Improving Supply Chain Operation

Self-Assessment and Improvement Using a

Supply Chain Maturity Reference Model

What is a Supply Chain Maturity Reference Model (SCMRM)?

The Concept of Supply Chain Operations Maturity

A maturity model is a means to measure the readiness and completeness of a system, an organization,
an operation or a process.

A Supply Chain Maturity Reference Model (SCMRM) can be used

 to assess the readiness of a supply chain for the adoption of proven supply chain models
(e.g. Supply-Chain Council’s SCOR)
 as a roadmap for SMEs to implement their Supply Chain process improvement and to facilitate the
adoption of proven supply chain models

Supply Chain Maturity is defined in four stages based on the status of the existing operations within a
company.

Collaborative Stage
Collaboration with external parties achieves synergy

Integrated Stage
Individual operations and isolated functions are
integrated to improve efficiency

Managed Stage
Operations are planned and managed

Initial Stage
Operations are ad hoc and not organized

Organizer Co-organizer Funded by SME Development Fund

This project is organized by Supply-Chain Council – Greater China Chapter Limited, co-organized by GS1 Hong Kong and funded by the SME
Development Fund of the Trade and Industry Department, HKSAR Government. Any opinions, findings, conclusions or recommendations expressed in
this material/event (or by members of the Project team) do not reflect the views of the Government of the Hong Kong Special Administrative Region, Trade
and Industry Department or the Vetting Committee for the SME Development Fund.
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Supply Chain Operations Improvement Cycle

A 6-step approach is recommended for SMEs to implement their supply chain process management.

Step 1: Step 2: Step 3:

Assess ‘Maturity’ Improve ‘Plan’ Improve ‘Source’

SCMRM
Step 6:
Step 5: Step 4:
Improve ‘Inventory
Improve ‘Return’ Improve ‘Deliver’
Visibility’

A 6-step Approach to Supply Chain Process Improvement

Step 1: Assess ‘Maturity’

In SCMRM, four stages of maturity have been defined: initial, managed, integrated and collaborative. A
company’s supply chain operation may fall into any one of, or between, these stages.

Initial Stage refers to the very early stage of supply chain operation where everything is relatively
unorganized and not well-structured. The focus of the operation is expediency.

Managed Stage refers to the stage of operation where the business owner starts to collect data on
operational performance and apply some control over business operation.

Integrated Stage refers to the stage of operation where management makes an effort to align and
integrate resources to reduce wastage which occurs due to duplicated operations such as redundant
data entry or duplication in the preparation of functional reports.

Collaborative Stage refers to the stage of operation where management further optimizes the operation
by extending its management scope to involve upstream suppliers and downstream customers and
then initiating collaborative programs with these trading partners.

According to the maturity level of SCMRM, a company’s supply chain operation can be assessed
throughout the operation cycle from planning, sourcing, delivery and return to inventory visibility. The
self-assessment tool is available online at www.scmrm.org.

a. Plan

Planning refers to product demand forecasting and product supply planning. The principle is to have
sufficient product supplies to fulfill future demand. Planning covers gathering information about
future demand requirements from customers, an estimation of product supplies and an assurance of
their availability.

b. Source

Sourcing, generally known as ‘procurement’ or ‘purchasing’, is about the acquisition of products from
suppliers, which involves purchase order processing, logistics arrangement, goods receipt and
warehouse putaway.

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c. Deliver

Delivery is about sending goods to customers according to their orders. It covers sales order
processing, warehousing and logistics arrangement. Processes like receipt of customer’s order, sales
order processing, picking generation, picking & packing, and goods shipment fall under the scope of
‘Deliver’.

In some cases, a First-In-First-Out (FIFO) operation is essential in warehousing where freshness of

products counts. FIFO requires the first incoming batch or the batch with the earliest expiry date to be
shipped out first. This operation needs co-ordination of both the ‘Source’ and ‘Deliver’ process.

d. Return

In its simplest form, ‘Return’ is the reverse of the normal goods flow and is sometimes known as
‘reverse logistics’. Reasons for returning goods vary and there are different ways to handle the return.
Apart from normal return of goods after promotion campaigns, which is common for Hong Kong SMEs,
a return may be due to poor product quality, excess shipment, or goods for repair according to the
Supply-Chain Operations Reference-model (SCOR®). Additionally, ‘Return’ can be defined as ‘Deliver
Return’ which means return from customer and ‘Source Return’ which means return to supplier.

e. Inventory Visibility

Inventory is an important asset of a company. A company relies on inventory turnaround to make profits
and maintain cash flow. For security reasons, management needs to ensure proper flow of goods along
the supply chain. From the customer service and profit-making perspectives, management also needs
to ensure stock is always available for sale and hence timely replenishment must be done before the
warehouse runs out of stock. There are many reasons why management needs to master its inventory
visibility along the entire product supply cycle. This requires additional monitoring and control
processes such as inventory data capturing, stock counting and status reporting.

