Sven Eppert and Thomas Kapfhamer 26 May 2003 Warsaw School of Economics International Logistics Prof Krzysztof Rutkowski CPFR - the new edge in logistics -

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of CPFR 2.Current challenges 3.Benefits 4.Implementation 5.Case study 6.Summary Agenda

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May CPFR is… "Collaborative Planning, Forecasting and Replenishment" Collaboration among suppliers, distributors and retailers Forecast sharing Developing one common forecast EDI/Internet-based tool Definition of CPFR

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of CPFR 2.Current challenges 3.Benefits 4.Implementation 5.Case study 6.Summary Agenda

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Different planning data among retailers and manufacturers Non-integrated processes and systems Excessive response times, costs and inventory due to forecast inaccuracy Retailer: stock-outs, material shortages, inventory costs impacting margins, lost sales, poor customer service Manufacturer: inventory costs, obsolescence Current challenges

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of CPFR 2.Current challenges 3.Benefits 4.Implementation 5.Case study 6.Summary Agenda

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Increase sales (10-100%) Reduce inventory and out-of-stocks (at least 10%) Reduce merchandise returns (5-20%) Improve forecast accuracy (at least 20%) Enhance cash flow and profitability Contribute to consumer satisfaction CPFR can… Benefits

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of CPFR 2.Current challenges 3.Benefits 4.Implementation 5.Case study 6.Summary Agenda

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Steps of implementation Implementation Front-end agreement Joint business plan Sales forecast collaboration Order forecast collaboration Order generation/ delivery execution

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Step 1: Front-end agreement Implementation Establishing the guidelines and rules for the collaborative relationship Agreeing to confidentiality and dispute resolution processes Establishing financial incentives or penalties Commitment to collaboration and aligning of all parties around common goals Reviewing on an annual basis

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Step 2: Joint business plan Implementation Creation of a joint plan for each product category for going to market: -promotions -inventory policy changes -store openings/closings -product changes etc. Controlling of the day-to-day activities of manufacturing, delivering and selling products Revision quarterly or semi-annually

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Step 3: Sales forecast collaboration Implementation Creation of sales forecast by sharing promotion calendars plus analysis of POS data and causal data Identifying exceptions by determining causal factors Resolving exceptions by collaborative negotiations Forecast revisions on a regular - usually weekly - basis

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Step 4: Order forecast collaboration Implementation Combination of POS data, causal information, and inventory strategies Harmonizing capacity constraints for manufacturing, shipping, receiving, etc. Creating an interactive feedback loop Resolving exceptions by collaborative negotiations Reduction of uncertainty by real-time collaboration Consolidation of supply-chain inventories

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of exceptions Implementation Source: Syncra Systems Inc.

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Step 5: Order generation/delivery execution Implementation Transformation of the order forecast into a committed order Generated by either the manufacturer or retailer Frozen near-term orders (e.g. two weeks), only usage of longer-term information for planning Execution of the delivery to retailer

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Requirements Implementation CPFR technology fits in existing applications -fully open, interoperable, vendor-neutral Source: Syncra Systems Inc.

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of CPFR 2.Current challenges 3.Benefits 4.Implementation 5.Case study 6.Summary Agenda

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Problems "Bad" communication in the planning area Business processes insufficiently defined Responsibilities not clearly defined Too few, too inexact, too old data Objectives Increase sales by reducing out-of-stocks Decrease costs along the supply chain – also by reducing inventory, including inventory at promotion end Learn, test, develop further Metro and P&G – One way to start Case study

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May (= Collaborative Promotion Management) Promotion planning Forecasting of promotion volumes Checking orders and inventories of outlets Monitoring promotion sales Evaluation after promotion Supported by a workflow-tool Elements of CPM Case study

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May CPM example 1: Forecast and volumes Case study Forecasts: a) METRO b) P&G In case of exception: Red Light and ForecastMetro

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May CPM example 2: Check order and inventories of outlets Case study Forecast per product Actual inventory plus orders Deviation > 5%: Link to detailed information Product Red Light! Orders from outlets too low

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May CPM example 3: Monitoring promotion sales Case study Screen shows per product and day: Forecast Metro und P&G Quantity receiving Quantity sold Accumulated quantity sold Inventory Backlog of deliveries Zero sales

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Conclusion Case study Cooperating with partner also enhances own performance Better promotion process Possibility to increase sales and decrease inventories Start small and keep it simple, "stick to it" and develop it CPFR begins with single steps

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May Definition of CPFR 2.Current challenges 3.Benefits 4.Implementation 5.Case study 6.Summary Agenda

Sven Eppert and Thomas Kapfhamer CPFR - the new edge in logistics - 26 May CPFR is rapidly becoming mainstream Low barriers to participation Demonstrated benefits Instead of the traditional trade-off: Now simultaneous improving of inventory and reducing of out-of-stocks possible Win/win situations where customer satisfaction, costs and revenues improve simultaneously More and more companies successfully launched pilots, e.g. Kimberly-Clark, Procter & Gamble, Metro, Wal-Mart CPFR changes the supply chain dramatically! Summary