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Home » Liquor Control Board of Ontario: CPFR-Partnerships & Profits

Liquor Control Board of Ontario: CPFR-Partnerships & Profits

December 1, 2005
Global Logistics & Supply Chain Strategies

In the mid 1990s, the Liquor Control Board of Ontario (LCBO) renovated its stores, improved product assortment, and created a more customer friendly environment, which resulted in a sales increase of 38 percent in just five years. But the success of the new retail strategy strained the LCBO's ability to deliver profitability and reliable customer service levels. The LCBO's supply chain also had become more complex. The global supply chain was lengthened as more products were purchased overseas, so the LCBO had to carry higher safety stock. Four-month lead times frustrated quarterly promotional forecast accuracy.

To better match product demand with supply, as well as to deal with overall supply chain performance, the LCBO embarked on a multi-year collaborative planning, forecasting and replenishment (CPFR) initiative in 2000. Following Voluntary Inter-Industry Standards Association (VICS) guidelines, the LCBO began a formal planning process that included sales and marketing, supply chain and finance, together with six key suppliers. The program was expanded in fiscal 2003-2004 to pilot the CPFR technology with 12 suppliers representing 109 SKUs. During the pilot, participants collaborated by sharing data, information and forecasts. In 2004 the entire CPFR process migrated from Excel spreadsheets to an interactive database from the Demand Chain Management division of TeraData that allowed the LCBO merchandising team in real time to generate sales forecasts and purchase plans. The solution featured improved functionality, flexibility and scalability to grow with its expanding supplier base.

Purchase planning templates gave suppliers a 12-month order forecast horizon. The template also benchmarked inventory management performance. The system automatically updates templates weekly with inventory metrics in dollars, units and turns. By the end of 2004 the CPFR program included 18 suppliers, whose 162 SKUs represented 24 percent of LCBO business, with sales of CDN $840m (US $684m).

The CPFR process is a continuous cycle built on four collaborative pillars:

1. Collaborative planning and promotion: Working with trading partners, the LCBO developed an 18-month promotional plan and calendar that outline the themes, dates and all activity for each promotional period. The LCBO and key suppliers set sales volume and inventory turn targets. Suppliers can develop more integrated and powerful promotion plans and can provide more comprehensive details on their business plans. Category managers have more information that allows them to better assess the impact of promotions and more accurately forecast promotional lift.

2. Collaborative sales forecast: The LCBO and the suppliers create their own sales forecasts and document their assumptions about the forecast. At regular meetings, they identify and resolve exceptions to their forecasts to arrive at a mutually agreed-to forecast.

3. Collaborative replenishment and execution: The CPFR technology uses the mutually agreed-to forecast to automatically generate a replenishment plan based on effective inventory and supplier-specific replenishment parameters. Costs are reduced across the entire supply chain. Forward visibility allows suppliers to reduce lead times because they know the LCBO requirements in advance. LCBO product ordering is no longer based on the longest lead time per SKU, so unnecessary inventory buildup has been eliminated for products with shorter lead times. Suppliers can improve production efficiencies.

4. Joint performance scorecard: Benchmarking performance identifies whether key objectives are achieved. The scorecard reinforces accountability for execution and continuous improvement and provides ongoing tracking of KPIs.

The CPFR initiative has reduced inventory and working capital and has improved warehouse inventory turns and gross margin return on inventory investment. CPFR has provided tools that allow LCBO and suppliers to gain valuable insights into market and product trends. All parties collaborate on promotion planning and sales forecasts in real time and generate a bottom-up forecast for each product. Together they create time-phased replenishment plans by distribution center based on the sales forecast, on-hand balances and outstanding purchase orders. Performance metrics such as forecast accuracy and bias, inventory turns, weeks supply and in-stock position are continuously reported.

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Logistics Forecasting & Demand Planning Sourcing/Procurement/SRM Technology Quality & Metrics Food & Beverage Retail Canada
KEYWORDS Canada Food and Beverage Forecasting & Demand Planning Logistics Quality & Metrics Retail Sourcing/Procurement/SCM Technology
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