Systematic Collaboration in the Supply Chain Planning, Forecasting, and Replenishment Ram Viswanatha

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Systematic Collaboration in the Supply Chain
-Planning, Forecasting, and Replenishment Ram
ViswanathanErnst Young LLP, St.Louisram.viswan
athan_at_ey.com(314) 259-1823
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The Supply Chain Challenge

• To ensure that all operations are customer
  focused, with minimal duplication of effort, and
  continuous improvement

Manufacturing Requirements
Retailer/Wholesaler Requirements
Consumer Requirements
via manufacturing planning and purchasing
to manufacturers suppliers
through manufacturing
and distribution
to retailers/wholesalers
and end consumers
from product development/ design
raw material
finished goods
finished goods
finished goods
work in progress
finished goods
replenish-ment orders
sub and final assembly orders
replenish- ment orders
production orders
point of sale
develop- ment orders
procure-ment orders
planning orders
factory orders
retailer orders
mfr.
retailer
consumer
Retailer Forecast
Manufacturer Forecast
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Industry Supply Chain Issues Out of Stocks
Translate into 3.1 Loss in Sales to Retailer
This does not take into account other intended
purchases lost at time of the visit
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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Industry Supply Chain Issues Out-of-Stocks
result in 4-5 Loss in Sales to Manufacturer
8.2
6.5
1.5
This does not take into account other intended
purchases lost at time of the visit
5.0
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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Industry Supply Chain Issues

• Manufacturer and retailer forecasts are not
  integrated
• Sales history used as a predictor for future
  demand.
• Forecast do not include future planning and set
  programs.
• Manufacturers are not building to
  retailer/consumer demand.
• Forecasting of promotional, seasonal, and new
  item remain a critical issue.
• Collaboration occurs most often after the initial
  order is placed
• Category Buyer, Replenishment Buyer, and Forecast
  Analyst at retailer do not communicate all
  forecasting factors to each other.
• Reengineering to category intra teams needed to
  be effective
• Marketing, Sales, and Production Planners at
  Manufacturer do not communicate all forecasting
  factors to each other.
• In VMI/CRP relationships focus is on the DC
  instock versus store instock where true consumer
  demand is.

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Industry Supply Chain Issues Forecasting a
key Cause of Out of Stocks on Warehouse
Supplied Items
Store Personnel Unaware of Current/Potential OOS
Condition - Did Not Order Item
Replenishment From Warehouse
Backroom/Display Inventory Not Restocked To Shelf
Shelf Capacity Inadequate
Promotion Forecasting and Ordering
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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Collaborative Planning, Forecasting and
Replenishment Initiative

• Historical Background
• Origin in late 96 under Dynamic Information
  Sharing subcommittee of Merchants Issues Group of
  VICS, using results from an earlier manual effort
  under the CFAR name
• The Wal-Mart/Lucent/Sara Lee prototype
  demonstrated a model for systematic collaboration
  in the forecasting process
• Formalization and publication of the process
  models and the technology framework completed in
  Jan 1998
• Pilots support DISs mission - to improve
  partnership between retailers and suppliers
  through shared information
• Pilots demonstrate process viability, technology
  viability and business case for enhanced
  information sharing

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Goals and Objectives

• Overall Goal
• Design, prototype, pilot and implement processes
  and systems for collaborative forecasting
• Objectives
• Support the definition of process models for
  sales and order forecasting
• Design the application, data and communication
  architecture for collaborative forecasting
  processes
• Construct and test the applications for
  collaborative forecasting
• Integrate the collaborative applications with
  backend forecasting and replenishment systems

