SLOW TO COLLABORATE

MINA WILLIAMS

CPFR may well be the best technology that supermarkets aren't pursuing aggressively.

An initiative of the Voluntary Interindustry Commerce Standards Association, Lawrenceville, N.J., CPFR, which stands for collaborative planning, forecasting and replenishment, has been tested by such prominent retailers as Wegmans, Schnucks, Safeway, Kmart and Wal-Mart, but the grocery industry has been slow to pick it up.

CPFR is a business process that synchronizes and exchanges data between organizations for collaborative business planning, according to one industry source. It integrates enterprise systems and supports collaborative business processes for replenishment and fulfillment to increase sales and improve customer service.

The benefits have been proven, said one respected advocate of CPFR.

For example, one retailer is moving $1 billion sales through CPFR, said Joe Andraski, senior vice president, OMI International, Shaumburg, Ill. "Another retailer reports sales exceeded category growth by 5%, improved inventory turns from 5% to 50%, improved reduction of inventory and reduced merchandise returns on saleables from 5% to 20%."

Operators that have piloted CPFR programs reported increased sales, category growth, improved inventory turns and a reduction of inventory. With CPFR, retailers are seeking to:

Cut down on lead times.

Reduce inventory levels.

Reduce costs of warehousing, storing and transportation of products.

Reduce overstocks and out-of-stocks.

Plan properly for promotions.

Despite the success stories, the grocery industry is not buying into CPFR on a wide scale yet, said industry experts. Mass merchants, footwear and electronic retailers appear to be more aggressive with CPFR efforts, but supermarket CEOs are not easily convinced.

"Obstacles are at the leadership level," said Andraski. "CEOs have a tremendous amount on their plate. There is Wall Street, shareholders, long-range planning, competitors and real estate issues. Business practices are not on their radar screen. They need to be educated to understand the benefits of CPFR. It is the midlevel management's responsibility to pursue opportunities and educate senior leadership."

"Supermarket retailers are happy with the service levels of manufacturers," said Aileen Dullaghan, senior manager, industry relations, Food Marketing Institute, Washington, D.C. "Progress can be made with out-of-stocks, but generally there are not that many supermarket companies involved with CPFR. They are more interested in growing sales rather than improving efficiencies," she said.

Many supermarket companies are in a wait-and-see mode with CPFR. "It appears to hold promise, but the tests so far have been very limited in scope," said Gary Herman, chief information officer, Unified Western Grocers, Los Angeles. "I suspect that the Internet will solve one of the biggest challenges, which is being able to easily send data between retailers and suppliers," he said.

Harmons, West Valley City, Utah, has built CPFR capability into its back-office system, said Ken Pink, vice president, information systems. "We see that as a long-term project," he said.

"As a technology guy, I think CPFR is really neat. But the only people I have heard that are making it work is Wal-Mart, and Wal-Mart can pretty much tell their suppliers what they are going to do and when they are going to do it. So I'm not sure how that plays down into the smaller environments that we are in," Pink said.

Trust between trading partners lies at the foundation of CPFR implementation. Partners must believe that they are working in each other's best interest.

"This sort of trust does not always exist in business relationships. It's a cultural change that must take place before CPFR can be successful," said Andrew Love, CPFR project manager, Uniform Code Council, Lawrenceville, N.J. "Pilot programs have proven that CPFR can deliver expected improvements including reduced inventory, higher in-stocks and increased sales. But it also benefits the partner companies by reducing fixed assets and working capital."

"CPFR requires retailers and manufacturers to get together on long-term planning and forecasting," said Dullaghan.

"The magic CPFR brings trading partners is that, together, the partners work on a joint plan," Andraski said. "The plan is perused by both partners with resources and information together presenting a solid go-to-market plan. There is value in sharing information with trading partners."

CPFR also has implications for those exploring scan-based trading, according to Doug Adams, vice president, Prime Consulting, Bannockburn, Ill. "SBT will have CPFR as a component. As long as trading partners are sharing information with SBT, simply adding forecasting is a natural thing. As we get smarter information-wise, it is important to apply CPFR despite who owns the inventory."

Because of its use of scan-based trading, Andronico's Market, Albany, Calif., sees "a great opportunity" in CPFR, said Mike Miller, director of information systems. "We have some very robust movement data, and that kind of information is valuable to suppliers, especially when they have production facilities, and perhaps some seasonality. They can make better production runs as a result," he said.

"If we can achieve that critical mass of participating suppliers and retailers, and allow that data to move, and if we have enough trust between the parties to share that data, then we drive further costs out of the system and perhaps offer a better product to the customer," Miller said.

According to VICS, the leading benefit of CPFR is that it serves to satisfy consumer demand. Consumers, who are time-starved, are unable to shop around, yet they demand service and convenience. CPFR helps fulfill demand while building consumer loyalty to both retailer and brand manufacturer. Essentially, CPFR's greatest promise is to get the right item at the right time to the right place.

"Ultimately CPFR points to better customer service," said Love. "Perhaps there are more trading partners involved with CPFR than we realize. Those entering into CPFR initiatives aren't publicizing their activities the way the first group did. I think supermarket operators are still involved -- they are just not talking about it," he said.

"Marketplaces react differently in different areas," Andraski said. "CPFR is more than a category plan. It delves into store clusters and helps establish the right promotion plan and product mix at the right time to meet the consumer's needs."

While pilot programs have proven successful, scalability of the CPFR process remains as one of the primary roadblocks to total retail adoption, said industry experts. Taking hundreds of items and distribution points and applying CPFR initiatives to each one will more than likely strain resources.

Many pilots have relied on manual techniques to uncover glitches. However, full production brings a high demand for automation.

"As time goes on CPFR is getting a lot more refined," said Love. "There are more solution providers around to help with scalability."

Companies currently working with CPFR are aware that scalability is an issue. VICS expects most to employ the Internet to handle both the volume of information CPFR requires in addition to the timeliness it demands.

Additionally, XML (eXtensible Markup Language) is being investigated as a possible industry standard. This move is particularly important as CPFR makes inroads globally and becomes a strategic part of trading exchanges.

Down the road, CPFR initiatives can be expected to take the model beyond manufacturers' and retailers' worlds. It is expected that CPFR will be all the way back through the system to include raw material and packaging providers, as well as transportation carriers.