CPFR: Realizing the Promise of Efficient Consumer Response Through Collaborative Technology

Since the introduction of Efficient Consumer Response (ECR) in early 1993, the industry's trading partners have attempted to look beyond the promises the initiative brought, and toward the processes that will make ECR a reality. Because so many organizations have been quick to conjure their analyses of and blueprints for ECR implementation, many in the industry have come to believe that ECR stands for "Every Company's Reengineering" contributing to "Every Consultant's Retirement". But the crux of ECR is the establishment of "Effective Channel Relationships", whereby partners in the supply chain work together to achieve the more that $30 billion savings promised by the Efficient Consumer Response initial analysis.

Continuous Replenishment Programs (CRP) and Vendor Managed Inventory (VMI) have been frequently cited as key processes in the quest toward ECR implementation. Yet CRP/VMI implementation, rife with challenges, requires the management of new and more abundant sources of information, and an understanding of the unique "rules of engagement" associated with each new relationship established among trading partners. Maintaining competitiveness within this still fluid market does not necessarily require the substantial changes and investments in technology, information, and infrastructure -- both physical and organizational ­ that many have been led to believe. While an unprecedented level of cooperation among trading partners within the channel is necessary, implementation of collaborative business practices need not be overly time consuming and costly. Synchronizing business processes to consumer demand requires the sharing and leveraging of existing information between enterprise functions and enterprises across the channel to enable implementation of industry guidelines recently approved by the Voluntary Inter-Industry Commerce Standards organization and the Uniform Code Council for Collaborative Planning, Forecasting, & Replenishment or CPFR.

Changing Paradigms in the Consumer Products Industry
The Consumer Products Industry is in the midst of a fundamental shift in attitudes concerning traditional business practices among its participants, particularly as those practices relate to trade promotion and replenishment of products across the supply chain. This shift in attitudes crystallized in the formation of an industry-wide working group and the issuance of a report in late 1992 that set the stage for what has come to be known as the Efficient Consumer Response movement, or "ECR". In that report, the ECR committee proposed that the industry could save $30 billion annually and reduce system-wide inventories by more than 40 percent if more rational practices could be brought to four issues: trade promotion, replenishment, product assortment, and new product introductions. While all four of these initiatives discussed are worthwhile and interrelated, the actions related to replenishment accounted for more than 40 percent of the total benefits projected for ECR. Accordingly, the replenishment issue has absorbed much, if not most, of the attention of the participants across the consumer goods landscape of retailing and demand through manufacturing and supply.

There has been a great deal of activity in establishing communications across electronic networks for Electronic Data Interchange (EDI) among trading partners, and a number of manufacturers have established cross-functional teams to work directly with major retailers in the creation of account-specific promotion and replenishment programs. As the initiative is evolving, it was expected that problems would arise, as indeed they have, but virtually no one now expects that the movement is simply a "buzzword". The problems are being addressed by a variety of companies, and an increasing number of firms that had adopted a "wait and see" attitude are now becoming actively involved. More and more participants in the consumer goods pipeline would like to take a proactive role with respect to ECR in general and establish trading programs with not only high volume retail partners, but with a broader community of trading partners to achieve the ubiquitous "critical mass".

Since 1973, when the UPC standard was first established in the United States, was it believed that one of the principal uses of the technology would be to improve inventory planning and control, but more than 20 years later, the vision is largely unfulfilled. There are a number of reasons, but among the most important have been the extraordinary volume spikes created by short-term promotional events and the lack of a common technology to facilitate low cost exchange of critical planning and demand information across a wide range of trading partners. Slowing the adoption of EDI communications was the imbalance of investment (cost) to develop the technology to support "standard" transaction sets (and, the accompanying cost to adapt your interpretation to every other trading partner's interpretation) with the return of simply accelerating the exchange of the information without the capability to actually use it. As a result, the fax often replaced EDI as the fastest way to move information among trading partners. While it is true that information technology has reached an exquisite level of capability, the volume of data and the inconsistency of often competing technologies has inhibited achievement of the "critical mass" among even the most progressive trading partners.

