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The Ultimate Retail Supply Chain Machine

Connecting the Consumer to the Factory

Our Panel

• Larry Smith, SVP Planning & Replenishment, West Marine

• Brian Kirkpatrick, NA MDO PS Director ‐ Commercial Operations, Procter & Gamble

• Ron Volpe, Customer VP Supply Chain, Kraft Foods

• André Martin, Co‐Founder, Red Prairie Flowcasting Group

Agenda

• New VICS CPFR Guideline

• New Method Retail Demand Planning

• Connecting the Consumer to the Factory

• Review Case Studies and Benefits

• Best Practice Recommendations

• Roadmap to Integrated Business Planning

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Focus on the Consumer

“Meet the real needs of consumers”

• Aligns supply chain partners

• Encourages change and innovation

• Appeals to our values, our identities

“Cut costs”

• No appeal to values or positive identities

• Circle the wagons; protect fiefdoms

• Resist change and innovation

Consumer Focused Supply Chains

Consumer Demand Driven

• Design, make, procure and deliver what consumers want

• Understand forces shaping demand and coordination

Forward Planning

• Supply chain coordination requires an extended planning horizon

• Forward plans operationalize emerging strategies

Forward Planning: Options and Costs

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• Every supply chain is two supply chains. • The physical supply chain: the movement of materials

and products from supplier to manufacturer to retailer. • The information supply chain: the movement of

consumer demand information from retailer to manufacturer to material supplier.

• Retail consumer demand information supply chain is disconnected without the time-phased forward planning processes of store level Distribution Resource Planning (DRP) or as it is often called Flowcasting.

Completing the Information Linkin the Supply Chain

• Most store level systems are execution, not planning systems. They provide no insight into future ordering needs.

• Most retail DC & manufacturing DC systems base forecasts on historical shipments – completely disconnected from store level sales or inventories. They provide no insight into future store ordering needs.

• Without store level DRP (Flowcasting) the manufacturer has no insight into the retailer’s future demand requirements.

Shortcomings of Most Retail Replenishment Systems

Factory MDC RDC Store

Why not exclusively focus on POSfor Planning?

POS Analytics Alone Do Not ProvideForward Visibility to:• Promotions• Product introductions and retirements• New stores and store closings• Changes in shelf configurations• Changes in store inventory levels• Presentation of flow method planning • Distribution network changes

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Connecting the Consumer to the Factory

A Single Store Level Sell Through Forecast

• Integrated Business Model of the retail supply chain• Jointly manage this Business Model to “A Single Set of Numbers"• Complete visibility throughout entire retail supply chain

Store Manufacturer DCRetail DC Factory

Forecast CalculationCalculation Calculation

Source: Adopted from Red Prairie Collaborative Flowcasting Group, LLC.

Once the consumer is connected to the factory every warehousing, transportation & selling activity that takes place from the time products leave the factory to the time we put it on the shelf if subject to review & change for the better.

Enabling Retailer/ ManufacturerStore Planning, S&OP & IBP 

Retailer’s Sales & Operations Plan - HD TV Category

Supplier’s Sales & Operations Plan

SupplierSchedules

Demand Planning Segmentation Level 1, 2 & 3

Today Planning CPG plans their network

Execution

CPG can see their own network Customer maintains visibility of their network.Visibility

Customer plans their network

Customer creates inbound WH order placement.

CPG creates internal network replenishment orders

Utilizingdown

streamData

Planning CPG plans their network

Execution

CPG begins to see Supply Chain information beyond its WH network. Customer Store & WH inventory, WH & and POS information.Visibility

CPG creates internal network replenishment order

Customer creates inbound WH order placement.

End to EndIntegration Planning

CPG begins planning internal network and orders from them into Customers WH.

Customer plans orders to the store.

Execution

CPG begins to see Supply Chain information beyond its WH network. Customer Store & WH inventory, WH & ordering rules, Network info., POS & Customer Forecast info.Visibility

CPG creates internal network replenishment and Customers WH orders.Customer creates

store orders.

Customer plans orders to the store, but more visibility allow.

