Planning for success
Given this complex scenario, the need for collaborative planning among retailers and manufacturers and between suppliers and their vendors has never been more urgent. Moreover, while there are some success stories, lasting partnerships have been spotty and expanding the concept remains problematic.
Optimising supply chains
Collaborative planning, forecasting and replenishment (CPFR) have been part of the retail scene for over a decade. Most industry observers agree it will optimise the supply chain by removing inefficiencies from the system, thereby boosting sales and profits for multiple trading partners. However, some manufacturers and retailers are still wrestling with trust issues, concerned that these global partnerships will also result in greater visibility of sensitive proprietary information such as price.
“Planning between manufacturers and retailers in Europe has been limited to some pilot programmes but never really went beyond that,” said Edward Versteijnen, business consultant at EyeOn, a Netherlands-based business planning and control consultancy. “Our surveys reveal that collaborative planning is very important. But it only works when you can create win-win situations. The European landscape is still more of a battle where manufacturers increasingly see retailers not only as customers but also as competitors,” he said, alluding to increased private label marketing and merchandising.
Jeff Smith, global managing director, retail practice for Accenture has a different perspective. “I think some companies are becoming better practitioners of collaborative planning and there has been progress in the last few years and since the pilot programmes of the mid-1990s. But it’s still uneven in terms of consistency, who’s doing it and who they’re doing it with,” he said.
| Table: Top five out-of-stock categories |
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Source: IGD International SRP report |
Slow to grow
The idea of collaborative planning and forecasting actually dates back to the 1970s, but received considerable attention in the early 1990s when the industry was introduced to the concept of Efficient Consumer Response (ECR). While most major retailers and manufacturers do planning and forecasting together at some level, relatively few have implemented full blown programmes Among those that have taken this holistic approach to improving the supply chain are Procter & Gamble, Wal-Mart, ASDA, Costco, Unilever, Whole Foods and Tesco.
Wal-Mart and its subsidiaries have been particularly vocal about the need for improvement. Andy Ellis, ASDA’s supply chain director told a recent industry conference in London that the chain plans to review the flow of goods to all stores in 2007 and hopes to improve product availability through collaboration with suppliers. “We have lots of opportunities to improve (product) availability. We are all in this together and unless the product is in front of a customer, we are all losing money. It’s about building relationships,” he said.
However, not everyone is making use of what is a valuable competitive and operational tool. “I’d say 30 per cent of our suppliers are very good at working collaboratively, 40 per cent are good and 30 per cent are just awful.” Ellis said.
Retail Link
Wal-Mart has been one of the most aggressive practitioners of collaborative planning through Retail Link, a global data sharing system that was designed to be a bridge between the chain and its vendors. Basically, Retail Link enables manufacturers to manage their business through Wal-Mart by allowing them to view up-to-the-minute sales data of their items, to retrieve inventory level data and to download purchase orders.
While the chain is continually refining Retail Link, vendors and others generally laud it as one of the most effective collaborative tools in the industry, with over 100,000 registered users at approximately 40,000 companies worldwide. There is one caveat. As part of the deal for knowing everything about product movement throughout the supply chain, suppliers must adhere to Wal-Mart’s EDI standards.
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Recently, a number of companies began discussing the use of global data synchronisation standards as a more public version of Retail Link. “Wal-Mart has said they’d like people to subscribe to global data synch standards. This offers participants information visibility across the supply chain using common data pools that fit the standards GS1 is advocating, “said Smith.
Perhaps one of the most aggressive moves in the area of planning and replenishment was taken by Tesco, which is entering the US this year with Fresh & Easy stores, a convenience store concept based on the highly successful Tesco Express in the UK. Although the chain has been negotiating with many US firms, it decided to bring two of its key perishables suppliers from the UK in order to build a proprietary distribution system. The result will be tight inventory control and multiple replenishment on a daily basis.
‘Owning’ the supply chain also keeps production in line with Tesco’s growth. Planning and demand forecasting are likely to become increasingly important if, as observers expect, the Fresh & Easy stores are simply the first salvo in a broader battle for share across the US over the next several years.
Implementing technology
Use of technology to facilitate planning and forecasting is fairly widespread throughout the industry and continuing to grow. A survey by Lawson, a provider of applications software, found that 58 per cent of companies in Europe are using software packages for sales planning and forecasting, while 37 per cent are using the technology for production planning. On the other hand, between 20 and 30 per cent of companies are still using spreadsheets to forecast and plan purchases. The problem with spreadsheets is the risk of error in transferring data or working with the wrong version of a spreadsheet. They also lack the flexibility of other technology since they are too static to enable companies to make a rapid response to changes in demand, Lawson researchers noted.
In a recent survey by EyeOn, 93 per cent of companies said planning and forecasting processes need improvement. About 95 per cent of respondents also agreed that marketing and sales departments should be involved in the planning and forecasting process. However, this may be a significant challenge since many marketing people in the food industry simply feel that forecasting is not part of their job and are unfamiliar with enterprise resource planning or other advanced forecasting systems.
Commenting on the current state of planning and collaboration in Europe, Versteijnen and André Vriens of EyeOn noted that the industry is not so much focusing on collaborative techniques, as they are on internal functions to improve planning and forecasting. “Everyone says that collaborative planning with suppliers has great potential and many companies want to develop initiatives. But there is far more focus on alignment of planning with sales and finance than on relationships with outside suppliers,” said Versteijnen
This is largely the result of intense price pressures on the food industry. “This moves from retailers to manufacturers, who push it upstream in the chain to their suppliers. Unfortunately, this is creating an atmosphere in which there isn’t much room for cooperation,” he said, noting that retailers who are using more private label to raise profits are essentially competing with manufacturers of top brands.
However, Accenture’s Smith believes that major CPG companies are working very closely with retail customers to move things along. “There’s a significant amount of activity in the area of collaboration. It ranges from what we used to call CPFR, where people were collaborating on order forecasts, to more integrated and comprehensive programmes.
“These days a lot more has to do with business philosophy around partnering and information transparency. Technology is not inhibiting anything,” he said noting that the technology and data standards currently available will work 90 per cent of the time. “The last ten per cent may relate to proprietary price and promotional information which, in the case of demand forecasting, has a direct bearing on what you’d expect product movement to be in the market. The key is for companies to make new business choices and behave differently,” he said. “We may have the technology. But if the data I throw into it is inaccurate, companies still end up carrying safety stock and intermediate inventory positions because they have to compensate for the possibility that the data is wrong.”
This is the thinking at Wal-Mart whose ‘store of the community’ concept is bringing collaborative planning and forecasting to a new level, according to Smith. “This is where the backbone of their infrastructure – Retail Link – really begins to pay off. When you have stores designed to cater to individual communities or to ethnic groups such as Hispanic, Asian or African-American, you can make distinct choices about ordering and store replenishment profiles.”
However, the issues of forecasting and replenishment is just as intense – and perhaps more so – when it comes to globalisation. “The whole meaning of globalisation has changed. Thinking has shifted from having a lot of stores in a lot of countries to finding out where the business is. For example, people think of Target as a US retailer but they have 10,000 employees in India at a wholly owned service merchandise business and in back office and IT facilities,” said Smith. “Wal-Mart is sourcing US$15-$20 billion from China this year. If you add up China’s export list by country, Wal-Mart is the sixth largest. Retailers are starting to intervene in the manufacturer’s supply chain as they never have before.”
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