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CPFR Initiative Participants
Apparel Group Benchmarking Partners Inc. Corning
Consumer Products DAMA Project Ernst Young
LLP Federated Department Stores Fieldcrest
Cannon Goodys Family Clothing Hewlett Packard JC
Penney Johnson Johnson Kimberly-Clark Kmart Levi
Strauss Co. Lucent Technologies
May Department Stores Mead School
Office Nabisco Nestle-Canada Pillsbury Procter
Gamble QRS Sara Lee Schnucks Spiegel Staples Unifo
rm Code Council Wal-Mart Warner-Lambert
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Forecasting and Replenishment ProcessCurrent
State
RETAILER
Retailer POS Data
Create item-level forecast and special event
calendar (e.g..., promotions, store openings,
item distribution)
Market/item knowledge, store planning, item
planning by individual stores
Collect POS Data and other supporting information
Create purchase orders for items
No
Yes
MANUFACTURER
Marketing Programs and Promotional developed with
Input from Sales/Marketing (e.g..., pricing, item
additions/deletions) and market/customer knowledge
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Collaborative Planning, Forecasting, and
ReplenishmentFuture State Process Overview
YES
Exception analysis process
Order Forecast
Retailer Manufacturer generate forecast
special event calendar at item level, and
maintain it on the Internet
Request and Retrieval of event calendar and/or
detail information
YES
NO
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Industry Opportunities

• Meeting Consumer Expectations
• Items being in stock ranks high in consumer
  shopping criteria
• 10-30 of consumers lost annually through
  dissatisfaction
• 84 rank having product and sales items in stock
  as important
• Issue with wrong product in wrong place
  (store) at the wrong time (season)
• Retail Customer Service
• Best in class 90-92 in-stock levels
• Opportunity to close this 8-10 gap
• Category Management collaboration
• Store unique assortments based on demographic and
  household panel data, and climate related impacts
  (i.e. weather)

Progressive Grocer Consumer Survey April 1996
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Industry Supply ChainCost Reduction Opportunity

• Total supply chain costs estimated at 730
  Billion
• Majority of costs reside in Inventory and
  Operating Costs
• Inventory investment usually comprises the
  largest single asset of a manufacturing company.
  The number is usually 27 of the total assets of
  a company. Retailer inventory investment averages
  41

6th Annual State of Logistics Report May 1994
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Collaborative Forecasting Opportunity

• Business Case for Collaboration

In
Stock Fill Rate
Highly Collaborative
97.0 98.9
Somewhat Collaborative
94.7 87.9
Non- Collaborative
84.4 77.3

Data captured from a retailer database and
set of 20 manufacturers
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Collaborative Planning, Forecasting, and
Replenishment

• How is this different from Continuous
  Replenishment?
• Key difference is systematic collaboration
• Use of a combination of non-proprietary vehicles
  including the Internet to share information
• Focus on integration of business processes
  between retailer and manufacturer
• Retailer and manufacturer share a broader set of
  information dynamically
• Coordinated collaboration from planning and
  forecasting through entire execution.

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Collaborative Planning, Forecasting, and
Replenishment

• Benefits
• Consumer satisfaction
• Reduced prices inventory in stock
• Improved customer service and ROI
• Increased sales
• Decrease in Cost of Goods Sold
• Decrease in Selling, General, Administrative
  Costs
• Increased turns
• Improved cash flow
• Reduced Inventories
• Increased store level customer service
• Increased asset utilization

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Collaborative Planning, Forecasting, and
Replenishment

• Benefits
• Consolidated/Improved supply chains
• Demand allocated against total supply chain
  capability
• Order Forecasting and plan development
• Pre-notification and resolution of fill-rate
  issues
• Decreased cycle times
• Reduced forecast error
• Long Term Planning and commitment to forecast
• Consumer satisfaction through reduced out of
  stocks
• Increased promotion effectiveness as result of
  reduced out of stocks
• Increase in consumer marketing effectiveness
• Business growth and relationship development
  through next level of customer partnering

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Framework For Success

• Empowerment
• Shared Accountability
• Shared Responsibility
• Collaborative Communication

• Open System
• Internet
• Application Development Methods
• Secure Communication

• Working to a Single Forecast
• Common Measures
• Planning
• Information Sharing

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Collaborative Planning, Forecasting,
Replenishment The Collaborative Process
Joint Business Planning
Retailer
Manufacturer
Generate joint forecast
Generate joint forecast
Common Event Calendar
Drive MRP
Drive replenishment

• Retailer Forecast Drivers
• In stock position
• Fill Rate
• Consumer Demand
• Price Changes
• Growth Plans
• Distribution Channels

