WALTHAM, Mass. -- A $9 billion Northeast supermarket company has reported decreases in emergency orders, freight costs and inventory as a result of a six-month CPFR pilot conducted last year with two manufacturers.
Neither the retailer, which operates more than 600 stores under multiple banners, nor the suppliers -- one supplying cereal, the other paper goods -- were willing to identify themselves, but the makeup and results of the pilot were made available to SN by Syncra Systems based here. Syncra provided and hosted the Web-based CPFR (collaborative planning, forecasting and replenishment) application software, Syncra Xt, used by the trading partners. In addition, the retail executive who headed the project for the retailer spoke to SN about the project.
According to the executive, the pilot was conducted from March through October last year at three Northeast distribution centers supplying 350 stores across four divisions. It covered up to eight promotional events. In addition to the executive, two buyers, two category managers and two analysts from the retailer participated. IBM Global Services, Armonk, N.Y., also took part. "It was time consuming up front, but it saved the company money," he said.
The executive said that the CPFR program with the two manufacturers has continued since the pilot's completion in the three DCs, and would be expanding to three additional DCs elsewhere in the U.S. by the end of March as the company consolidated its category management department. He could not say whether the program would be extended to new manufacturers.
According to Syncra, three-quarters of the paper manufacturer's stockkeeping units and about half of the cereal manufacturer's SKUs were covered.
Among the results released by Syncra and confirmed by the executive:
The retailer experienced a 65% decrease in emergency orders (to 20.7%) for the last three promotional events with the cereal manufacturer.
Over three promotional events, freight costs for inbound shipments to the retailer decreased by 70%.
The retailer's average year-over-year inventory for the paper manufacturer's products in collaboration categories decreased by 20%.
The retailer's residual inventory for both manufacturers experienced decreases of between 38% and 85% throughout the pilot.
The manufacturers experienced 17% to 26% higher growth for the collaboration products than the overall category in year-over-year POS sales.
Both suppliers saw a 2% increase in service levels to the retailer's DCs.
According to Syncra, the retailer invested about $500,000 in the project, including project management, resources and the software. The executive said an ROI was achieved on the retailer's investment.
The CPFR process was based on the transfer of warehouse withdrawal data and promotional forecasts from the retailer to the manufacturers, who provided comparable data to the Syncra system, which "spit out the exceptions," said the executive. "It might have been differences in ad dates or in forecasts of cases."
Then a 15- to 20-minute conversation would take place to resolve the differences. "Communication was the biggest part of the whole thing," he added. The cereal manufacturer, in particular, had trouble getting information from the retailer to generate its production and shipping forecasts, he said.
Prior to the collaboration, "We had a tremendous amount of returns," he said. "For promotions, first we would rush trucks in, and then we would ask for them to send six to eight trucks to pick up returns." The pilot reduced those figures.
During the pilot, the executive said, "the vice president who put the ads together" was encouraged to stick by his original ad plans, which were moved from four weeks to 10 weeks out. "He was not as apt to change it because he gained confidence as we produced forecasts that were closer than in the past."
The executive said a key challenge the retailer had to overcome in implementing the project was getting buy-in from senior management. While initial upper-management support was gained for the project, the "executive sponsor" has since changed.
In addition, the executive had to find a way to motivate category managers and analysts participating in the pilot, and did so by tying the results to their review.
It was also important to quantify the results, which was possible but hard to show on a P&L statement, he said. He explained that the reduction in costs resulting from using fewer trucks for returns will ultimately be reflected in the trade allowances passed on by manufacturers in future promotions. "When you take costs out of the system, manufacturers will drive more cases," he said. In addition, inventory reductions save money that drives up gross margins.