Systematic Collaboration In The Supply Chain


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  • Systematic Collaboration In The Supply Chain

    1. 1. Systematic Collaboration in the Supply Chain - Planning, Forecasting, and Replenishment Ram Viswanathan Ernst & Young LLP, St.Louis [email_address] (314) 259-1823
    2. 2. The Supply Chain Challenge: <ul><li>“ To ensure that all operations are customer focused , with minimal duplication of effort, and continuous improvement ” </li></ul>Manufacturing Requirements Retailer/Wholesaler Requirements Consumer Requirements … from product development/ design … via manufacturing planning and purchasing … to manufacturer’s suppliers … through manufacturing … and distribution … to retailers/wholesalers … and end consumers work in progress raw material finished goods finished goods finished goods finished goods develop- ment orders planning orders procure- ment orders production orders sub and final assembly orders factory orders replenish- ment orders retailer orders replenish- ment orders point of sale mfr. retailer consumer Retailer Forecast Manufacturer Forecast
    3. 3. Industry “Supply Chain” Issues Out of Stocks Translate into 3.1% Loss in Sales to Retailer Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996 “ This does not take into account other intended purchases lost at time of the visit” 8.2 6.5 3.4 3.1
    4. 4. Industry “Supply Chain” Issues Out-of-Stocks result in 4-5% Loss in Sales to Manufacturer 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 into account other intended purchases lost at time of the visit”
    5. 5. Industry “Supply Chain” Issues <ul><li>Manufacturer and retailer forecasts are not integrated </li></ul><ul><ul><li>Sales history used as a predictor for future demand. </li></ul></ul><ul><ul><li>Forecast do not include future planning and set programs. </li></ul></ul><ul><ul><li>Manufacturers are not building to retailer/consumer demand. </li></ul></ul><ul><ul><li>Forecasting of promotional, seasonal, and new item remain a critical issue. </li></ul></ul><ul><li>Collaboration occurs most often after the initial order is placed </li></ul><ul><ul><li>Category Buyer, Replenishment Buyer, and Forecast Analyst at retailer do not communicate all forecasting factors to each other. </li></ul></ul><ul><ul><ul><li>Reengineering to category “intra” teams needed to be effective </li></ul></ul></ul><ul><ul><li>Marketing, Sales, and Production Planners at Manufacturer do not communicate all forecasting factors to each other. </li></ul></ul><ul><ul><li>In VMI/CRP relationships focus is on the DC instock versus store instock where true consumer demand is. </li></ul></ul>
    6. 6. Industry “Supply Chain” Issues Forecasting a key Cause of Out of Stocks on Warehouse Supplied Items Store Personnel Unaware of Current/Potential OOS Condition - Did Not Order Item Replenishment From Warehouse Backroom/Display Inventory Not Restocked To Shelf Shelf Capacity Inadequate Promotion Forecasting and Ordering Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996
    7. 7. Collaborative Planning, Forecasting and Replenishment Initiative <ul><li>Historical Background </li></ul><ul><li>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 </li></ul><ul><li>The Wal-Mart/Lucent/Sara Lee prototype demonstrated a model for systematic collaboration in the forecasting process </li></ul><ul><li>Formalization and publication of the process models and the technology framework completed in Jan 1998 </li></ul><ul><li>Pilots support DIS’s mission - to improve partnership between retailers and suppliers through shared information </li></ul><ul><li>Pilots demonstrate process viability, technology viability and business case for enhanced information sharing </li></ul>
    8. 8. Goals and Objectives <ul><li>Overall Goal </li></ul><ul><li>Design, prototype, pilot and implement processes and systems for collaborative forecasting </li></ul><ul><li>Objectives </li></ul><ul><li>Support the definition of process models for sales and order forecasting </li></ul><ul><li>Design the application, data and communication architecture for collaborative forecasting processes </li></ul><ul><li>Construct and test the applications for collaborative forecasting </li></ul><ul><li>Integrate the collaborative applications with backend forecasting and replenishment systems </li></ul>
