Collaborative planning, forecasting, and replenishment brings retailers and suppliers together to streamline inventory procedures.
The company: Saks Inc. is a Birmingham, Ala.-based conglomerate of department stores, including such chains as Parisian (in the Southeast and Ohio), Herberger's (in St. Cloud, Minn.), McRae's (in Jackson, Miss.), and Saks Fifth Ave.
The problem: Growth through expansion put pressure on Saks to move to a common system for product replenishment.
The goal: Saks wanted to drive reordering of basic products, aiming for 95% in-stock availability.
The solution: Logility's Voyager XPS will enable department stores under the Saks umbrella to automate replenishment and ordering and do more accurate forecasting via collaborative planning, forecasting, and replenishment (CPFR) practices over the Web.
Here's an experience we've all shared: You go to a store to pick up a standard item, say diapers or dog biscuits, and the merchandise you want is out of stock. What do you do? You either buy an alternative or head out to another store that's more likely to have your preferred brand.
What's a common annoyance for customers, however, turns out to be one of retail suppliers' biggest nightmares, especially in today's highly competitive shopping climate. If a customer goes to another retailer for one product, he may well never come back to the store that came up short.
But relief is on the horizon. As the area of supply chain management automation heats up, a new category of Web-based software is emerging to help retailers and their partners collaborate more effectively on planning and inventory management. These Web applications--from companies like Logility Inc. of Atlanta, Manugistics Group Inc. of Rockville, Md., and Syncra Systems Inc. of Cambridge, Mass.--build on the efforts of the collaborative planning, forecasting, and replenishment (CPFR) initiative.
CPFR aims to improve the supplier/retailer partnership by sharing and co-managing forecast information, initially via e-mail or the manual exchange of spreadsheets. By leveraging the Web as a real-time exchange mechanism, companies can inexpensively and quickly share critical CPFR information via a browser interface, without having to make a costly investment in proprietary software like electronic data interchange (EDI) or dedicated communications lines.
"The Web is playing a key role in CPFR because of the need to deal with forecasts and exceptions instantaneously rather than waiting for batch processing of other communications systems like EDI," explains Andrew Love, secretariat for the CPFR committee, a group of leading retailers, high-tech vendors, and universities based in Princeton, N.J. "With systems like EDI, you're also talking about a limited set of partners, and the Web can really open that up."
According to Jim Uchneat, research director at Benchmarking Partners Inc., a Cambridge, Mass., consulting company and one of the pioneers of CPFR. Under the CPFR concept, there are three elements to collaboration: First, establish the trading partner relationship by setting common goals and metrics. Second, develop specific pricing and promotion plans for bringing products to market. Third, create systems that let partners automate how they monitor and react to market changes as they occur.
Once in place, CPFR processes can help companies and partners maintain lower inventory levels overall, while keeping in-stock levels of core products high, Love says.
Web-based or otherwise, CPFR is still in the pilot stage at most companies. But a handful of market leaders, including Kimberly-Clark Corp., Kmart Corp., Nabisco Brands Co., Saks Inc., and Wal-Mart Stores Inc. are leading the way with production systems linking to some of their key suppliers. Better proportions
At Saks, an umbrella company that operates more than 350 department stores in 38 states, moving to CPFR is a way to bring sophistication and efficiency to forecasting. In addition, Saks' participation in the merger mania sweeping the retail industry over the last five or six years has spawned a conglomerate of diverse department stores that lack common systems, according to Marty Abercrombie, vice president of replenishment for the Birmingham, Ala., firm. "The way we came together, separate retailers had separate systems," he explains. "Now, we're taking the time to move toward one common system, and we hope to get there completely on the merchandising side in 2001-2002."
Embracing CPFR is a major part of that plan. Starting in the spring of 1999, Abercrombie began looking for a replenishment system that would drive the reordering of basic products such as men's underwear and blue jeans, women's intimate apparel and handbags, and home products like sheets. The goal of the system was to improve the proportion of merchandise in stock to 95%. "All our retail franchises had a good reputation for service, and we wanted to make sure we fulfilled that reputation. We didn't have enough of the products we wanted in certain locations," Abercrombie explains.
At the same time, each retail chain operated with a couple of key buyers or procurement staffers manually producing the models for maintaining stock. Essentially, they'd get the average rate of sales for a particular item, multiply it by the weeks of supply, and employ that as a forecast, typically only going through the process of running the numbers once a quarter, given the complexity. That approach, Abercrombie says, didn't allow the retailer's replenishment system to be as responsive to sales trends as it needed to be. As a result, it wasn't uncommon to have stores sell out of a particularly popular item or have too much inventory on hand for other products that were not in demand in that particular region, he says.
Abercrombie's search led him to Logility's Voyager software suite, which includes such modules for CPFR as Demand Planning, Inventory Planning, and Demand Chain Voyager. The initial rollout, to 40 of Saks' Parisian department stores in March, will be augmented in the April to June 2000 timeframe to stores in the South, with the Midwest operating companies coming onboard in July and August 2000. At first, the Logility system will be focused internally: The replenishment teams of the various Saks department stores will dynamically generate inventory management models with Voyager and load the models into an in-house replenishment system to automatically initiate orders and alert buyers to exceptions when items are under- or overstocked. "This will allow us to respond dynamically in weeks vs. quarters," Abercrombie says. The benefits of CPFR For the demand side: Greater sales:
The close collaboration required for CPFR drives improved business planning between buyers and sellers. That can directly translate into increased category sales. Enhanced relationships:
CPFR strengthens an existing relationship and substantially accelerates the growth of a new one. Buyer and seller work hand-in-hand on business plans and promotional forecasts. Category management:
Before starting CPFR, both parties inspect shelf positioning and exposure for targeted SKUs (stock keeping units) to ensure adequate days of supply and proper exposure to consumers. This will result in improved shelf positioning. Improved product offerings:
Before CPFR implementation, buyers and sellers agree on which merchandise items to track, synchronize their SKUs, and identify additional members of a product line that are likely to sell well. For the supply side: Improved order forecast accuracy:
CPFR enables a nearly real-time order forecast that provides additional information, greater lead time for production planning, and improved forecast accuracy vs. traditional tools. Inventory reductions:
CPFR helps reduce forecast uncertainty and process inefficiencies. With the technique, products can be produced to actual order requirements instead of storing inventory based on forecast. Increased customer satisfaction:
With fewer out-of-stock items resulting from better planning information, higher store service levels will prevail. Source: Source: CPFR Roadmap, published by the Voluntary Interindustry Commerce Standards Association (VICS)
|Expand to other CPFR processes: If the implementation focuses on joint business planning and sales forecasting, expand to order forecasting collaboration.
