Third Annual NAPMNCA Bootcamp Seminar

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Third Annual NAPM-NCA Bootcamp Seminar
Critical Factors of CPFR Collaborative Planning
Forecasting and Replenishment
Presented by Carol Marks, C.P.M. Lewis and
Associates 3616 Forest Lake Drive Florence, South
Carolina 29501
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Session Overview

• The Case for Change
• SCM Evolution
• CPFR History
• CPFR Defined
• CPFR Model (VICS)
• Scenarios
• Technology
• Barriers
• Case Studies
• Readiness Evaluation
• Resources

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The Case for Transformational Change

• Supply Chain Efficiency?
• The U.S. consumer goods industry alone currently
  holds about 250 billion worth of excess
  inventory to address customer service and product
  availability problems.
• Source Surgency, Boston, MA

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The Case for Change

• Grocery Manufacturers of America, Food Marketing
  Institute and the Food Business Forum 2002 study
  reports
• Advances in supply chain management, initiatives
  of Efficient Consumer Response (ECR) and category
  management and the investments of inventory
  tracking technology have not, by in large,
  reduced the overall level of out of stocks on
  store shelves from what was reported in previous
  studies. Out of stocks range from 5-10 with
  faster selling and promoted products exceeding
  10.

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The Case for Change

• A.T. Kearney Study
• In the North American market, supply chain
  inefficiencies result in annual lost sales of 40
  billion, or 3.5 of sales.
• 30 of items in retail catalogs have data errors.
• 60 of invoices generated errors and 43 of
  invoices resulted in deductions.
• For new products, it can take up to four weeks
  for complete and accurate data to reach the
  retailers procurement systems.

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The Case for Change

• Three forces driving change in business and
  industry
• Globalization
• Industry consolidation
• Technology

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A Year 2008 Forecast of Purchasing and
SupplyDemand-Pull Procurement

• Demand-pull systems will use Internet technology
• Will have upstream and downstream views
• Will pull information from suppliers and
  customers
• WWW will be the front end for proprietary links
• Other systems will integrate through the web

Source Joint Research by CAPS, and A.T. Kearney
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The Challenge

• Creating long term value and a sustainable
  competitive advantage
• Transforming inefficient supply cost structures

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Historical Purchasing Perspective

• The entrepreneur
• The traditional purchasing agent
• Discrete orders/independent demand
• End of month, quarter BIG orders
• Blanket orders
• The huge production planning department
• MRP, etc.
• Various forms of JIT
• Adversarial relationships

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Supply/Demand Equilibrium
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Reality
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Reality Risk Factors

• Overreactions, unnecessary interventions
  (reacting to a single data point), second
  guessing, mistrust, incorrect information
  throughout the supply chain.
• Bullwhip effectrecognizes that end user demand
  usually remains more consistent than suppliers
  far removed from the final customer in the supply
  chain
• Bottom line, reduce variability in each link of
  the supply chain

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The Vision

• Collaborative Planning, Forecasting and
  Replenishment (CPFR)

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CPFR History

• First conceived and described and publicized by
  the Voluntary Interindustry Commerce Standards
  (VICS) Association. Founded in 1986. First
  guidelines published in 1998. Roadmap 1999.
  Direct approval from Global Commerce Initiative
  (GCI) and Uniform Code Council (UCC). Major
  revision to model in 2004.
• First project in the US was Wal-Mart and Warner
  Lambert. Project supported by SAP, Manguistics
  and Benchmarking Partners (now Surgency). First
  applied to Listerine mouthwash.
• Rapid adoption in Japan by retailers,
  wholesalers, suppliers and public trading
  exchanges.

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History

• By 1996, more than 30 companies participating
  including PG, Nabisco, Warner Lambert, Hewlett
  Packard, Levi-Strauss and Co., Wal-Mart and
  K-Mart.
• PG had five projects running in 2002

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CPFR Defined

• Collaborative Planning, Forecasting and
  Replenishment (CPFR) is a business practice that
  combines the intelligence of multiple trading
  partners in the planning and fulfillment of
  customer demand. CPFR links sales and marketing
  best practices, such as category management, to
  supply chain planning and execution processes to
  increase availability while reducing inventory,
  transportation ad logistics costs. (VICS)
• CPFR is an initiative among all participants in
  the supply chain intended to improve the
  relationship among them through jointly managed
  planning processes and shared information.
• CPFR is a revolutionary business system where
  trading partners have visibility into one
  anothers critical demand, order forecasts and
  promotional forecasts using technology and a
  standard set of business processes.
• CPFR is designed to better align supply and
  demand through trading partner data interchange,
  exception based management, and structured
  collaboration to eliminate issues and constraints
  in fulfilling consumer expectations.

