Supply Chain Shaman

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Let’s face it. We have not done a good job on CPFR or VMI.

Many tout it.  Presentations expound on it; but back home at the office, customer teams are confounded.  In the late 1990’s it was all the rage.  Yes, CPFR (Collaborative Planning Forecasting and Replenishment) and Vendor Managed Inventory (VMI) processes, over-hyped by many, have fallen short in delivering the promise.  In this article, I look at the evolution, the success and the gaps highlighting where it fits and where it does not.

Why did CPFR /VMI not delivered greater value?

The results are clear.  After ten years of active projects, collaborative planning forecasting and replenishment  and VMI failed to reach its promise for three reasons:

  • Too laborious.  Just too much work for the benefit.  The added costs did not measure up to the benefit.
  • Retail forecasts not up to the task. For CPFR to work, retail forecast accuracy needs to be high and with sufficient granularity to ensure analysis.  The dirty little secret with CPFR is that for most only three retailer forecasts—Best Buy, Food Lion and Wal-Mart—were up to the task. 
  • Lack of integration into enterprise processes.  For most Advanced Planning System (APS)/Enterprise Resource Planning (ERP) deployments, there was no logical connection for the data.  I predict that we will see a resurgence in the next five years based in the new Software as a Service offerings, advanced analytics based on downstream data, on tcollaborative platforms — Jive and Lithium–but, this change will not happen in the short term.

When does it make sense?

However, it would be incorrect to say that these processes never makes sense. Yes, they were over-hyped and over-promised, and applied to situations where there was not a good fit; but don’t throw out the “baby with the bath water”.  So, you might be saying, where does it fit?   When a company has five characteristics, companies can see benefit:

  • Significant channel presence.  The account needs to be significant—at least 10% of the channel-for the investment to warrant the expense.  The greater the channel presence, the greater potential benefit. It must matter and make a difference.
  • High demand volatility.  CPFR makes more sense for products with short life cycles, seasonal patterns, strong dependence on weather, and in competitive categories.  It makes less of an impact for products that have stable demand.  Companies benefit from advance warning signals.
  • Strong retail partnerships.  The data is clean, available and meaningful to both parties’ business objectives.  Both companies have strong planning skills and a passion for forecast accuracy.  It is tied and closely coupled to the business.
  • Direct tie to replenishment.   Many companies forget the “R” in CPFR.  If he advanced notification from forecast sensing can make a difference in improving replenishment and the other conditions can be satisfied, go for it!  However, not all replenishment cycles can be shifted in concert with the these signals.  It works best when there is high volume and unpredictable demand.  What makes sense?  The supply chains of products like bathing suits, suntan lotion, snow shovels, flu medication, cough syrup are good fits.
  • Right stuff. It makes sense when there is demand architecture to support close coupling of the collaborative demand signal from the retailer.  The architecture must allow integration at the account, ship-to level. 

What now?

Lately in my visits with clients, I am finding companies with 15-36 of these collaborative relationships.  Lots of process, but little to show for it.  When I go through the criteria, there is quick agreement that the foundation of the program was sales-driven versus adding value to the value chain.  The secret is to be judicious and look for the right fit.  Yes, these processes have a place in driving supply chain excellence; just not the over-hyped promise of ten years ago.  The hype has listed, it is time to be more realistic.

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