Systematic Collaboration In The Supply Chain

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Systematic Collaboration in Systematic Collaboration in the Supply Chain -the Supply Chain -

Planning, Forecasting, Planning, Forecasting, and Replenishment and Replenishment

Ram ViswanathanRam ViswanathanErnst & Young LLP, St.LouisErnst & Young LLP, [email protected]@ey.com

(314) 259-1823(314) 259-1823

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Manufacturing Requirements Retailer/Wholesaler Requirements

ConsumerRequirements

The Supply Chain Challenge:The Supply Chain Challenge:

…from product development/design

…via manufacturing planning and purchasing

…to manufacturer’ssuppliers

…through manufacturing

…and distribution

…to retailers/wholesalers

…and end consumers

work inprogress

rawmaterial

finishedgoods

finishedgoods

finishedgoods

finishedgoods

develop-mentorders

planningorders

procure-mentorders

productionorders

sub andfinalassemblyorders

factoryorders

replenish-mentorders

retailerorders

replenish-mentorders

point ofsalemfr. retailer consumer

Retailer Forecast

Manufacturer Forecast

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

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Industry “Supply Chain” Industry “Supply Chain” IssuesIssues

Out of Stocks Translate intoOut of Stocks Translate into 3.1% Loss in Sales to Retailer 3.1% Loss in Sales to Retailer

0123456789

%SKU'sOOS

% ofSales

AlterPurch

LostSales

8.2

6.5 3.4

3.1

Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996

“This does not take intoaccount other intended purchases lost at timeof the visit”

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Industry “Supply Chain” IssuesIndustry “Supply Chain” Issues Out-of-Stocks result in Out-of-Stocks result in

4-5% Loss in Sales to Manufacturer4-5% Loss in Sales to Manufacturer

0123456789

%SKU'sOOS

% ofSales

AlterPurch

LostSales

8.2

6.5 1.5

5.0

Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996

“This does not take intoaccount other intended purchases lost at timeof the visit”

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Industry “Supply Chain” Industry “Supply Chain” IssuesIssuesManufacturer 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 Industry “Supply Chain” Issues

Forecasting a key Cause of Out of Stocks Forecasting a key Cause of Out of Stocks on Warehouse Supplied Itemson Warehouse Supplied Items

3%

8%

16%

19%

54%

Store PersonnelUnaware of

Current/PotentialOOS Condition -Did Not Order

Item

Replenishment FromWarehouse

Backroom/Display Inventory Not

Restocked To Shelf

Shelf CapacityInadequate

Promotion Forecasting

and OrderingSource: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996

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Historical Background 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 DIS’s mission - to improve partnership between retailers and suppliers through shared information

Pilots demonstrate process viability, technology viability and business case for enhanced information sharing

Collaborative Planning, Collaborative Planning, Forecasting and Replenishment Forecasting and Replenishment

InitiativeInitiative

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Goals and ObjectivesGoals and ObjectivesOverall Goal Overall Goal Design, prototype, pilot and implement

processes and systems for collaborative forecasting

ObjectivesObjectives 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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Apparel GroupBenchmarking Partners Inc.Corning Consumer ProductsDAMA ProjectErnst & Young LLPFederated Department StoresFieldcrest CannonGoody’s Family ClothingHewlett PackardJC PenneyJohnson & JohnsonKimberly-ClarkKmartLevi Strauss & Co.Lucent Technologies

May Department StoresMead School & OfficeNabiscoNestle-CanadaPillsburyProcter& GambleQRSSara LeeSchnucksSpiegelStaplesUniform Code CouncilWal-MartWarner-Lambert

CPFRCPFR Initiative ParticipantsInitiative Participants

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Forecasting and Replenishment Forecasting and Replenishment ProcessProcess

Current StateCurrent State

Collect POS Data and other supporting information

Create item-level forecast and special event calendar (e.g..., promotions, store openings, item distribution)

Create purchase orders for items

Production planners validate item-level forecast

Forecast drives production

Market/item knowledge, store planning, item planning by individual stores

Marketing Programs andPromotional developed with Input from Sales/Marketing (e.g..., pricing, item additions/deletions)and market/customer knowledge

Product shipped to meet purchase order specifications

?Decision - Is manufacturer able to meet retailer’s purchase order?