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Retailer/SupplierAnnual Integrated Business Plan

Flowcasting’s Day To Day Operating PlanUpdated daily based on consumer sales

& reviewed monthly

Gap Analysis

Retailer/Manufacturer – IBP & Gap Analysis

• Questions to Answer:

– Why the gap – which products, which stores…?

– What actions do we jointly need to take to close the gaps…?

• Best Practice: 

– VICS Roadmap to IBP’s : The  8 Step Collaborative Process  

Supplier driven FlowcastingCase Study Benefits

Kraft and Sam’s Club

In 2007, Kraft implemented a Flowcasting  system to manage 

replenishment for dozens of DCs and hundreds of stores for Sam’s Club, with the following results:

• The average absolute error of the order forecast was 2.3 days or 7.7%. – Led to 15%+ Lag 5 forecast accuracy

• On‐going End to End collaboration driving:– In stock increases, lower Supply chain inventory 

– Lower warehousing, transportation and obsolescence costs.

• 2012 – Increased focus on consumption forecasts driving shipment forecast accuracy over 70%

Retailer driven Store Level DRP Case Study Benefits

West Marine

In 2001, West Marine implemented a store level DRP system and established a large scale CPFR (collaboration) program with over 150 vendors with the following results:

• Guaranteed order forecasts to suppliers.

• Audited supplier shipping to well‐communicated goals.

• Exceeded 25% profit growth for three years.

• Integrated an acquired company in 30 days.

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Retailer driven Store Level DRPCase Study Benefits

Lowe’s and Black and Decker

In 2007, Lowe’s implemented a store level DRP system for all 

products replenishing through its DCs, with the following results with Black and Decker:

• In stock improvement (from 92% to a consistent 98%).

• Significant reduction in excess inventory.

• 10% improvement in forecast accuracy.

• Decreased airfreight and other expediting costs.

More Store Level DRP to Come

Walmart

In 2009, Walmart announced to its suppliers that it was 

implementing a store level DRP system with the intention of modeling the supply chain with its trading partners and providing supplier schedules.

Source: 2012 VICS Guideline: The Ultimate Retail Supply Chain Machine: Connecting the Consumer to the Factory

• Store level DRP (Flowcasting) is now proven and practical. • Manufacturers already have DC level DRP systems, so

store level DRP completes the information supply chain. • By linking their DRP capabilities, supply chain partners will

create an integrated model of the supply chain based on forward plans of consumer purchases and distribution plans.

• The result: retailers and manufacturers gain improved control of their business.

• The synchronization of forecasts across the supply chain minimizes, if not eliminates, the bullwhip effect.

Store level DRP (Flowcasting) The  critical missing link

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Value to Retailers and their Trading Partners

For Trading Partners

In the CPG Industry

the single largestcost of doing

business is the cost of production

On averageIt represents

45% + of every dollar sold to the

consumer

Source: Flowcasting The Retail Supply Chain (appendix G)

Best Practice Recommendations• Manufacturers execute to retailer’s supplier schedule.

• Manufacturers protect supply as if the supplier schedules  were actual orders.

• Retailers will build trust with a track record of forecast accuracy.

• Retailer’s orders will respect near term product supply.

• Manufacturers will not be left with excess finished goods by building to forecast.

• Retailers and manufacturers value the relationship and capabilities of partners and work together to lower costs over time.

Roadmap to Integrated Business Planning

• Store Level DRP (Flowcasting) provides rapid and accurate replanning for retail supply chains.

• A clear multi‐year strategic plan that is replanned in each monthly S&OP cycle.

• Senior managers and executives become the process owners and drive quarterly business reviews.

• Cross‐functional  reviews link daily business planning  & execution to strategic goals.

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How can you learn more?

• www.vics.org

• www.gs1us.org/apparel

• Join GS1US/VICS

CPFR Work Group

• Attend the CSCMP Seminar

Series on the VICS  Ultimate

Guideline

• Read Flowcasting book

What you will find in the Guidelines“Ultimate” Guideline:

• Explains the methodology of Store Level DRP

• Integrating S&OP with Store Level DRP

• A roadmap for getting started

• The basic requirements of a store level DRP system

“Linking CPFR and S&OP” (= IBP)

• Process management with CPFR and S&OP

• An extended case study of Lowe’s/Whirlpool

• A maturity model for S/C transformation to IBP

Questions?