Collaborative planning, forecasting and replenishment is an industry initiative that has been much talked about but little practiced in the grocery industry -- so far.
To practice CPFR, retailers and manufacturers need to share point-of-sale data and forecasts to come up with a better order than they otherwise would have. But it requires overcoming a longstanding culture of confrontation between trading partners as well as cultural resistance to change within companies, observers say.
"It's not about technology; it's about process," said Stephen David, chief information officer, Procter & Gamble, Cincinnati, at the recent Retail Systems 2002 Conference and Exposition in Chicago. "There's a maturation process where you see that collaboration is going to produce better results than the typical transactional relationships. Some companies aren't ready."
Most supermarket companies have been slow to embrace CPFR compared to mass merchants like Wal-Mart and Target and drug chains like Rite Aid. According to SN's eighth annual State of the Industry Report on Supermarket Technology, released last month, just 3% of survey respondents said CPFR will command the highest priorities in 2002.
Still, some major supermarket chains are pursuing CPFR at some level. Grocery pioneers on the Voluntary Interindustry Commerce Standards (VICS) CPFR committee include H.E. Butt Grocery Co., Meijer, Safeway and Schnuck Markets. Wegmans has engaged in a CPFR pilot with Nabisco (see www.cpfr.org), and Albertson's, Kroger, A&P and Hy-Vee are investigating it.
One sign of growth for CPFR is that several CPFR vendors are engaged in an interoperability test that would make it easy for trading partners using different systems to share data -- a stumbling block in the past. The test, sponsored by the Uniform Code Council (UCC), backed by VICS and conducted by the Drummond Group, includes Syncra Systems, i2 Technologies, IPNet Solutions, JDA Software, Logility, Manugistics and SAP. "The interoperability announcement is good news," said Larry W. Roth, with the business-to-business development team at CPFR pioneer Kimberly-Clark.
The test will use Web-based AS2 technology to transmit XML-based messages securely over the Internet, reducing costs compared to traditional EDI transmissions. Those messages include POS, forecasting and inventory data. The test, already through the conformance phase, is expected to conclude next week. "We need good collaboration tools that are not so proprietary," Bill Holder, CIO for Dillard's, Little Rock, Ark., said at Retail Systems 2002, which ran through June 27.
Indeed, the interoperability tests were driven by "pressure from customers [retailers and manufacturers]," Jeff Stamen, chief executive officer, Syncra Systems, Waltham, Mass., told SN. "They want this [CPFR] to happen." Stamen said that "four to five" large grocery chains, whom he declined to name, are "getting on the CPFR bandwagon more actively, working with manufacturers. They see the revenue and clear cost savings you get. And with Wal-Mart and Target doing it, they can't not do it."
Roth said that several trends are driving the adoption of CPFR, including the consolidation of retailers, the use of store-specific forecasting by retailers that has improved accuracy of information, and the trend toward pull-based, consumer-driven replenishment systems such as category management and consumer-relationship management.
Rite Aid is one retailer that has taken an aggressive approach with CPFR, partnering with eight manufacturers that represent almost one-quarter of its business, according to Jason B. Burnett, director of replenishment, Rite Aid, Camp Hill, Pa.; three of those manufacturers were signed over the last month. "We're actively seeking new partners," he said.
Staples, Framingham, Mass., engaged in six CPFR pilots, is hoping to reach 15 by the end of this year, and up to 50 by the end of 2003, which would equate to 50% of its volume, Steven F. Mastrogiacomo, the chain's senior vice president, merchandise planning and control, said in a closing keynote address at Retail Systems 2002. Staples, using software from Manugistics, Rockville, Md., has been able to include sales from all of its channels -- stores, Web site and catalogs -- into CPFR, he said. Web-savvy Staples offers access to its data to suppliers through a Web portal, Staplespartners.com.
On the manufacturer side, companies like Johnson & Johnson, P&G and Kimberly-Clark have made clear their commitment to CPFR. Those companies all discussed their CPFR programs at the conference.
Stephen David, CIO for P&G, said at a CIO roundtable discussion that P&G has a number of "good relationships" with retailers with whom it is "sharing data, to the benefit of both." Milan Turk, P&G's director, customer e-business, said that P&G even brings its suppliers of raw materials into the collaboration process.
Johnson & Johnson, which is practicing CPFR with five retailers and vendor-managed inventory (VMI) with five others, shared the podium at Retail Systems 2002 with CPFR partner Rite Aid, and the companies were jointly recognized at the conference by VICS for having the best CPFR implementation.