• Manufacturer Forecast Drivers
• Capacity
• Order Lead time
• Consumer Behaviour
• Product Availability
• Promotions
• Raw material supply

Joint Forecast
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Collaborative Planning, Forecasting,
Replenishment End-to-End Integration
Standard non-exceptional data
Exceptional data
Manfacturer Systems MRP, Decision Support
Internet
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Collaborative Planning, Forecasting and
Replenishment

• Prototype Deliverables - April 97
• Completed prototype
• Demonstration of prototype at IQ 97
• Process Model for Sales Forecasting
• Refer to website www.cpfr.org

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Collaborative Planning, Forecasting and
Replenishment
Prototype Architecture
Sun Ultra
Netscape LiveWire Informix 7.2
EnterpriseServer 3.0
Netscape/Explorer
HTTP
Server
Client
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Collaborative Planning, Forecasting and
Replenishment

• Prototype Process/Functionality
• Authenticates users
• Stores exceptions data
• Allows selective retrieval of data
• Displays time-variant data such as supplier
  forecast, retailer forecast, POS for 52 weeks
• Displays detail time-invariant data such as
  On-hand, Fill-rate, store information etc for a
  specific forecast
• Displays information in both tabular and
  graphical form
• Displays calendar of events for both sides, for
  each item

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Collaborative Planning, Forecasting and
Replenishment

• Prototype Process/Functionality - continued
• Shows how a level 1 (corporate) forecast can be
  drilled down to DC and store levels
• Shows how a forecast update can take place
  interactively
• Shows how messages associated with an exception
  can be created, stored and sent.

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The Evolution of EDI

• Data Content, Formats
• Communication (Transport)
• Security
• FACTOR CURRENT STATE EC/EDI TRENDS
• Standards X.12, EDIFACT Internet Overlays
• Bysync/Async HTTP, S/MIME, FTP
• Mapping Labor intensive Automated, Transparent
• Translation Static Dynamic
• Transport VANs Internet, Extranet
• Interfaces Complex Simple, Open, Intuitive
• Business Boundaries Rigid Virtual
• User Access Proprietary Standard, Ubiquitous
  (web)
• Messages Data Objects

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CPFR Technology Architecture Peer to Peer
Scenario
Workstation Manufacturer
Retailer Workstation
SMTP S/MIME, SIL
CPFR Server www.supplier.cpfr.com
CPFR Server www.retailer.cpfr.com
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Next Steps for CPFR and the industry

• Refinement and publication of process models
• Define/establish prerequisite EDI feeds if
  non-existent
• Define/establish other feeds (manual initially) -
  forecast drivers (promotions, price changes,
  replenishment strategies etc)
• Define/establish business rules for exception
  generation
• Develop exception processes based on forecast
  comparisons
• Define/establish procedures for use of CPFR
  system
• Develop measurements/business cases
• Refine technology infrastructure
• Introduce security - S/HTTP and/or S/MIME
• Investigate use of open data model

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Collaborative Planning, Forecasting and
Replenishment

• Challenges
• Organizational readiness
• Process confirmation
• Integration of supply chain collaboration tools
  with backend applications
• data models
• architecture (hub-hub, hub-spoke, hub-web)
• Change management

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Collaborative Planning, Forecasting, and
Replenishment

• The CPFR initiative provides the means (through
  standard process models) for the growth and
  evolution of tools starting to appear in the
  marketplace that address inter-enterprise
  collaboration.

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Capabilities Assessment

• Process Readiness
• Forecasting and Replenishment
• Scorecard Solution
• Change Management
• Inter Intra organization communication channel
  readiness
• Technology Readiness
• Data availability
• Internet Enablement
• Electronic Commerce

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Collaborative Planning, Forecasting, and
Replenishment

• Collaboration can produce results!!!
• In a manual pilot between WalMart Warner
  Lambert, the two companies eliminated a full 2
  weeks of inventory from the supply chain for a
  test product, Listerine. They also halved the
  order cycle and eliminated out of stocks.
• Sharing
  IS Secrets, Julia King, Computerworld 9/23/96