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Collaboration
A SHARED PROCESS of creation between two or more
parties with diverse skills and
knowledge delivering a unified approach
that provides the optimal framework for CUSTOMER
satisfaction definition courtesy of
VICS
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Creating Value

• Significant improvements in reaction time to
  customer demand
• Enhanced sales forecasting
• Direct lines of communication
• Increased sales
• Reduced inventories
• Reduced costs

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Removing Constraints

• Using a single demand plan to affect supply
  process constraints.
• Example manufacturing--make to demand
• Agilitymatching supply with demand. Focus on
  speed.
• Two key factors availability of technology and
  software applications and the increasing
  willingness of supply chain members to work in
  alliance.

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SCM
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CPFR Model

• Eight Collaboration Tasks
• Collaboration arrangement
• Joint business plan
• Sales forecasting
• Order planning/forecasting
• Order generation
• Order fulfillment
• Exception management
• Performance assessment

VICS Model
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(No Transcript)
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The CPFR Process Model
Seller
CollaborativePlanning
FRONT END AGREEMENT
Once
JOINT BUSINESS PLAN
Qtr.

CollaborativeForecasting
CREATE SALES FORECAST IDENTIFY
EXCEPTIONS RESOLVE EXCEPTIONS
Wk, Mo
CREATE ORDER FORECAST IDENTIFY
EXCEPTIONS RESOLVE EXCEPTIONS
Buyer
Wk, Mo
GENERATE ORDER
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Collaborative ActivitiesInternal and External

• Retail Industry
• Strategy and Planning
• Setting the business goals, requirements,
  responsibilities and other ground rules, product
  mix and placement, event plansjoint business
  plan
• Demand Supply Management
• POS demand, order/shipment requirements. Sales
  forecasting and order forecasting (based on sales
  forecast, inventory, lead time, etc.
• Execution
• Place orders, deliver shipments, receive and
  stock, record sales transactions, make payments
• Analysis
• Monitor planning and executing activities for
  exceptions, aggregate results, calculate key
  performance metrics. Communicate for continuous
  improvement

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CPFR Scenarios

• Four Standard Scenarios or industry standard
  approaches to specific processes
• Retail Event Collaboration
• Promotions and events create swings in demand
• Great financial opportunity
• DC Replenishment Collaboration
• Traditionally handled by a single trading
  partner/single lead time
• Uses multiple horizons beyond a single lead time
• Enables make to demand policy
• Order or series of orders over a time horizon
• Designed to increase the efficiency of the flow
  of product
• Store Replenishment Collaboration
• Traditionally same as DC
• Collaborate on POS forecasts
• Focus on closest link to customer directly
  influences shelf availability
• Collaborative Assortment Planning
• For apparel and seasonal goods

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CPFR Technology

• Process does not fundamentally depend upon
  technology, but real time access and accurate,
  timely information flow is a must and must
  integrate with enterprise systems.
• Shared solution
• Peer-to-peer
• Extranet, Exchange or third party hosting
• Service Bureaus--UCCnet
• Builds on EAN.UCC standards
• EDI, XML facilitate mapping
• Must address process integration,
  industry-specific data formats and software
  applications of all trading partners
• Enterprise applications
• SAP, i2, Manguistics, Oracle

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CPFR Technology
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CPFR Basics

• CPFR methodology establishes guidelines for
  enterprises to integrate their planning processes
  across corporate boundaries.
• Effective CPFR builds on synchronized product
  data and electronic commerce messaging standards.
• CPFR should always be superimposed on an existing
  demand planning and replenishment process
• CPFR is compatible with VMI and conventional
  ordering processes
• CPFR is distinguished by who takes the lead in
  sales forecasting, order planning/forecasting and
  order generation

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Key Barriers to CPFR

• Demonstrated advantages
• Complexity of implementation
• Trust
• Security
• Technology
• Current/disparate systems
• Organizations current internal processes not
  aligned
• Cultural barriers
• Economic barriers
• Regulatory barriers

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Organizational Changes Required

• Traditional silos may have to become category,
  commodity or customer-specific teams to bring
  together
• Merchandise Planners
• Manufacturer demand planning personnel
• Sales representatives and buyers
• Customer Service and logistics

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CPFR n-Tier

• Not just between two trading partners, but
  establishing collaboration with all upstream
  partners in a supply chain.
• Raw materials, manufacture, retail, ultimate
  customer
• Inputs to the process would include not only
  strategy and goals for the partnership, but also
  specifications for the product being delivered,
  and inventory and capacity allocations to the
  partnership.