    9. 9. Apparel Group Benchmarking Partners Inc. Corning Consumer Products DAMA Project Ernst & Young LLP Federated Department Stores Fieldcrest Cannon Goody’s Family Clothing Hewlett Packard JC Penney Johnson & Johnson Kimberly-Clark Kmart Levi Strauss & Co. Lucent Technologies May Department Stores Mead School & Office Nabisco Nestle-Canada Pillsbury Procter& Gamble QRS Sara Lee Schnucks Spiegel Staples Uniform Code Council Wal-Mart Warner-Lambert CPFR Initiative Participants
    10. 10. Forecasting and Replenishment Process Current 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 Market/item knowledge, store planning, item planning by individual stores Marketing Programs and Promotional developed with Input from Sales/Marketing (e.g..., pricing, item additions/deletions) and market/customer knowledge No Yes RETAILER MANUFACTURER Retailer POS Data Production planners validate item-level forecast Forecast drives production Product shipped to meet purchase order specifications ? Decision - Is manufacturer able to meet retailer’s purchase order? Retailer and manufacturer discuss other options
    11. 11. NO YES Request and Retrieval of event calendar and/or detail information Retailer & Manufacturer generate forecast & special event calendar at item level, and maintain it on the Internet Exception analysis process YES Order Forecast Collaborative Planning, Forecasting, and Replenishment Future State Process Overview Adjust Item Forecast Manual Collaboration Decision - Does message, event calendar and/or detail information explain discrepancy? Decision - Is exception within tolerance? Manufacturer Retailer Manufacturer MRP System Retailer Replenishment System Manufacturer Retailer
    12. 12. Industry Opportunities <ul><li>Meeting Consumer Expectations: </li></ul><ul><ul><li>Items being in stock ranks high in consumer shopping criteria </li></ul></ul><ul><ul><ul><li>10-30% of consumers lost annually through dissatisfaction </li></ul></ul></ul><ul><ul><ul><li>84% rank having product and sales items in stock as important* </li></ul></ul></ul><ul><ul><ul><li>Issue with wrong “product” in wrong “place” (store) at the wrong “time” (season) </li></ul></ul></ul><ul><li>Retail Customer Service: </li></ul><ul><ul><li>Best in class: 90%-92% in-stock levels </li></ul></ul><ul><ul><ul><li>Opportunity to close this 8-10% gap </li></ul></ul></ul><ul><li>Category Management collaboration: </li></ul><ul><ul><li>Store unique assortments based on demographic and household panel data, and climate related impacts (i.e. weather) </li></ul></ul>*Progressive Grocer Consumer Survey April 1996
    13. 13. Industry “Supply Chain” Cost Reduction Opportunity <ul><li>Total supply chain costs estimated at $730 Billion* </li></ul><ul><ul><ul><li>Majority of costs reside in Inventory and Operating Costs </li></ul></ul></ul><ul><ul><ul><li>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% * </li></ul></ul></ul>* 6th Annual State of Logistics Report May 1994
    14. 14. “ Collaborative Forecasting” Opportunity <ul><li>Business Case for Collaboration: </li></ul>* 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. 15. Collaborative Planning, Forecasting, and Replenishment <ul><li>How is this different from Continuous Replenishment? </li></ul><ul><ul><li>Key difference is systematic collaboration </li></ul></ul><ul><ul><ul><li>Use of a combination of non-proprietary vehicles including the Internet to share information </li></ul></ul></ul><ul><ul><li>Focus on integration of business processes between retailer and manufacturer </li></ul></ul><ul><ul><ul><li>Retailer and manufacturer share a broader set of information dynamically </li></ul></ul></ul><ul><ul><ul><li>Coordinated collaboration from planning and forecasting through entire execution . </li></ul></ul></ul>