Step 2: Improve ‘Plan’

The main focuses for improving the planning steps are a data-driven demand forecast and the alignment
of demand forecast with supply requirements. While the business owner’s experience is crucial to running
a business, best practice suggests that the forecasting of demand be conducted in a more objective way.
More factors such as historical sales data, future demand requirements of customers, market research
data and even real-time sales data should be taken into consideration.

To assess how well planning is done in a quantitative way and hence enable continuous improvement of
the ‘Plan’ process, a company may utilize different indicators such as forecasting accuracy.

Step 3: Improve ‘Source’

The ‘Source’ process starts from the issuance of a purchase order and ends with the putaway of received
goods in a warehouse. Normally, a receiving process involves shipment scheduling, shipment notification,
goods arrival, verification and inspection. The arrival of goods without pre-notification from suppliers is
most undesirable as the warehouse manager cannot plan the space needed in advance for the incoming
stock. In most cases, SMEs are aware of shipments coming in with some kind of shipment notice like a
packing list or dispatch advice sent by the suppliers through fax or email. Upon the arrival of the goods,
the received items are checked against these shipment notices as well as purchase orders. The best
practice is to adopt advanced shipment notice (ASN) and barcode scanning to facilitate the goods
receiving operation.

To assess how well sourcing is done in a quantitative way for driving continuous improvement of the
‘Source’ process, a company may impose performance metrics on their suppliers, such as compliance
with international quality/social standards, new product introduction rate and annual inventory turnover
rate.

Step 4: Improve ‘Deliver’

The ‘Deliver’ process starts from receiving the customer sales order and ends after the ordered goods are
delivered to the customer. Picking is the retrieval of stocked items from the storage zone as per orders and
quantities for items specified by customers. One can choose to pick by batch, by zone, by route or by
customer order, depending on the capability of the computer system used for picking list generation, the
effort and time spent in picking and subsequent sorting, and the availability of space for a packing zone.
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Dispatch involves placing packed items in proper location zones or routes so that drivers can pick up their
goods and delivery documents for delivery to the right locations. The best practice is to “scan and ship”,
which involves scanning the barcode on outer cases or packages to record stock movement out of the
warehouse and deduct the ex-warehouse quantity from the company’s on-hand inventory record.

To assess how well ‘Deliver’ is done in a quantitative way for driving continuous improvement of the
‘Deliver’ process, a company may utilize indicators like on-time delivery, fulfillment lead time and delivery
accuracy.

Step 5: Improve ‘Return’

Among the many processes of return, the most important thing in handling returned goods is to convert
returned items in good conditions back into normal inventory. In many cases, returned goods are held in a
poorly identified area in the warehouse. This delays the returned goods inspection process and prevents
good stock from re-entering normal inventory for sale. The best practice is to inspect and identify good
stock from the returned goods as soon as they are returned. Barcode scanning can facilitate the recording
of the good returned items in the computer system.

To assess how well ‘Return’ is done in a quantitative way and hence enable continuous improvement of the
‘Return’ process, a company may utilize indicators like the return rate due to defective products, the
requirement for maintenance, repair or overhaul (MRO), and the return rate due to excess quantity.

Step 6: Improve ‘Inventory Visibility’

A number of good practices can be applied to improve ‘Inventory Visibility’, like providing management with
periodic inventory reports, taking regular stock counts, setting re-order points and defining safety stock
level, adopting a warehouse management system (WMS), and the use of barcode scanning to improve
accuracy of inventory data.

With the popular use of information technology, today’s best practice in mastering inventory visibility is to
adopt a warehouse management system bundled with barcode scanning, by which management reports
such as inventory reports and aging reports can be generated as a means to monitor inventory record and
other supply chain operations. To ensure that the information provided by the system is reliable, regular
stock counts should be done.

Nowadays, automatic replenishment can be done with the support of a warehouse management system.
Using WMS to replenish stock requires setting a re-order point level. In practice, individual re-order points
need to be set for different SKUs (stock keeping units). The advantage of using a warehouse management
system allows management to view the list of SKUs which require replenishment with a re-order or
replenishment report when the stock levels of these SKUs fall below their re-order points. Alternatively,
some systems can provide automatic alerts to operators in a real-time manner of which SKUs need to be
replenished.

To assess how well ‘Inventory Visibility’ is done in a quantitative way for driving continuous improvement
of the ‘Inventory Visibility’ process, a company may utilize indicators like rate of discrepancy in a cycle
count or stock take, out-of-stock rate or inventory level accuracy.

Note:
An SCMRM guidebook provides SMEs with practical ways to improve their supply chain operation. A soft
copy of the guidebook is available on the Internet at www.scmrm.org. For enquiries about the SCMRM
model or supply chain improvement, please feel free to contact our hotline (852) 2863 9728.

GS1 Hong Kong

22/F, OTB Building, 160 Gloucester Road,
Wanchai, Hong Kong
Tel : (852) 2861 2819
Fax : (852) 2861 2423
Email : info@gs1hk.org
Website : www.gs1hk.org

Copyright © 2008 by GS1 Hong Kong.

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