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CPFR Case Studies
A More Stable Staples By Editorial Staff, Supply
and Demand Chain Executive Atlanta May
7Logility, a supplier of B2B collaborative
commerce solutions to power e-business and
optimize supply chains, today announced that
Staples Inc. has selected Logility Voyager
Collaborate to conduct a collaborative planning,
forecasting and replenishment (CPFR) pilot with
key suppliers to enhance forecast accuracy,
improve cycle times and reduce inventory
throughout its domestic operations and supply
chain. "We believe that working collaboratively
with our key suppliers will lead to supply chain
improvements that improve the accuracy as it
relates to forecasts and help us better
understand customer demand," said Doreen Romano,
senior vice president of Merchandising Planning
Support for Staples. "To achieve a renewable
competitive advantage, retailers must optimize
forecast planning, logistics services and
supplier relationship management through
collaboration," stated Mike Edenfield, Logility
CEO. "Logility Voyager Collaborate facilitates
the CPFR business process that defines
collaboration between trading partners delivering
measurable results and a more proactive supply
chain."
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Case Studies

• West Marine
• Stanford Graduate School of Business Case Study
• By 2002, the largest boating supply retail chain
  in the nation with 530 million in sales and
  50,000 products.
• EB Marine acquisition caused supply chain chaos
• Problems partial shipments, stockouts, poor
  supplier performance
• New leadership, vision, plan
• Initiated CPFR developed 52 week
  forecasts/updated every
• 24 hours
• 12 suppliers selected for pilot 150
  participating by the end of 2002
• Challenge selling CPFR to suppliers and
  internally
• Supplier performance has improved dramatically,
  but still short of expectations

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Case Studies

• Rite Aid
• Business case Stockouts, supply chain
  efficiencies
• Challenges Executive buy in, cross and
  inter-company communication
• Lessons Select companies you have a positive
  relationship with, establish joint scorecard, but
  be willing to adjust
• Results 16M reduction of out-of stocks at DC
  on-time delivery improved from 93-95 returns
  decreased by 37, logistics costs decreased by
  10-28

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Case Studies

• Proctor Gamble Supply Network
• Vision The Consumer Driven Network
• Focus is increased sales
• Real time demand information
• Replaced POS data with electronic product code
  (EPC) data
• Using collaborative planning, not forecasting and
  replenishment, which is less complex than CPFR
  since data requirements differ greatly from
  customer to customer and supplier to supplier

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Resources--VICS

• The Collaborative Planning, Forecasting and
  Replenishment (CPFR) Committee is a Voluntary
  Interindustry Commerce Standards Association
  (VICS) committee made up of retailers,
  manufacturers and solution providers. This group
  originally developed CPFR, a set of business
  processes that entities within a supply chain can
  use for collaboration on a number of buyer/seller
  functions, all working toward achieving overall
  efficiency in the supply chain.
• VICS Mission
• The mission of the VICS Association is to take a
  global leadership role in the ongoing improvement
  of the flow of product and information about the
  product throughout the entire supply chain in the
  retail industry.

Collaborative Planning, Forecasting
Replenishment (CPFR) Committee
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Next Steps

• Organizational Evaluation
• Benefits Calculator
• Readiness Assessment
• Current SCM Processes
• VICS CPFR Roadmap

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Summary

• The Case for Change
• SCM Evolution
• CPFR History
• CPFR Defined
• CPFR Model (VICS)
• Scenarios
• Technology
• Barriers
• Case Studies
• Readiness Evaluation
• Resources

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Resources and Sources Cited

• VICS CPFR Committee website www.cpfr.org and
  www.vics.org
• Readiness Assessment
• The Collaborative Commerce Standards Institute
  www.ccsi1.org
• The Uniform Code Council (UCC) Solutions Center
  www.solutionscenter.uc-council.org
• Collaborative Planning, Forecasting, and
  ReplenishmentHow to Create a Supply Chain
  Advantage, Dirk Seifert, AMACOM, 2003

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Third Annual NAPM-NCA Bootcamp Seminar

• Critical Factors of CPFR
• Collaborative Planning Forecasting and
  Replenishment
• Questions