    16. 16. Collaborative Planning, Forecasting, and Replenishment <ul><li>Benefits: </li></ul><ul><li>Consumer satisfaction </li></ul><ul><ul><li>Reduced prices & inventory in stock </li></ul></ul><ul><li>Improved customer service and ROI </li></ul><ul><ul><li>Increased sales </li></ul></ul><ul><ul><li>Decrease in Cost of Goods Sold </li></ul></ul><ul><ul><li>Decrease in Selling, General, & Administrative Costs </li></ul></ul><ul><ul><li>Increased turns </li></ul></ul><ul><ul><li>Improved cash flow </li></ul></ul><ul><ul><li>Reduced Inventories </li></ul></ul><ul><ul><li>Increased store level customer service </li></ul></ul><ul><ul><li>Increased asset utilization </li></ul></ul>
    17. 17. Collaborative Planning, Forecasting, and Replenishment <ul><li>Benefits: </li></ul><ul><li>Consolidated/Improved supply chains </li></ul><ul><ul><li>Demand allocated against total supply chain capability </li></ul></ul><ul><ul><li>Order Forecasting and plan development </li></ul></ul><ul><ul><li>Pre-notification and resolution of fill-rate issues </li></ul></ul><ul><ul><li>Decreased cycle times </li></ul></ul><ul><ul><li>Reduced forecast error </li></ul></ul><ul><ul><li>Long Term Planning and commitment to forecast </li></ul></ul><ul><ul><li>Consumer satisfaction through reduced out of stocks </li></ul></ul><ul><li>Increased promotion effectiveness as result of reduced out of stocks </li></ul><ul><li>Increase in consumer marketing effectiveness </li></ul><ul><li>Business growth and relationship development through next level of customer partnering </li></ul>
    18. 18. <ul><li>Empowerment </li></ul><ul><li>Shared Accountability </li></ul><ul><li>Shared Responsibility </li></ul><ul><li>Collaborative Communication </li></ul><ul><li>Open System </li></ul><ul><li>Internet </li></ul><ul><li>Application Development Methods </li></ul><ul><li>Secure Communication </li></ul><ul><li>Working to a Single Forecast </li></ul><ul><li>Common Measures </li></ul><ul><li>Planning </li></ul><ul><li>Information Sharing </li></ul>Framework For Success People Technology Process
    19. 19. Collaborative Planning, Forecasting, & Replenishment The Collaborative Process Manufacturer <ul><li>Retailer Forecast Drivers </li></ul><ul><li>In stock position </li></ul><ul><li>Fill Rate </li></ul><ul><li>Consumer Demand </li></ul><ul><li>Price Changes </li></ul><ul><li>Growth Plans </li></ul><ul><li>Distribution Channels </li></ul>Common Event Calendar Joint Forecast Retailer <ul><li>Manufacturer Forecast Drivers </li></ul><ul><li>Capacity </li></ul><ul><li>Order Lead time </li></ul><ul><li>Consumer Behaviour </li></ul><ul><li>Product Availability </li></ul><ul><li>Promotions </li></ul><ul><li>Raw material supply </li></ul>Joint Business Planning Generate joint forecast Generate joint forecast Drive replenishment Drive MRP
    20. 20. Collaborative Planning, Forecasting, & Replenishment End-to-End Integration Manfacturer Systems MRP, Decision Support Internet Standard non-exceptional data Exceptional data Retailer 1 Retailer 2 Retailer 3 Retailer Systems Forecasting, Decision Support Replenishment Information Flow Product Flow
    21. 21. Collaborative Planning, Forecasting and Replenishment <ul><li>Prototype Deliverables - April ‘97 </li></ul><ul><li>Completed prototype </li></ul><ul><li>Demonstration of prototype at IQ ‘97 </li></ul><ul><li>Process Model for Sales Forecasting </li></ul><ul><li>Refer to website </li></ul>
    22. 22. Prototype Architecture Server Client Collaborative Planning, Forecasting and Replenishment Netscape LiveWire Informix 7.2 Enterprise Server 3.0 Netscape/ Explorer Sun Ultra HTTP
    23. 23. Collaborative Planning, Forecasting and Replenishment <ul><li>Prototype Process/Functionality </li></ul><ul><li>Authenticates users </li></ul><ul><li>Stores exceptions data </li></ul><ul><li>Allows selective retrieval of data </li></ul><ul><li>Displays time-variant data such as supplier forecast, retailer forecast, POS for 52 weeks </li></ul><ul><li>Displays detail time-invariant data such as On-hand, Fill-rate, store information etc for a specific forecast </li></ul><ul><li>Displays information in both tabular and graphical form </li></ul><ul><li>Displays calendar of events for both sides, for each item </li></ul>
