The success stories are few, but they are impressive. After years of pushing for a set of business processes known as Collaborative Planning, Forecasting and Replenishment (CPFR), supply-chain managers are starting to see results.
Take Welch Foods Inc. Several years ago, even before CPFR was formalized as a nine-step process by the Voluntary Inter-industry Commerce Standards Association (VICS), Welch was looking for a way to close the gap between its sales forecasts and actual orders. The Concord, Mass.-based purveyor of jams, jellies and preserves entered into a CPFR pilot with a major retailer. Together they laid out guidelines for joint forecasting, order creation, and exception resolution.
Centered around the use of Excel spreadsheets, the effort was primitive by today's standards. But it drew on the same data generated by a sophisticated vendor-managed inventory (VMI) program supported by Prescient Systems, a West Chester, Pa.- based software provider. And the initial results were promising. The limited pilot reduced forecast error from around 40 percent to between 8 and 9 percent, according to Dee Biggs, Welch's director of customer logistics. Inventory levels declined by 5 percent in the first year and 10 percent in the second, while inventory turns rose by an equivalent amount. Biggs says Welch plans to scale up the pilot to include additional SKUs and retailers.
All agree that companies can reduce inventories and increase sales through systems and processes that enhance communications.
Even more dramatic benefits were realized by drugstore chain retailer Rite Aid Corp., in a CPFR program that utilized the collaboration tools of Scottsdale, Ariz.-based JDA Software Group Inc. The effort, which included healthcare products maker Johnson & Johnson, involved more than 48,000 SKUs and product locations at all Rite Aid warehouses. The result: a 65-percent reduction in stockouts, and a 4.2-percent improvement in customer service levels. Rite Aid also saw drops of 15 percent in average lines per order, 33 percent in cases per line, and 6 percent in weeks of supply.
Numbers like these suggest that CPFR represents an easy win for companies seeking to create more accurate forecasts. The truth, however, is that few manufacturers or suppliers have fully implemented a CPFR process with any of their customers. While the concept of CPFR has been in development for years, most aren't past the pilot stage.
"We are at the very early stages of that," says Matt Porta, head of collaborative value chain strategy with PricewaterhouseCoopers Consulting in San Francisco. (The firm is being acquired by IBM.)
The biggest gaps, he says, lie in achieving full order visibility, then reacting swiftly to the inevitable change in plans, based on point-of-sale data.
According to Porta, too many companies still consist of "silos" defined by business unit, geography or product type. And there's too little trust among supply-chain partners, when it comes to sharing sensitive information such as long-range sales forecasts.
Disagreement Over Data
A number of CPFR programs have been stalled by the realization that partners can't agree on basic information about forecasts and sales. Nearly a quarter of Wal-Mart Stores' item files were found to be out of synch with its many thousands of suppliers, says Peter Abell, director of retail research with AMR Research Inc. in Boston. The same percentage holds true for retailers globally, he says.
Companies have slowed their adoption of CPFR while they struggle to clean up their data. One solution, says Abell, lies in standards propagated by UCCnet, a non-profit industry initiative to eliminate data errors among trading partners. Wal-Mart, which Abell considers an example of best practices in CPFR, is insisting that all of its suppliers adopt the UCCnet standard.
John Matchette, a Chicago-based partner with Accenture, says suppliers and retailers are still hung up on issues of nomenclature. They have yet to adopt a means of systematically interpreting data from multiple sources. Moreover, CPFR is a people-intensive process, requiring numerous individuals to undertake the laborious task of product lifecycle planning.
Still, says Gloria Sheridan, an Accenture senior manager based in Houston, the benefits of CPFR are too compelling to ignore. Adopters can expect to reduce inventories and inventory carrying costs, improve forecast accuracy, and cut down on excess product and stockouts.
The message of collaboration seems to be getting through slowly. Matchette cites a study of 105 companies by the Stamford, Conn.-based META Group, in which 51 percent were found to be actively engaged in some kind of collaborative effort around planning and fulfillment, 19 percent were in the piloting stage, and 25 percent had some interest. (Not all of those efforts were specifically related to CPFR.) What's more, says Matchette, CPFR is beginning to migrate from its origins in the grocery and retail industries into other areas such as consumer electronics.
Not everyone working on CPFR is marching in lockstep to the drumbeat of VICS. Significant value can be realized by a partial or modified approach. Even Wal-Mart, which scored the first success in CPFR in a pilot with Warner-Lambert Co. Inc., has subsequently modified its collaborative forecasting and replenishment strategies, which today are conducted through the retailer's proprietary extranet known as RetailLink. PwC Consulting and Hewlett-Packard have created Keychain, a collaborative program that has reduced the high-tech giant's purchase-order cycle time by 50 percent, says Porta.
Abell says it's not always necessary to complete all nine steps of the VICS process, which moves through planning and forecasting to the ultimate goal of collaborative replenishment. A best practice today might go no further than the fifth or sixth step, involving collaboration on exception items and creation of an order forecast, and some companies have found value in performing as few as two. A number of retailers have skipped straight to the replenishment stages, in an effort to manage their huge collection of SKUs for day-to-day sales. Using CPFR to manage special promotions--one of the main reasons why the process was created in the first place - is further in the future, Abell says.
A company doing best practices today should be able to share and exchange forecasts and sales plans, as well as highlight exceptions, says Jane Hoffer, president and chief executive officer of Prescient. Yet she questions whether the nine-step VICS process is even achievable by most companies. "What was defined in the formal process is too unwieldy for organizations large and small, especially medium to small companies," she says. Some of the biggest users - including those who pioneered CPFR - have found it difficult to scale up from successful but limited pilots.
The classic CPFR model isn't for everyone, Hoffer says. Many have taken a more traditional approach to collaboration, utilizing the internet for their largest clients, and electronic data interchange (EDI) for others. Even phone and fax remain important tools in the struggle to reconcile forecasts and orders between seller and buyer.
What's not at issue is the importance of better collaboration. All agree that companies can reduce inventories and increase sales through systems and processes that enhance communications. But Hoffer disagrees that CPFR is best applied to a wide range of SKUs in day-to-day operations. The greater benefit, she says, lies in collaboration around special events, promotions and production introductions. That's the source of "the greatest disconnect between projections and actual demand."
Four Instead of Nine
Some companies might be intimidated by the very existence of nine separate steps on the road to "true" CPFR. JDA Software Group prefers to address the subject as four core business processes: creation of a front-end agreement, collaborative demand forecasting, order forecasting, and long-range, unconstrained forecasting in support of a sales plan. "The state of the art today is to get all the way through all four phases," says Kevin Stadler, JDA's senior vice president of collaborative solutions.
Rite Aid and Johnson & Johnson have achieved three of the phases, while Ace Hardware and Manco Adhesives, the maker of duct tape, have gone through all four.
After years of development, CPFR's supporters believe the process is nearly ready to take hold throughout the business community. Matchette says companies will need about two more years to complete their pilots. AMR's Abell is a bit more optimistic. "I think you're going to see CPFR take off at the end of next year," he says.
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