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1 e
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
2 e
Manufacturing RequirementsRetailer/Wholesaler
RequirementsConsumer
Requirements
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”
3 e
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
0
1
2
3
4
5
6
7
8
9
%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”
4 e
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
01
234
567
89
%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”
5 e
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.
6 e
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
7 e
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
8 e
Goals and ObjectivesGoals and Objectives
Overall 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
9 e
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
10 e
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
MA
NU
FA
CTU
RER
Retailer POS Data
11 e
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
12 e
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
13 e
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
14 e
““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
15 e
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.
16 e
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
17 e
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
18 e
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
19 e
Collaborative Planning, Forecasting, & Replenishment
The Collaborative Process
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 Genera
te joint fo
recast
Drive replenishment
Drive M
RP
20 e
Collaborative Planning, Forecasting, & Replenishment
End-to-End Integration
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
21 e
Collaborative Planning, Forecasting and Replenishment
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
22 e
Prototype ArchitecturePrototype Architecture
ServerServer ClientClient
Collaborative Planning, Forecasting and Replenishment
Collaborative Planning, Forecasting and Replenishment
NetscapeLiveWireInformix 7.2
NetscapeLiveWireInformix 7.2
EnterpriseServer 3.0EnterpriseServer 3.0
Netscape/Explorer
Netscape/Explorer
Sun Sun UltraUltra
HTTPHTTP
23 e
Collaborative Planning, Forecasting and Replenishment
Collaborative Planning, Forecasting and Replenishment
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
24 e
Collaborative Planning, Forecasting and Replenishment
Collaborative Planning, Forecasting and Replenishment
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.
25 e
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
26 e
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
AP
PL
ICA
TIO
N
ForecastTable
PromotionsTable
ItemTable
AP
PL
ICA
TIO
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
27 e
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
28 e
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
29 e
Collaborative Planning, Forecasting and Replenishment
Collaborative Planning, Forecasting and Replenishment
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
30 e
Collaborative Planning, Collaborative Planning, Forecasting, Forecasting,
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.
31 e
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
32 e
Collaborative Planning, Collaborative Planning, Forecasting, Forecasting,
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