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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.
LE
VE
L 1
LE
VE
L 2
LE
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L 3
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0
200
400
600
800
1000
1 2 3 4 5 6 7 8 9 10 11 12Period
Vo
lum
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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?
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