MITE Middle Tennessee Chapter January 18, 2005. A Formula for Supply Chain Excellence = One is Greater Than Nine

MITEMiddle Tennessee Chapter

January 18, 2005

A Formula for Supply Chain Excellence =One is Greater Than

Nine

Flow of PresentationSupply ChainsCollaboration ExerciseCollaboration ProcessBenefitsThe Thrill of Victory…the Agony of

Defeat ImplementationSummary

Flows Throughout a Supply Chain

ConsumptionCustomersRetailersWholesalersManufacturersSuppliers

Seems Straightforward…….

ProductProductProductProduct

InformationInformationInformationInformation

or is it?

Does Your Supply Chain Look Like This?

Or More Like This?

Flows

ConsumptionCustomersRetailersWholesalersManufacturersSuppliers

Distortion of Information Effect

InformationInformationInformationInformation

P&G

The “Bullwhip Effect”

Causes of the Bullwhip EffectPrice fluctuationsOrdering periodicallyPromotions….Offering deals which

encourage early buyingProduction 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 2003as 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 Is communication in your

supply chain one way?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 Items5

Create Sales ForecastCreate Sales Forecast Create Sales ForecastCreate Sales Forecast

Identify Exceptions forIdentify Exceptions forSales ForecastSales Forecast

Identify Exceptions forIdentify Exceptions forSales ForecastSales Forecast

Resolve / Collaborate onResolve / Collaborate onException ItemsException 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 Collaboration8

Create Order ForecastCreate Order Forecast Create Order ForecastCreate Order Forecast

Identify Exceptions forIdentify Exceptions forOrder ForecastOrder Forecast

Identify Exceptions forIdentify Exceptions forOrder ForecastOrder Forecast



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 PlanningJoint Business Planning

Common Event CalendarCommon Event Calendar

Joint ForecastJoint Forecast

Manufacturer Forecast DriversManufacturer Forecast Drivers•CapacityCapacity•Order Lead TimeOrder Lead Time•Consumer BehaviorConsumer Behavior•Product AvailabilityProduct Availability•PromotionsPromotions•Raw Materials SupplyRaw Materials Supply

Retailer Forecast DriversRetailer Forecast Drivers•In Stock PositionIn Stock Position•Fill RateFill Rate•Consumer DemandConsumer Demand•Price ChangesPrice Changes•Growth PlansGrowth Plans•Distribution ChannelsDistribution Channels

Manufacturer Retailer

One Is Greater Than Nine

CPFRCPFR

113355778899224466

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 CPFRCPFR

11One Is Greater Than Nine

“Collaborated” Supply Chain

Component FlowComponent FlowProduct FlowProduct Flow

Component FlowComponent FlowProduct FlowProduct Flow

ManufacturerManufacturer

SupplierSupplier

SupplierSupplier

SupplierSupplier

SupplierSupplier

WholesalerWholesaler DealerDealer ConsumerConsumer

Information Flows to Whichever Supply Chain Partner RequiresInformation Flows to Whichever Supply Chain Partner Requires

Benefits of CPFR

Retailer Benefits with CPFR

2%

10%

5%

3%

8%

40%

20%

4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Better Store Shelf StockRates

Lower Inventory Levels Higher Sales Lower Logistics Costs

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Low HighSource: 2001 Syncra Systems, Inc. Study


2%

10%

5%

3%

8%

40%

20%

4%

0%

5%

10%

15%

20%

25%

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2%

10%

5%

3%

8%

40%

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4%

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5%

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2%

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2%

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Manufacturer Benefits with CPFR

10%12%

2%

5%

40%

30%

10% 10%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Lower Inventory Levels Faster ReplenishmentCycles

Higher Sales Better CustomerService

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10%12%

2%

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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 Email to

[email protected]

Also, Please Leave Your Business Card for me

MITEMiddle Tennessee Chapter

January 18, 2005

Documents

MITE Middle Tennessee Chapter January 18, 2005. A Formula for Supply Chain Excellence = One is Greater Than Nine