Retailer and manufacturer discuss other options

No

Yes

RETA

ILER

MAN

UFA

CTU

RER

Retailer POS Data

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Adjust Item Forecast

NO

Manual Collaboration

YES

Request and Retrieval of event calendar and/or detail information

Decision - Does message, event calendar and/or detail information explain discrepancy?

Retailer & Manufacturer generate forecast & special event calendar at item level, and maintainit on the Internet

Exception analysis process

Decision - Is exception within tolerance?

YES

Manufacturer Retailer

Order Forecast

ManufacturerMRP System

Retailer Replenishment System

Manufacturer

Retailer

Collaborative Planning, Forecasting, and Collaborative Planning, Forecasting, and ReplenishmentReplenishment

Future StateFuture State Process OverviewProcess Overview

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Industry OpportunitiesIndustry 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 Chain”Industry “Supply Chain”Cost Reduction OpportunityCost 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” Collaborative Forecasting” OpportunityOpportunity

Business Case for Collaboration:

* Data captured from a retailer database and set of 20 manufacturers

In Stock Fill Rate

Highly Collaborative 97.0 98.9

Somewhat Collaborative 94.7 87.9

Non-Collaborative 84.4 77.3

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Collaborative Planning, Collaborative Planning, Forecasting, Forecasting,

and Replenishment 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, Collaborative Planning, Forecasting, and Replenishmentand 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, Collaborative Planning, Forecasting, and Replenishmentand 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 stocksIncrease in consumer marketing effectivenessBusiness growth and relationship development through next level of customer

partnering

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People

Technology Process

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

Framework For Framework For SuccessSuccess

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Collaborative Planning, Forecasting, & Replenishment

The Collaborative Process

Manufacturer

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

Common Event Calendar

Joint Forecast

Retailer

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

Joint Business Planning

Generate joint forecast Generate j

oint forec

ast

Drive replenishment

Drive M

RP

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Collaborative Planning, Forecasting, & Replenishment

End-to-End Integration

Retailer 1

Retailer 2

Retailer 3

Manfacturer Systems MRP, Decision Support InternetInternet

Retailer SystemsForecasting, Decision Support

Replenishment

Information Flow Product Flow

Standard non-exceptional data

Exceptional dataExceptional data

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Collaborative Planning, Forecasting and Replenishment

Prototype Deliverables - April ‘97Prototype 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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Prototype ArchitecturePrototype Architecture

ServerServer ClientClient


NetscapeLiveWireInformix 7.2

EnterpriseServer 3.0

Netscape/Explorer

Sun Sun UltraUltra

HTTPHTTP

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Prototype Process/FunctionalityPrototype 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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Prototype Process/Functionality - continuedPrototype 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 EDIThe Evolution of EDI

• Data Content, Formats • Communication (Transport) • Security

FACTOR CURRENT STATE EC/EDI TRENDSStandards X.12, EDIFACT Internet Overlays

Bysync/Async HTTP, S/MIME, FTPMapping Labor intensive Automated, TransparentTranslation Static DynamicTransport VANs Internet, ExtranetInterfaces Complex Simple, Open, IntuitiveBusiness Boundaries Rigid VirtualUser Access Proprietary Standard, Ubiquitous (web)Messages Data Objects

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Collaborative Planning, Forecasting, and Collaborative Planning, Forecasting, and Replenishment Replenishment

Shared Process and Data Model Shared Process and Data Model

Inter-face

RETAILER MANUFACTURER

ForecastTable

Shared Data

Inter-face

PromotionsTable

ItemTable

APP

LIC

ATI

ON

ForecastTable

PromotionsTable

ItemTable

APPLIC

ATIO

N

ITEMNUMBER

1234567890001

1234567890002

1234567890003…

RTLR’SFORECAST

1200

14000

330

MFR..FORECAST

1150

9000

350

DELTA

50

5000

20

TOLERANCE

100

2000

50

OK?

Internet

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CPFRCPFR Technology Architecture Technology Architecture Peer to Peer ScenarioPeer to Peer Scenario

RetailerWorkstation

WorkstationManufacturer

CPFR Serverwww.supplier.cpfr.com

CPFR Serverwww.retailer.cpfr.com

SMTPS/MIME, SIL

Backend Server AppsData Data

Backend Server Apps

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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

Next Steps for CPFR and the industryNext Steps for CPFR and the industry

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Challenges 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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and Replenishment 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 AssessmentCapabilities 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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and Replenishmentand ReplenishmentCollaboration 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