Add SKUs: If the pilot initially keyed in on a limited set of items, increase gains by expanding to other product categories.
Increase the level of detail: If the implementation focused on warehouse-level information, better results can be achieved by moving to store-level information.
Improved product offerings: Before CPFR implementation, buyers and sellers agree on which merchandise items to track, synchronize their SKUs, and identify additional members of a product line that are likely to sell well.
Automate the process: The vision of CPFR is one of managing forecasts by exception, which can be best achieved through an automated process--especially when the number of products and trading partners increases.
Add trading partners: The benefits gained from collaborating with one or a small number of trading partners can be extended to more partners. Even before "critical mass" is achieved, there are benefits to each relationship.
Integrate the results: The benefits of CPFR are fully realized only when the outputs of the collaborative process are integrated with the internal processes at both companies. For a supplier, this means using the collaborative forecast in the production planning, capacity planning, and materials requirements processes. For the buyer or retailer, this means integrating the collaborative forecast into buying, merchandising, replenishment, and financial planning processes.
Source: CPFR Roadmap, published by the Voluntary Interindustry Commerce Standards Association (VICS)
|""The Web is playing a key role in CPFR because of the need to deal with forecasts and exceptions instantaneously. With systems like EDI, you're talking about a limited set of partners, and the Web can really open that up." --Andrew Love, secretariat for the Collaborative Planning, Forecasting and Replenishment Committee, has developed a set of business processes that entities in a supply chain can use for overall efficiency in the supply chain.
In the second phase of the project, Saks will take advantage of the Web-based capabilities of the Logility Voyager suite to allow suppliers to participate in the forecasting. "We plan to have meetings this spring with major suppliers to share plans and see what and where it makes sense to dive into the collaborative side of things," Abercrombie says. "The Web makes the process more executable rather than sending things back and forth through faxes or [playing] telephone tag. If a vendor thinks we're planning too aggressively or not enough in certain categories, this lets them call that out to us."
Voyager's browser interface is also more cost-effective for delivering demand planning capabilities to all internal employees as well as outside partners vs. having to buy a complete CPFR package for each desktop, says Abercrombie. The server side of Voyager is hosted under Microsoft Windows NT; store employees and suppliers tap into the system via Web browser.
While he declined to put a specific price tag on the CPFR deployment, Abercrombie says that Saks should recoup its investment of "hundreds of thousands of dollars" in two to three years. The two primary benefits of the system will be to recapture lost sales thanks to better in-stock positions within stores and to get the right products into the right stores more often. Pass the Kleenex
Kimberly-Clark, a $13 billion packaged goods manufacturer, is already taking advantage of the Web to participate in CPFR with Kmart, one of its major customers. Kimberly-Clark, which sought a CPFR partner for a pilot in 1998, wanted a way to use point-of-sale data from customers to create forecasts that were more in line with reality vs. its existing approach of forecasting based on statistics and historical sales data. "Our forecasts were always wrong, and that left us eternally struggling to get production matched up with the latest sales patterns," explains Larry Roth, senior consultant with the Neenah, Wis., firm.
Through the Voluntary Interindustry Commerce Standards Association (VICS), an organization working to improve supply chain processes in the retail industry and a proponent of CPFR, Kimberly-Clark and Kmart were paired on a pilot using Syncra System's Syncra Ct, a Web-based CPFR application. The partners' shared goal is to drive up in-stock rates of Kimberly-Clark products--for example, Huggies diapers, Kleenex facial tissue, and Viva paper towels--at Kmart stores to avoid customers buying alternative products or going to a different store if the desired item is not on the shelf.
The initial pilot, launched in January 1999, was for Kleenex facial tissue. Both organizations load their forecasting information into Syncra Ct, and the software compares the forecasts and delivers exception messages to both parties via the Web whenever a discrepancy exceeds an agreed upon percentage, Roth explains. More importantly, the system establishes a process in which the partners collaborate either through e-mail or telephone conversations to modify the forecasts. Since the pilot has been online, Kimberly-Clark has seen a 6.9% increase in stock and a 14% increase in sales at Kmart stores.
Based on that success, Kimberly-Clark and Kmart in December 1999 starting extending the Syncra Ct CPFR tools to all categories, codes, and locations. Kimberly-Clark also plans to pursue CPFR with as many customers as it can.
While it's not married to the Syncra Ct product, Roth says Web features are a critical part of the company's ability to broaden its CPFR reach. "It would be cost prohibitive to do it any other way," he says. "We sell between 160 and 180 items to Kmart--if you compare 26 weeks of forecasts on all items, it becomes a huge job. The only way to do that is by way of exception, and the Web serves as the best possible mechanism to make that possible." // Beth Stackpole is a freelance writer living in Newbury, Mass. She can be reached at firstname.lastname@example.org.