The Rite Aid-J&J CPFR project involves 650 stockkeeping units coming out of three J&J distribution centers and into eight Rite Aid DCs. It's based on Web-based E3 software from JDA hosted at Rite Aid and accessed by J&J over a secure Web site.
The basic goal was to "leverage the manufacturer's and the retailer's unique product and logistics insights to drive efficiencies through the supply chain and to better align supply with consumer needs," said Jeffery S. Carrel, director of customer logistics, Johnson & Johnson Sales and Logistics division, North Brunswick, N.J.
Since last August, the CPFR program succeeded in reducing out-of-stocks at Rite Aid DCs by 70% and weeks of inventory by 6% while improving J&J service levels (DC-to-store fill rates) by 4.2 percentage points, according to Burnett and Carrel, speaking at the conference.
"We have regular interactions on a common set of metrics," including service levels, out-of-stocks, inventory and on-time delivery, Carrel said. "There's no talking out of two sides of your mouth."
Burnett said it took a month and a half to iron out the "binding" agreement. Results are reviewed through a monthly scorecard, and Burnett has a quarterly meeting with his executive management. Internally, Burnett said he had to overcome "silos" to get his category managers in alignment with replenishment buyers and transportation executives.
Using the E3 system, both companies are able to look at the same data and sales/order forecasts at any time and come up with a single forecast to form an order. Considering the number of SKUs involved, planners generally deal only with exceptions, which are focused on forecast accuracy, lost sales and overstock, said Burnett. "J&J's product knowledge helps drives the orders," particularly for new items, he added.
Promotional forecasts are dropped into order forecasts, said Burnett. "We give information to J&J nine weeks in advance of a promotion, and both sides then collaborate to make sure there is ample coverage for the promotion and we get the most out of our promotional money."
Next on the agenda for J&J and Rite Aid is reverse distribution -- returns. The companies are expecting a 33% reduction in that area, said Carrel, who also wants to improve cube utilization in deliveries.
Burnett hopes that in the future "we'll have no excess inventory in J&J's DCs to cover what I'm doing and no excess in my DCs." He plans to also focus on DC work processes like put-away time, picking efficiencies and case configurations. "We want to take more money out of the supply chain and put it in the bottom line."
Kimberly-Clark, Neenah, Wis., currently in production with four retailers (mass merchants and supermarkets) on every UPC and every category, was also represented at Retail Systems 2002 by Roth. He said that the company pursues CPFR "to align our business goals with our customer's goals, which are not always in sync." Being aligned on in-store safety stock, for example, could help eliminate out-of-stocks, he said.
For K-C, CPFR involves annual business goals, monthly reviews of those goals and about 20 minutes per week dealing with exceptions, said Roth.
CPFR helps eliminates surprises, like receiving a purchase order just before an ad breaks, Roth said. "With advance planning, we execute better, product flows better, and the consumer doesn't see hiccups." It also helps adjust the peaks and valleys in the supply chain, preventing K-C from overproducing for a promotion. "Our plan is to have over 50% of our volume in CPFR," he said. "Then we'll have a handle on our supply chain and that will significantly affect in-stock through to the shelf."
K-C uses a collaboration tool from Syncra that processes POS data, DC and store-inventory levels, DC withdrawals and sales/order forecasts received from its retail partners, who are then privy to K-C's own sales forecast. "We start with the retailer's forecast and assume it's correct unless proven otherwise," said Roth.
Unlike the Rite Aid-J&J scenario, where the retailer hosts the software and the supplier has access to it, K-C does "the heavy lifting" with most of its partners, said Roth. "I hope retailers use these tools for their suppliers that don't have them," he said.
Like the Rite Aid-J&J program, K-C establishes a "front-end business plan" with its retail partners that spells out, among other things, "who's responsible for making sure exceptions are corrected."
K-C discovered that "when we pause the collaboration, business plans break down" because promotion time changes or other adjustments may not be communicated, he said.
With a new product, K-C suggests what existing product the new one will perform like, said Roth. "The retailer may disagree. CPFR allows us to revisit that and discuss it."
K-C focuses on weekly SKU-level forecasts but doesn't get down to the store level, Roth said. But the company does look at safety stock or delivery at stores to address out-of-stocks. In the future, K-C plans to put more stress on POS data, which is helpful to production scheduling, and event collaboration, he said.