The Supply Chain Collaboration Journey – Part 4: Supply Chain Collaboration Best Practice in 2015

In Part 1 of this blog series, we shared a spectacular success story that popularized supply chain collaboration back in the 1980s and laid out the path for all retailers and their suppliers.

In Part 2, we explored a solid roadmap to evolve your supply chain collaboration practices and accelerate the deployment of collaborative best practices on a wider scale.

In Part 3, we took a closer look at what companies deem to be state-of-the-art supply chain collaboration. What are the best companies doing today and what are the main challenges with their approach?

In Part 4, we will cover how retailers and manufacturers can take supply chain collaboration to the next level.

Introducing the More Advanced CPFR Supply Chain Collaboration Protocols

One of the main objectives of a more advanced CPFR supply chain collaboration model is to allow retailers and their suppliers to synchronize their demand and run their internal sales and operations planning (S&OP) based on a common understanding of demand in each store. They then can deploy this common demand forecast across their retail and manufacturing networks. This is what planners call distribution requirements planning or DRP.

Instead of running separate S&OP processes starting from different demand plans and assumptions at the retailer and at the manufacturer, this advanced CPFR supply chain collaboration model aims at eliminating the manufacturer’s forecast of what they think the retailer will buy.  That forecast is replaced by a supply schedule from the retailer, giving a very accurate picture of retail demand based on the retailer’s item within store level forecasts for product sales, as well as their strategies to grow sales and profits. This long-term visibility allows the manufacturer to evaluate capacity, process or automation solutions that will drive further costs out of the supply chain.

A prerequisite for this advanced CPFR model to work is the retailer’s ability to provide detailed supplier schedules. To that purpose, VICS CPFR introduced the store level DRP model depicted in the graphic.

Manufacturers have had the tools to aggregate and reconcile detailed schedules to top-level plans for decades, but lacked visibility to detailed store-level demand. Retailers have only recently been able to provide this demand aggregation and reconciliation to enable executive management at both the retailer and the supplier to connect day-to-day activities to their strategic business plans.

Without these detailed demand schedules, manufacturers lack timely and actionable information about the retailer’s requirements and partners start forecasting demand and resulting supply needs independently.  This often leads to the retailer’s orders arriving at the supplier as a surprise.

With the implementation of store-level DRP systems at global retailers, manufacturers no longer have to guess what retailers will order; retailers can share a reliable demand plan by item within store and DC. These store-level DRP systems calculate time-phased store and retail DC product requirements based directly upon the store-level forecasts for sales to consumers. Both retailer and manufacturer benefit from increased supply chain visibility, just as high-intensity car headlamps provide greater visibility to the road ahead.

In my next post in this series we will look more in-depth at technology that can support you and accelerate your journey to advanced CPFR supply chain collaboration.

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