IBF Chapter MeetingCollaborative Planning, Forecasting

& Replenishment (CPFR)

January 14, 2016

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Agenda Introduction to Hain Celestial CPFR Presentation Polling Q&A

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Chapter Event Objectives

Abstract Collaborative planning, forecasting and replenishment (CPFR) processes should be a key part of every forecasting professional’s toolkit. CPFR can drive external alignment with customers and improve forecasting accuracy by increasing visibility to partner forecasts, order patterns and retail factors. If executed effectively, CPFR can provide deeper insights into the business (such as qualitative and quantitative store cluster and geographic information) and facilitate development of more effective sales strategies. In addition, CPFR can optimize inventory levels for both vendor and retailer as both sides work to improve end to end operational efficiencies.

Key learnings When to use CPFR to drive improved operational metrics. How to set up a model CPFR process Expected operational, sales and indirect benefits of CPFR How to integrate CPFR into existing forecasting and S&OP processes Possible next steps in the evolution of CPFR

Introduction to Hain Celestial

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Hain is a Global Player in Natural & Organic Foods

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Hain is Rapidly Growing and Diversified

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Hain Has Grown through Strategic Acquisitions

We completed three strategic acquisitions in Fiscal 2015.

Who Wants to Be a “Forecasting” Millionaire?

Forecasting

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Question 1. CPFR Origins

In what year was the CPFR framework first published by the Voluntary Interindustry Commerce Standards (VICS) Association?

A. 1978B. 1988C. 1998D. 2008E. 2014

Options Available to You if Needed: Ask the Audience Eliminate two answers Ask an Expert

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Question 2. CPFR Scope

Which scenarios are encompassed in the CPFR program scope?A. Retail Event CollaborationB. DC Replenishment CollaborationC. Store Replenishment CollaborationD. Collaborative Assortment PlanningE. A-DF. B-D

Answer to Question 1: CVICS published the CPFR framework after Wal-Mart working with Benchmarking Partners piloted CFAR (Collaborative Forecasting & Replenishment) with Warner Lambert. Results were presented at Harvard University on July 30, 1996 and

later referenced in a Business Week article on October 21, 1996 leading to the VICS effort.

Options Available if Needed• Ask the Audience• Eliminate two answers• Ask an Expert

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Question 3. CPFR Challenges Which are among the major challenges vendor and retailer face in implementing CPFR?

A. Setting a framework agreement and joint business objectivesB. Internal alignment and preparation within each organizationC. External alignment between both organizationsD. Data and systems integrationE. Whether both parties are using the same ERP systemF. All of the aboveG. A-D

Extra Credit: Which issue is considered the most challenging?

Answer to Question 2: ECPFR can cover a wide variety of distribution and supply scenarios. The basic premise is that trading partners jointly develop a demand forecasts and share information to improve supply chain efficiencies.

Options Available if Needed• Ask the Audience• Eliminate two answers• Ask an Expert

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Question 4. CPFR Results

According to VICS, what is the average range of benefits companies have gained through CPFR?

A. 2%-8% improvement in in stocks and 10%-40% reduction in inventoryB. 4%-16% improvement in in stocks and 20%-50% reduction in inventoryC. 8%-32% improvement in in stocks and 30%-60% reduction in inventoryD. 16%-64% improvement in in stocks and 40% -70% reduction in inventory

Answer to Question 3: GAccording to the VICS CPFR guidelines, the biggest challenge can be aligning internal departments in support of the same CPFR objectives and insuring resources and preparations for CPFR participation.

Options Available if Needed• Ask the Audience• Eliminate one answer• Ask an Expert

Introduction to CPFR

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Definition of CPFR

Collaborative Planning Forecasting and Replenishment (CPFR) is a set of business practices to drive (a) systematic inventory reductions, (b) improved service levels and (c) increased sales through vendor/buyer collaboration on demand planning and operational execution.

Trading partners agree to a systematic process of collaborating on critical demand, order, supply and promotional forecasts, leveraging exception management and resulting in an aligned demand/supply plan.

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Background to CPFR

1995 Began as an initiative

between WalMart and Benchmarking Partners.

1998 Voluntary Interindustry

Commerce Standards (VICS) Association publishes formal framework,

2004 VICS issues major

revision to the modelResults Used by over 300

companies 2-8% improvement in

in stock rates 10-40% reduction in

inventory levels.

Four Major Steps of Collaborative Planning, Forecasting & Replenishment (CPFR)

Establish the ground rules for the collaborative relationship. Determine product mix and placement and event plans for the period.

History

Forecast consumer point of sale demand as well as order and shipment requirements over the planning horizon

Place orders, prepare and deliver shipments, track retail sales

Monitor planning and execution for exceptions. Leverage KPI scorecard. Share insights and adjust plans for continuous improvement.

Source: VICS CPFR Overview, 18 May 2004

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When to Use CPFR?

Identify major challenges with forecasting accuracy, service levels and inventory optimization by major customer.

Understand what is required to execute CPFR Internal and partner readiness System and data readiness

Develop business case that quantifies potential benefits of a successful CPFR effort with resources and costs needed for implementation.