    24. 24. Collaborative Planning, Forecasting and Replenishment <ul><li>Prototype Process/Functionality - continued </li></ul><ul><li>Shows how a level 1 (corporate) forecast can be drilled down to DC and store levels </li></ul><ul><li>Shows how a forecast update can take place interactively </li></ul><ul><li>Shows how messages associated with an exception can be created, stored and sent. </li></ul>
    25. 25. The Evolution of EDI <ul><ul><ul><ul><ul><li>Data Content, Formats </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Communication (Transport) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Security </li></ul></ul></ul></ul></ul><ul><li>FACTOR CURRENT STATE EC/EDI TRENDS </li></ul><ul><li>Standards X.12, EDIFACT Internet Overlays </li></ul><ul><li>Bysync/Async HTTP, S/MIME, FTP </li></ul><ul><li>Mapping Labor intensive Automated, Transparent </li></ul><ul><li>Translation Static Dynamic </li></ul><ul><li>Transport VANs Internet, Extranet </li></ul><ul><li>Interfaces Complex Simple, Open, Intuitive </li></ul><ul><li>Business Boundaries Rigid Virtual </li></ul><ul><li>User Access Proprietary Standard, Ubiquitous (web) </li></ul><ul><li>Messages Data Objects </li></ul>
    26. 26. Collaborative Planning, Forecasting, and Replenishment Shared Process and Data Model Inter- face RETAILER MANUFACTURER Forecast Table Shared Data Inter- face Promotions Table Item Table APPLICATION Forecast Table Promotions Table Item Table APPLICATION ITEM NUMBER 1234567890001 1234567890002 1234567890003 … RTLR’S FORECAST 1200 14000 330 MFR.. FORECAST 1150 9000 350 DELTA 50 5000 20 TOLERANCE 100 2000 50 OK?    Internet
    27. 27. CPFR Technology Architecture Peer to Peer Scenario Retailer Workstation Workstation Manufacturer CPFR Server CPFR Server SMTP S/MIME, SIL Backend Server Apps Data Data Backend Server Apps
    28. 28. <ul><li>Refinement and publication of process models </li></ul><ul><li>Define/establish prerequisite EDI feeds if non-existent </li></ul><ul><li>Define/establish other feeds (manual initially) - forecast drivers (promotions, price changes, replenishment strategies etc) </li></ul><ul><li>Define/establish business rules for exception generation </li></ul><ul><li>Develop exception processes based on forecast comparisons </li></ul><ul><li>Define/establish procedures for use of CPFR system </li></ul><ul><li>Develop measurements/business cases </li></ul><ul><li>Refine technology infrastructure </li></ul><ul><li>Introduce security - S/HTTP and/or S/MIME </li></ul><ul><li>Investigate use of open data model </li></ul>Next Steps for CPFR and the industry
    29. 29. Collaborative Planning, Forecasting and Replenishment <ul><li>Challenges </li></ul><ul><li>Organizational readiness </li></ul><ul><li>Process confirmation </li></ul><ul><li>Integration of supply chain collaboration tools with backend applications </li></ul><ul><ul><li>data models </li></ul></ul><ul><ul><li>architecture (hub-hub, hub-spoke, hub-web) </li></ul></ul><ul><li>Change management </li></ul>
    30. 30. Collaborative Planning, Forecasting, and Replenishment <ul><li>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. </li></ul>
    31. 31. Capabilities Assessment <ul><li>Process Readiness </li></ul><ul><ul><ul><li>Forecasting and Replenishment </li></ul></ul></ul><ul><ul><ul><li>Scorecard Solution </li></ul></ul></ul><ul><ul><ul><li>Change Management </li></ul></ul></ul><ul><ul><ul><li>Inter & Intra organization communication channel readiness </li></ul></ul></ul><ul><li>Technology Readiness </li></ul><ul><ul><ul><li>Data availability </li></ul></ul></ul><ul><ul><ul><li>Internet Enablement </li></ul></ul></ul><ul><ul><ul><li>Electronic Commerce </li></ul></ul></ul>
    32. 32. Collaborative Planning, Forecasting, and Replenishment <ul><li>Collaboration can produce results !!! </li></ul><ul><li>“ 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.” </li></ul><ul><ul><ul><ul><li>Sharing IS Secrets, Julia King, Computerworld 9/23/96 </li></ul></ul></ul></ul>