extreme Limit in The Market – The Frontier Extreme Limit in The Market – The Frontier Effectiveness Results Efficiency Results SCIPO : Supply Chain Information Portal SCHEM: Supply Chain Effectiveness Measurement 27 iCognitive

27. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Thank You! Q&A!!! john.paul@icognitive.com suresh.indukuri@icognitive.com www.icognitive.com iCognitive 28 iCognitive

28. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Backup Slides john.paul@icognitive.com suresh.indukuri@icognitive.com www.icognitive.com iCognitive

29. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved SCOR Level One Metrics Back Traditional Benchmarking iCognitive

30. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Traditional Benchmarking Typical SCORCard Back iCognitive

31. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Traditional Benchmarking Scope for Improvement BIC South East Asia Pharma SCORCard Back iCognitive

32. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved Days of Sales Outstanding: Inventory Days of Supply: Days of Payables Outstanding: Cash-to-Cash Cycle Time: Asset turns : 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: 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) : 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 Traditional Benchmarking Metrics Calculations Back iCognitive

33. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AHP Implementation in AOB Step 1: Determine the criteria factors and the alternatives 11 iCognitive

34. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AHP Implementation in AOB Step 2: Hierarchy of decisions and establish priority Select the best company with overall supply chain and business excellence Cogs Operating Expenses Cash-Cash Cycle Time Cost of Goods Sold Operating Expenses Cash-Cash Cycle time Inventory Days Of Supply D of Payables OutstandingD Of Sales Outstanding Asset TurnsOperating Income Cost Asset Management Profitability Return On Assets Net Income (Profit) Company ACompany BCompany CCompany D Company E Company F Company G Company H Company ICompany JCompany KCompany LCompany MCompany NCompany O One-One comparison between each alternatives is done for each criteria. Only one example (cost of goods sold) is shown due to space constraint. 12 iCognitive

35. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved 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 13 iCognitive

36. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved AHP Implementation in AOB Step 4: One-One Comparison ex: Cost of Goods Sold 14 iCognitive

37. Copyright 2002 – 2009 iCognitive Pte. Ltd. All rights reserved DEA – Implementation in AOB Step 2: Model Overview iCognitive