The underlying idea behind collaborative planning, forecasting and replenishment (CPFR) is that when trading partners put their knowledge and forecasts together, the result is a more efficient supply chain. Everyone enjoys the benefits of lower inventory, faster order cycle times, better sales and order information, and so forth.
But turning those ideas into reality can be a long, hard slog. About half the companies interviewed in a recent study by the ARC Advisory Group, a logistics and supply chain research and consulting organization, reported that their CPFR programs were progressing more slowly than expected. And among those who reported they were on track, most acknowledged that their programs were relatively new or that they had expected the process to be slow at the outset.
Adoption has been spotty at best, says Joseph Andraski, now the managing director of the Voluntary Interindustry Commerce Council and a longtime member of the Voluntary Interindustry Commerce Standards Association's CPFR committee.
"We've seen implementation in various verticals or industry sectors," he says. "But certain sectors have not embraced the whole idea of collaboration." The grocery industry, for one, he says, has been very slow to get on board. In fact, he says, a recent survey by a supermarket industry magazine showed that only 2 percent of supermarket executives considered CPFR important.
And even when the interest is there, implementation isn't setting any speed records. Among the major difficulties, according to the ARC Advisory Group's research, has been scalability—that is, extending successful tests beyond just a few trading partners or implementing more than a few of the nine steps in the process oulined by the six-year old VICS CPFR Committee. Manufacturers, in particular, have resisted the idea of investing in CPFR initiatives that vary from one customer to another with no guarantees of seeing a return on their investment.
Still, plenty of companies—particularly retailers—have reported some impressive gains using CPFR with multiple trading partners. One widely cited example is West Marine. Though West Marine managers were not available to comment for this story, the company's CPFR successes have been extensively reported. For example, authors of the ARC report call West Marine "a retail industry benchmark for scaling CPFR." The $660 million retailer of boating-related products buys 95 percent of its products from CPFR trading partners, which equates to about 200 suppliers and 20,000 SKUs. And it has saved a lot of money by doing so. According to JDA Software, which supplied West Marine's warehousing and collaboration software, the initiative has reduced DC costs by $3 million, reduced DC staffing costs by 50 percent, and decreased outbound costs since it was launched in 2000.
ARC attributes West Marine's success to a commitment to supply chain excellence that's aligned with the CPFR initiative. It also praised the company for making order forecasting an integral part of its merchandising and planning operations. Other key factors in that success, according to the consultant, were the company's efforts to get its suppliers to participate in EDI (electronic data interchange) before implementing CPFR and the improvements it made to its own forecasting and planning systems before embarking on CPFR.
Out of step?
CPFR, of course, is but one form of collaboration. Others include vendor-managed inventory, co-managed inventory, collaborative sales and operational planning, and collaborative management. But whatever the name, none of these initiatives has caught on fire yet.
That puzzles Andraski, who argues that the concept has already proved its worth. He says that businesses that have established collaborative business practices, such as Wal-Mart or Dollar Stores, are businesses that continue to gain market share. "That makes the point, doesn't it?" he asks.
Part of the problem is that despite some well-publicized successes, CPFR has yet to generate the kind of buzz enjoyed by, say, RFID. What's holding it back? Andraski contends that some of the criticism of CPFR comes from analysts who "don't get it." In particular, he says, many who look into CPFR misunderstand the nine-step process developed by VICS. (For a look at the nine-step model, which is designed to help retailers and suppliers come up with a single shared forecast for demand, visit www.cpfr.org.)
"One of the myths is that it's a very rigid nine-step process," he says. "We've been telling the business community that it is not nine steps, and that it is not inflexible. We find companies using nine steps and others using as few as two steps."
Andraski cites successful implementations by Rite Aid, Gillette and Ace Hardware as indications of the variety of businesses that have taken advantage of CPFR. "They're all going about it differently," he says. In one case, the retailer may handle the bulk of the forecasting work. In another case, it may be the manufacturer, and in another, the two may work closely together.
John Fontanella, vice president in the supply chain management practice of AMR Research, agrees. "I think CPFR has become less of a structured methodology and more of a framework—more like guidelines on how companies can work together," he says. "You can do anywhere from one to nine steps."
No IT purchase required
Another misconception that has gained currency, says Andraski, is that CPFR requires sophisticated IT systems. That simply isn't so, he says. "This is not about technology. Technology is just an enabler. We've had companies tell us that they started with one of their largest customers with paper and faxes and have seen an improvement in the relationship. Not only did they sell more stuff, but the customer's cost of business dropped and exceptions were reduced."
Fontanella agrees that there's no need for expensive technological upgrades. "The process is way ahead of any specialized technology," he says. Many software providers today are building collaboration into their warehouse management and other systems, he reports. "All you need to participate is a PC." In a recent e-mail advisory bulletin, "Lessons in Collaboration for any Industry," Fontanella contends that most companies support CPFR relationships with applications they already have in house.
One example of how an existing technology platform can achieve at least some measure of successful collaboration is FFF Enterprises, a distributor of biopharmaceuticals and blood products to hospitals, group purchasing organizations and other medical facilities. The company makes use of several applications, including an online ordering system, from software provider Intentia.
Danny Poteet, the company's information systems manager, says the Intentia Movex system implemented three years ago has not only streamlined order management but also helped the company keep better track of its physical inventory. FFF Enterprises implemented the system in 2001 for business processes like financial management, customer order management, production management, purchasing and warehouse management. "It easily takes half the time it used to for cycle counts and physical counts," he says. "We were able to streamline picking, packing and shipping."
As for what prompted the initiative, Poteet explains that better integration between sales and inventory was a competitive necessity. At the time of the installation, many of the company's customers—particularly group purchasing organizations —were looking for more efficiency from suppliers.
There was some pain in the implementation. "In some ways, we added more work for customer service," Poteet acknowledges."But once we remove some self-inflicted barriers, it relieves customer service of a lot of the things they do." He adds that prior to implementation, the company went through the process of cleaning its own data, but made an effort to make changes transparent to customers.
The biggest benefit is that the new sales program is so closely integrated with back-end systems. "That's where most of our costs come from," Poteet says.
The cost myth
Another perception—Andraski calls it a misconception— that has hindered adoption of CPFR is the notion that it will be too expensive. Andraski reports that many businesses that have looked at CPFR worry that expanding the program beyond one or two customers will jack up their labor and other costs. (The ARC study, for example, reported that manufacturers said they had difficulty expanding beyond a pilot program without adding significant overhead.) But failure to collaborate already carries significant costs, he argues.
Andraski contends that current business practices in many industries force companies to devote enormous resources to battling exceptions that collaboration would reduce or eliminate—problems created in part by the existence of multiple forecasts. On average, he says, businesses are operating with six to nine different forecasts—one for Wall Street, another for the internal top line, a third by brand, another for logistics costs and so on.
He cites one company with a dozen DCs, each of which generates a forecast based on previous years' sales, from which manufacturing makes product and ships it out— forecasts unconnected to marketing. "All this stuff is brought into Dallas on a forward buy with a deep discount and then it's diverted to Chicago.What goes on is not connected to manufacturing or the customer."
There's a better way to do it, Andraski argues. "But if you want to scale it, you have to go through the building blocks. If there is a major stumbling block, it is all around culture and leadership. I can't tell you how many countries I've been to, or how many different businesses I've visited, where I've heard the same pushback—that 'Our business is different.' It may be different, but only by marginal points. … You forecast fashion the same way you forecast demand for peanuts. You don't have the same emphasis on out of stocks—in fashion, you want to be out of stock at some point. The difference is on the demand side. The execution side is very much the same."