Figure 1.	The Problem: No Visibility to Synchronize Material and Processes Across the Supply Chain

Collaborative Planning, Forecasting, and Replenishment (CPFR)
CPFR is a paradigm-breaking business model that takes a holistic approach to supply chain management among a network of trading partners. Approved as industry guidelines by the Voluntary Inter-Industry Commerce Standards (VICS) organization and the Uniform Code Council (UCC), CPFR has the potential to deliver increased sales, inter-organizational streamlining and alignment, administrative and operational efficiency, improved cash flow, and improved return-on-assets (ROA) performance. Evolving from the innovative development of the Retail Working Group by Benchmarking Partners and an initial pilot program between Warner-Lambert and Wal*Mart, CPFR has emerged as a strategic initiative being adopted by leading companies worldwide. Twenty-six leading edge companies serve as a sub-committee to the VICS Merchants Issues Committee. Across all consumer goods segments, these companies have contributed to the CPFR guidelines to improve the flow of goods from producer to the end consumer.

How does CPFR work? It begins with an agreement between trading partners to develop a collaborative business relationship based on exchanging information to support the synchronization of activities to deliver products in response to market demand. Using CPFR, supply-chain participants can minimize the inventories that buffer interactions between processes (estimated at more than $200M excess) and focus on improving the accuracy of plans to support the flow of products in the channel. By focusing on the flow of supply to consumers, without the clouding effect of inventory, participants can discover previously hidden bottlenecks in the flow (variances in actual from plan) and address them. In turn, taking care of these now-visible inefficiencies can reduce cross-process operational costs. This jointly agreed to plan fundamentally describes what is going to be sold, how it will be merchandised and promoted, in what marketplace, and during what time frame. This plan becomes operational through each companies' existing systems, but is accessible by either party via existing VICS-approved communication standards.

Figure 2.	The CRP Business Requirement: Integrated Planning & Execution

While industry standards may facilitate electronic commerce and the exchange of critical business transactions between trading partners' operational enterprise systems, an open architected, non-competitive, and non-exclusive solution is needed to enable synchronization of decision making at the channel level where collaboration is required.

Companies have had to place heavy demands on personnel to manage a collaborative exchange in the absence of a common application technology based on industry standards for dynamic information sharing. The cost of establishing and maintaining collaborative processes without common interfaces limits the number of trading partner relationships each participant is willing to invest in. In turn, the limited number of participants using collaborative processes further constrains the potential value of that process to both those who use it and those who do not yet use it.

Application technology development has produced advanced decision-support and enterprise execution systems that have been primarily focused on optimizing and integrating the internal processes of an enterprise. Many of these applications vendors have built capabilities to support advanced trading partner relationships, but the complexity of inter-enterprise integration, given the absence of a common technology between them and the lack of software to support such functionality, has limited the broad collaborative usefulness of those products. Further exacerbating this complexity is the fact that most companies have different, often competing solutions, as their planning systems of choice. Collaboration among trading partners is challenging at best, collaboration among competing software vendors is arduous.

At the end of the day, trading partners seek to establish a relationship between them. The last thing they want to have to do is bring in a bunch of competing technology vendors to make the relationship work.

The network of trading partners that currently exists between customers and suppliers is well suited to support the implementation of Internet based collaborative technology. Many of the major retailers and manufacturers have engaged in multiple vendor-managed inventory or co-managed inventory programs, as well as continuous replenishment programs. Major providers of enterprise software and advanced planning systems have developed extended supply chain capabilities. The lessons learned and relationships in these programs as well as the network nature of the industry provide the market foundation for the development of a new category of software, "BetweenWare". BetweenWare supports the growing requirement to exchange and compare "uncommon" information (generated by different applications) between functions and enterprises to support a widely deployable common commercial technology, to "synchronize" as opposed to "integrate" the unique planning views of diverse trading partners.