Present business case to internal constituents and insure strong cross-functional buy-in from executive leadership.

Table 1. Role Definition Table 2. CPFR Scenarios

Source to Tables: VICS CPFR Overview, 18 May 2004

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Evaluating Level of Readiness

A Organizational Readiness❏ 1. The value proposition for collaboration is well understood in the company.❏ 2. There is an agreed company strategy and an adequate budget for collaboration initiatives.❏ 3. Collaboration process owners have been assigned and empowered.❏ 4. Affected organizations have performance goals and incentives aligned with collaborationobjectives.B Retailer Process Readiness(Retailers rate themselves and suppliers rate their customers’ readiness in this section.)❏ 1. Details of promotions and other retail events are captured and kept up to date so that consumer demand impact can be correlated with them.❏ 2. Consumer demand is forecasted based on historical sales and planned promotional activities.❏ 3. Ordering processes are driven from forecasted consumer demand.❏ 4. Feedback from collaboration can be incorporated in future plans and forecasts.

C Supplier Readiness(Suppliers rate themselves and retailers rate their suppliers’ readiness in this section.)❏ 1. Supplier sales and service/logistics personnel coordinate their response to customer issues and opportunities.❏ 2. Collaboration (consumer POS) data can be effectively used in the supplier’s sales and operations planning (S&OP) process.❏ 3. A unified approach to collaboration allows the supplier’s insights to reflect the demands of multiple customers.D Technology Readiness❏ 1. Internet data transport (EDIINT AS2) capabilities are production-ready.❏ 2. XML translation capabilities for B2B initiatives are production-ready.❏ 3. Enterprise planning applications have supported interfaces for collaboration data(import and export).❏ 4. A scalable CPFR solution is available.______ Total ScoreSource: VICS CPFR Overview, 18 May 2004

CPFR Supplier Calculator

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Step 1. Develop CPFR Framework Agreement Meet with customer for exploratory talks to discuss how CPFR could help drive sales and

improve service. PRE-WORK: Executive sponsor, internal functional leads, available data to share PARTICIPANTS

Vendor: Demand Planning, Supply Chain, Sales, Marketing, Logistics Retailer: Buying Team, Supply Chain Planners, Logistics

INPUTS: Agree on best way to supply order forecasts, retail inventory and retail sales data. TECHNOLOGY: How will you share and present information? CADENCE: Regular working meetings and steering committee updates

Agree on key terms of the agreement. “Order lock” window (typically 4 to max of 8 weeks) in exchange for service commitments or

prioritized service. Agree on order forecast horizon (typically 12-18 weeks) Agree on scorecard – KPIs to evaluate success

Forecasting accuracy Order fill rate Retail in-stock rate Sales vs plan and LY Order plan adherence

Available Tools• CPFR Rollout Readiness Self-Assessment• CPFR Supplier Calculator• CPFR Retailer Calculator

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Step 2. Develop Process and Information to Support Effort

Process

Vendor• Item/account ship forecasts• Supply Plan• Event/promotions• New and seasonal products• Marketplace intelligence

Information Customer (Distributor)• Inbound receipts and forecasts• Outbound sales and forecasts• Inventory: OH, OO, optimal WOS• Replenishment/pipe fill logic• Event/promotions• Distribution changes• Marketplace Insights

Deeper analysis includes:• Sales by Store Cluster• In Stock by store and DC• Geographic analysis• Demographic analysis• Promotional

effectivenessSource: Hain Internal CPFR Document

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Step 3. Administer Results-Driven Process Compare organizational forecasts to drive to a single collaborative demand plan Provide item exceptions to focus efforts where corrective action is needed. Begin with a review of all items and graduate to exception management over time.

Sample Data Only

SAMPLE CPFR SCHEDULEWeek Ending Date

Act Act Act Fcst Fcst Fcs t Fcs t Fcst Fcst Fcst Fcst Fcs t Fcs t Fcst Fcst Fcst Fcs t Fcs t Fcst1/3/15 1/10/15 1/17/15 1/24/15 1/31/15 2/7/15 2/14/15 2/21/15 2/28/15 3/7/15 3/14/15 3/21/15 3/28/15 4/4/15 4/11/15 4/18/15 4/25/15 5/2/15 5/9/15 Total

Events 20% off 20% off 30% off 30% offNew Yrs Prez Day Easter M-Day

Retail Sales 300 75 150 200 100 175 350 225 200 200 200 200 200 200 400 100 175 200 700 4350Forecast M-2 400 200 200

Order ForecastVendor - - - - 500 - 700 - 300 300 400 200 200 200 200 500 200 200 200 4,100 Retailer 700 500 300 700 400 700 3,300 Collaborative 500 700 300 700 400 300 400 3,300

ShipmentsVendor 200 400 0 500 0 700 0 300 300 400 200 200 200 200 500 200 200 4500Forecast M-2 500 100

ReceiptsRetailer 200 0 400 0 0 500 0 700 0 300 300 400 200 200 200 200 500 200 4300

Retail Inventory 1688 1613 1863 1663 1563 1888 1538 2013 1813 1913 2013 2213 2213 2213 2013 2113 2438 2438 1938 1938Wks of Supply 12.9 10.3 9.0 7.8 6.6 7.7 7.5 10.1 9.1 9.6 8.1 9.8 10.1 10.1 6.9 1.9 2.1 2.1 7.8

Supply PlanVendor 500 1000 1000 400 1000 3,900

1

4 3

2

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Both vendor and retailer will typically review retail sales performance and the event and promotional schedule.

