MITE Middle Tennessee Chapter January 18, 2005

A Formula for Supply Chain Excellence = One is Greater Than Nine

Flow of Presentation Supply Chains Collaboration Exercise Collaboration Process Benefits The Thrill of Victory…the Agony of Defeat Implementation Summary

Flows Throughout a Supply Chain ConsumptionCustomersRetailersWholesalersManufacturersSuppliers Seems Straightforward……. ProductProduct InformationInformation or is it?

Does Your Supply Chain Look Like This?

Or More Like This?

Flows ConsumptionCustomersRetailersWholesalersManufacturersSuppliers Distortion of Information Effect InformationInformation P&G

The “Bullwhip Effect”

Causes of the Bullwhip Effect Price fluctuations Ordering periodically Promotions….Offering deals which encourage early buying Production schedules based on forecasts

Recent Supply Chain Study… “Only 7% of companies today are effectively managing their Supply Chain. However, these companies are 73% more profitable than other manufacturers.” Deloitte & Touche Study, October 2003 as cited by David Simchi-Levy

Exercise

Instructions for the Exercise  Close your eyes  Turn the paper from front to back  Fold the paper in half  Turn the paper from top to bottom  Fold the paper in half  Tear off the right hand corner  Fold the paper in half  Turn the paper over  Tear off the left hand corner  Open your eyes and compare with your neighbor

Communication Exercise Review  Why didn’t everyone finish up with the same end product?  Were the instructions clear?  How could communication have been improved? Is communication in your supply chain one way?

What is Information Visibility? Sharing critical data required to manage the flow of products, services and information between customers and suppliers Information that is available but cannot be accessed by the right party at the right time, loses its value quickly.

Sharing Information Major problem: Organizations do not have a clear view of the final marketplace Capture demand at the point of final consumption Even bigger problem! : Lack of trust between supply chain partners Companies must share data beyond their four walls

Collaboration

Collaboration (CPFR) Definition… A business process for value chain partners to coordinate plans in order to reduce the variance between supply and demand.

Associations for CPFR Voluntary Interindustry Commerce Standards (VICS) Logo for CPFR Process

Steps of Collaboration (Consumer) Sales Forecast (Replenishment) Order Forecast 1. Front-End Agreement 2. Joint Business Plan 3. Create Sales Forecast 4. Identify Exceptions 5. Resolve Exceptions 6. Create Order Forecast 7. Identify Exceptions 8. Resolve Exceptions 9. Generate Order

Front-End Agreement Establish a Front-End Agreement Sponsors Confidentiality Dispute Resolution Scorecard (KPI) Financial Incentives / Penalties 1

Create Joint Business Plan Develop Plans for Handling Promotions Inventory Policy / Changes Thereto Store Openings / Closings Product Line / Category Changes 2

Sales Forecasting Collaboration Trading Partners Share Consumer Demand Forecasts Create Sales Forecasts 3

Sales Forecasting Collaboration Identify Exceptions to Sales Forecast Causal Data Consumer Demand Others 4

Sales Forecasting Collaboration Resolve / Collaborate on Exception Items 5 Create Sales Forecast Create Sales Forecast Identify Exceptions for Sales Forecast Identify Exceptions for Sales Forecast Resolve / Collaborate on Exception Items Resolve / Collaborate on Exception Items 3 4 5

Sales Forecasting Collaboration Trading Partners Share Replenishment Plans 6

Identify Exceptions for Order Forecast Consider the Following: Distribution Exceptions Manufacturing Exceptions Horizon Considered 7

Resolve / Collaborate on Exception Items Closed Loop System for Collaboration 8 Create Order Forecast Create Order Forecast Identify Exceptions for Order Forecast Identify Exceptions for Order Forecast Resolve / Collaborate on Exception Items Resolve / Collaborate on Exception Items 6 7 8

Order Generation Creating a PO / Order Start Physical Replenishment Process Results Data is Shared, Typically: POS Orders / Shipments On Hand Over / Under Stock Forecast Accuracy 9

The Collaborative Process Joint Business Planning Common Event Calendar Joint Forecast Manufacturer Forecast Drivers CapacityCapacity Order Lead TimeOrder Lead Time Consumer BehaviorConsumer Behavior Product AvailabilityProduct Availability PromotionsPromotions Raw Materials SupplyRaw Materials Supply Retailer Forecast Drivers In Stock PositionIn Stock Position Fill RateFill Rate Consumer DemandConsumer Demand Price ChangesPrice Changes Growth PlansGrowth Plans Distribution ChannelsDistribution Channels ManufacturerRetailer

One Is Greater Than Nine CPFR Let’s Put All of the Step numbers into the CPFR bucket It Contains a Special Solution

How Is One Greater than Nine? We Saw the 9 Steps of CPFR What is the One thing that is Greater than Nine??? People Trust Relationships Understanding CPFR 1 1 One Is Greater Than Nine

“Collaborated” Supply Chain Component Flow Product Flow Component Flow Product Flow Manufacturer Supplier Supplier Supplier Supplier Wholesaler DealerConsumer Information Flows to Whichever Supply Chain Partner Requires

Benefits of CPFR

Source: 2001 Syncra Systems, Inc. Study

Anecdotal Evidence: Wal-Mart Wal-Mart has CPFR with approximately 600 trading partners Key contributor to Wal-Mart’s quick emergence as largest and one of most successful grocery chains in U.S. Wal-Mart has lowest operating expense and fastest sales growth in grocery industry

The Thrill of Victory… Wal-Mart in the early 1990’s Office Supply Company that Supplied Wal- Mart and Others VMI evolved into CPFR with Wal-Mart and Key Suppliers Smoothed Our Supply Requirements Convinced by Merits and Results

…the Agony of Defeat Key Customer (Name Withheld to Protect the Guilty) Said they wanted VMI / Collaboration Wouldn’t Commit to any Exchange of Information Wanted the Benefits, but not Willing to Invest in the Process Did Not Understand What was Required Trust

Implementation

CPFR Roadmap Step 1 – Evaluate Your Current State Step 2 – Define Scope and Objectives Step 3 – Prepare for Collaboration Step 4 – Execute Step 5 – Assess Results / Identify Improvements

Selected Implementation Steps Find a Senior Management Champion Dedicate Resources Select a Pilot Win – Win Potential Dive into the Process

Where Do We Start with Our Supply Chain Partners? Commitment between partners Assign team members and establish their roles Decide which part(s) of the nine-step Collaboration (CPFR) process to utilize Establish key performance indicators (KPIs) to measure our success

Summary

Collaboration: Why It Works Forecasts are Matched to Supplier’s Capacity Focuses Attention on Exceptions Mandates Reconciliation of Exceptions Facilitates Flexible Relationships Readily Available Supply Chain Information (via the Internet)

Dispelling Myths about CPFR CPFR does not require a major investment in technology CPFR is not an administrative burden CPFR does not require point-of-sale information CPFR takes too much time and effort to implement CPFR is rigid. No – you don’t have to follow all 9 steps CPFR is only a Supply Chain activity. It’s actually a holistic business approach.

Questions?

If You Want a Copy of This Presentation… Send an to Also, Please Leave Your Business Card for me

MITE Middle Tennessee Chapter January 18, 2005