For example, how do you integrate the retailer's forecast of 10,000 cases with the supplier's forecast of 5,000 cases? How do you integrate the schedule to ship 400 cases of Munchies with the schedule to receive 400 cases of Munchies so that you can plan to cross dock the product? How do you integrate the forecast of different product requirements from 40 different suppliers to identify if those purchases could be synchronized to consolidate freight and provide a forecast of equipment requirements by lane to the carrier?

Figure 3.	The CPFR Business Requirement: Integrated Planning & Execution

Enterprise applications are also a serious impediment to innovation in trading partner relationships. Collaborative business practices frequently demand systems that are symbiotic--providing real-time visibility and control of information by both a customer and its supplier. Unfortunately, the information superhighways that enterprise applications set up inside a corporation turn into footpaths at the front door. Even when they purport to have Internet features, companies are usually forced to build their own business-to-business processes.

BetweenWare: Systems for Collaboration
This new category of business software, BetweenWare, bridges the gaps introduced by enterprise software by placing the trading relationship at the center of the system. BetweenWare exchanges and compares information from different systems and notifies users of changes in promotions, demand, pricing, availability, authorization, and payment for products and services. System alerts help companies respond to unexpected events, while performance-based scorecards monitor the long-term health of the partnership.

The priorities of BetweenWare are different from those of enterprise software. Enterprise software automates a business process; it rallies the organization around a common way of doing things to achieve competitive advantage. BetweenWare mediates between diverging processes by providing the information to the participants while facilitating the collaboration required to align and synchronize the processes to achieve mutually beneficial common objectives.

BetweenWare leverages and protects a corporation's investment in enterprise software. It is designed to leverage information generated by the applications supporting existing business processes. And because every organization has unique needs and vendor preferences, BetweenWare solutions are built on existing industry standards. Spawned by the Internet, rather than accommodating to it, BetweenWare solutions can be run from anywhere, and deployed and updated on-line, whether used by a global corporation or someone working out of their home.

By combining the supply chain intelligence of each trading partner's decision support systems and the empirical knowledge of each partner's personnel with the real-time communications capability of the Internet, BetweenWare can provide the support to simultaneously reduce inventory costs and raise customer service levels.

Collaborative pilot projects to date have shown that even small investments in this area can result in major benefits for all players. To reinforce the business case for CPFR and channel focused software to support it, the Voluntary Interindustry Commerce Standards (VICS) Collaborative Planning, Forecasting, and Replenishment (CPFR) guidelines have been adopted and are being piloted at many leading corporations. More information on CPFR, pilot results, and the technology requirements to support implementation can be found on the Internet at www.cpfr.org.

CONCLUSION
The challenges of inter-enterprise collaboration and implementing CPFR are at first glance daunting. However, the benefits and competitive advantage that will accrue to the market leaders are substantial. Getting there requires unprecedented cooperation among trading partners. Through the technological innovation initiated by the development of the Internet and the emerging market for BetweenWare applications, implementing this emerging business practice can be affordable, widely deployable, and most importantly accomplished with a minimum change to existing systems and individual company business processes.

About the Author
Richard J. Sherman is an internationally recognized writer, researcher, and speaker on logistics, supply chain management, Efficient Consumer Response (ECR), marketing and organizational change. He currently serves as Senior Vice President, Market Development for Syncra Software, a Cambridge, MA based start-up company focused exclusively on developing standards-based applications to support collaborative business practices.

Throughout his career, Mr. Sherman has held senior management positions with AMR Research, Numetrix Ltd., Information Resources, Inc., Mercer Management Consulting, Digital Equipment Corporation and Unisys Corporation serving clients in retail, wholesale, manufacturing, and logistics services (warehousing & transportation). He is a frequent contributor of articles related to logistics, ECR, and supply chain management, and speaks at conferences, symposiums, and universities regularly.

An alumnus of the University of Notre Dame for both undergraduate and graduate degrees, he serves on the National Advisory Board to the Center for Logistics Management at the University of Nevada-Reno, and is a member of the Council of Logistics Management (CLM) and the Warehousing Education and Research Council (WERC). He has served as an executive in residence at the University of Tennessee, Michigan State University, and the Ohio State University among others.