Vendor will typically monitor shipments and orders at M-2 in order to drive improved planning accuracy.

In this case, the Vendor order plan is higher than the Retailer's with differences in ship quantities and timing.

Retailer wants more product earlier than is currently available.

Vendor uses CPFR to align on supply availability.

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Step 4. Track Results Using KPI ScorecardSAMPLE CPFR SCORECARD

January February March

01/10/15 01/17/15 01/24/15 01/31/15 Jan-15 02/07/15 02/14/15 02/21/15 02/28/15 Feb-15 03/07/15 03/14/15 03/21/15 03/28/15 04/04/15 Mar-15Forecasting Accuracy (M-2) 60% 62% 64% 66% 63% 68% 70% 72% 74% 71% 76% 78% 80% 82% 84% 80%

Target 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%

Bias 25% 23% 21% 19% 22% 17% 15% 13% 11% 14% 9% 7% 5% 3% 1% 5%Target +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10% +/-10%

Order Adherence 75% 77% 79% 81% 78% 83% 85% 87% 89% 86% 91% 93% 95% 97% 99% 95%Target 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95%

Service Level 85% 87% 89% 91% 88% 93% 95% 97% 97% 96% 96% 96% 96% 96% 96% 96%Target 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95%

Retail In Stock Rates 90% 92% 94% 96% 93% 96% 96% 96% 96% 96% 98% 98% 98% 98% 98% 98%Target 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98% 98%

Shipments (Vendor Sales) 50 55 50 60 215 45 40 50 45 180 50 52 56 60 65 283Target 250 200 275

Vendor Inventory 600 600 600 600 600 550 550 550 550 550 500 500 500 550 550 550WOS 11.4 12.3 12.3 13.3 13.3 11.9 11.2 10.8 10.1 10.1 8.6 8.5 8.5 9.6 10.0 10.0

Retail Inventory 500 500 500 500 500 450 450 450 450 450 400 400 400 450 450 450WOS 9.5 10.3 10.3 11.1 11.1 9.7 9.1 8.9 8.3 8.3 6.9 6.8 6.8 7.8 8.2 8.2

Sample Data Only

Case StudiesBarnes & Noble

Samsung Electronics

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B&N Nook Results Improved forecasting accuracy at M-4 from 60%-64% to 80%-82%. Achieved Nook sales, margin and inventory goals throughout 2013 after revenue misses

in prior two years. Ability to achieve plan recognized in Feb 2014 earnings call to investors.

Insure positive ROI on Nook event and promotional planning at B&N Retail by identifying price elasticity and lift factors and modeling impact per $1,000 spent.

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Samsung Case Study

Approach Retailers commit to order lock window of 4-6 weeks in return for high and prioritized

service levels. Samsung internal system records major retailer sales, forecasts and inventory via EDI. CPFR planners update order forecasts and review them weekly with major retailers for

alignment. Adjusted CPFR forecasts are sent to plants which provide weekly updates on supply

availability. CPFR team monitors order plan adherence, supply problems and service levels,

escalating issues by exception.

Results Ranked by Gartner Among Top 10 Supply Chains Worldwide Able to use JIT DC supply strategies based on strong order plan adherence by retailers to

achieve minimal month-end inventory at end of each month in many areas. Service level generally at 98%+ for top retailers in TV excluding factors beyond

Samsung’s control such as port strike.

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Q&A

APPENDIX

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Attendee PollingQuestions1. Do you have a CPFR program at your company?

a. Yesb. No

2. If yes, how many partners do you have CPFR relationships with?a. 1-2 companiesb. 3-5 companiesc. 5 or more

3. What is the frequency of meeting with your CPFR partner?a. Weeklyb. Bi-Monthlyc. Monthlyd. Quarterly

4. What is the primary focus of your CPFR relationship?a. Item-Level Forecastingb. Event/Promotional Planningc. Inventory Optimizationd. All of the above

5. What are the primary benefits of CPFR with your customers?a. Improved service levelsb. Improved inventory levelsc. Improved salesd. Improved business relationshipe. A, B and Df. All of the Above

ONLINE POLLING -- https://www.polleverywhere.com/my/polls#

DATA SHEET

Name: ___________________

Title: ____________________

Company: ________________

Annual Sales: _____________

Industry: _________________

Choose: Apparel, Consumer Products, Food, Pharmaceutical, Technology, Other

Comments/Insights:_____________________________________________________________________________________________________________________________

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Citations

http://www.gs1us.org/industries/apparel-general-merchandise/workgroups/cpfr