Retailers and manufacturers have long faced a disconnected supply chain, operating with different data sets, mismatched expectations and fundamental business differences. The result? Frustration, mistrust and a breakdown in the information supply chain.
In this blog series, Supply Chain Nation sat down with a number of industry experts to discuss the retailer-manufacturer divide. First up is our conversation with André Martin, considered the father of both Distribution Resource Planning (DRP) and Flowcasting, a new paradigm in supply chain collaboration. In the following excerpt, Martin explains why Flowcasting finally fulfills the promise of collaboration that retailers and manufacturers have been striving for over many years.
SCN: Better means for collaboration is something we hear retailers and manufacturers asking for nearly universally. Flowcasting, at its heart, is about both sides collaborating to better understand their business and set joint parameters for calculating demand. Why has Flowcasting been more successful in this regard than previous efforts such as CPFR?
Martin: The best way to answer that is to step back and ask ourselves why is it that over the years people have tried various ways—CPFR, ECR (efficient consumer response), VMI and others—to collaborate? What it really boils down to is that people have tried hard to improve collaboration up and down the physical supply chain, but the problem has been, and continues to be, that the information supply chain is broken. We often say it is disconnected, but in reality it’s broken because while retailers are trying to manage their part of the supply chain the best they can, manufacturers are trying to manage their end of the supply chain, and they’re not working collaboratively. Essentially, there is a wall between the information systems that the retailers and manufacturers are using to manage their pieces of the business. Those systems do not speak to each other and this is where the disconnect lies. The good news about Flowcasting is that it was specifically developed to fix that problem—to mend the information supply chain. The basic premise of Flowcasting is that you need to connect every node in the supply chain, and that the trading partners, in this case the retailer and the manufacturer, need to sit down and agree on the sales forecast that is going to drive the entire supply chain.
Thus, Flowcasting says “never forecast what you can calculate.” Let me repeat that because this is really the crux of the whole thing—never forecast what you can calculate. If trading partners can agree on what the consumer will buy at store level, that becomes an input into the Flowcasting process. Then, Flowcasting calculates what the entire supply chain needs to do—from the brick-and-mortar or virtual store shelf all the way back to the factory. At the end of the day, the trading partners have a single, shared model of the business within the system. They are able to manage the end-to-end supply chain from a single set of numbers.
Once trading partners have this model of the way they are going to be flowing product, the first time they see it, it gets interesting. I’ve been there with Kraft and two of its major customers for several years now. The first day we saw their model, nobody liked it because it was the first time we saw there were flaws in the model. But the good news about that is once you have that model, if you don’t like what you see, you can do something about it because it is a true reflection of the way trading partners have decided to do business with one-another. It’s just that now it has been put all together and you can finally see a picture of how product is actually flowing up and down the supply chain. Trading partners can then begin to take corrective action to improve the flow from the factory all the way to the store.
In comparison, CPFR is really a good collaborative effort. I have always argued that CPFR has contributed to the collaboration aspect that trading partners need to have. The reason it hasn’t worked is because the trading partners were developing individual forecasts and then trying to reconcile their forecasts, as opposed to what we are talking about here which is to agree on the input. Let’s agree on what the forecast is going to be, because we only need one. We don’t need the manufacturer to come up with their forecast and the retailer to come up with their forecast and see how we can collaborate and reconcile. That is not the way to do it. The way to do it is to drive the entire supply chain from a single store-level forecast.
SCN: Thanks, André. In the second part of this series, launching August 19, Martin will discuss how Flowcasting helps manage demand volatility, and how to address the two biggest factors that rob manufacturing of efficiency. Readers, if you’ve experienced a breakdown in the information supply chain, we encourage you to share your thoughts in the comments section below.
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