Starting a supply-chain revolution

John Duker, e-business infrastructure services architect at consumer products giant Procter & Gamble Co., says things are moving fast these days as America’s largest consumer products maker refashions its supply-chain technology to maximize its efficiency.

“We are trying to get redundancy out of the stocks in our stores and to gain access to information quickly about what is selling so we can replenish our products more quickly,” Duker says.

For P&G and others stocking retail stores, getting the right goods on the right shelf at the right time comes down to having the best planning and real-time inventory data. The Washington-based association Grocery Manufacturers of America estimates that the 31,000 U.S. grocery stores lose US$6 billion in retail sales each year when consumers fail to find items on the shelves.

This “retail out of stock” problem has been the bane of producers and suppliers for years. Now chief technologists throughout the supply chain are extending collaboration and integration technologies from suppliers to retailers to tackle the problem in an ever more sophisticated way.

By deploying a mixture of a cutting-edge business process called CPFR (Collaborative Planning, Forecasting, and Replenishment) and EAI applications, Duker is leading other CTOs as they fashion increasingly efficient supply-chain connections.

Managing the chain

CPFR is being implemented by major suppliers in network connections with retail partners, says Mike Green, analyst and senior vice president of retail practice in North America at Cap Gemini Ernst & Young in New York. “Some leading-edge companies are introducing this point-to-point solution. If these companies can collaborate and get their systems hooked up, they will make tremendous strides in removing supply-chain inefficiencies,” he says.

The supply chain and the technologies used to move goods from manufacturer through distributor to retailer are complicated and costly. CPFR is the platform that manages collaborative relations between supplier and retail partners. Using an Internet-based system, the parties share information on central supply-chain functions and adjust changes in demand and supply accordingly. IT shops can customize the configurations of these functions to suit partners’ and their needs.

These Web-based, collaborative networks can generate up-to-the-minute information that can in turn be managed to save thousands of dollars in needless capacity, industry experts say. Further out, supply-chain technology is moving toward an open-standards process called the Global Commerce Initiative that will foster supply-chain communications across multiple suppliers and retailers on a worldwide basis, rather than as a private supply-chain network, Green and others say.

Stock reduction

For now, CPFR is becoming recognized as a new and better way to facilitate the many applications that make up supply chains. Cincinnati-based P&G, with almost $40 billion in revenues and 300 brands stretching from beverages to baby care and fabrics to beauty products, has set up an elaborate supply-chain platform that includes inhouse applications as well as CPFR.

At P&G, the CPFR solution is becoming central to collaboration with retail customers, Duker says. “CPFR allows us to work with our retail customers to share planning information with them, and it allows us to do a better job of planning.”

P&G uses Syncra Systems’ CPFR offering, a Web-based supply-collaboration platform. Duker says P&G customizes the system to fit with its retail partners, gauges demand and other needs, and adjusts accordingly. “Different trading partners can interoperate in our system,” he says.

Data transport over the Internet is secured using Cyclone Commerce software, allowing P&G to exchange supply-chain information with diverse retail partners, Duker says. “You can send and receive information over the Internet, whether its EDI data, XML, or flat files.”

Through CPFR, Duker has reduced P&G’s stock inventory by more than 10 per cent. “Before, we had more inventory to avoid running out of stock. Now we don’t have to have as much safety stock.”

Stock reduction is the aim of Brian Belcher, vice president of information systems at The Scotts Company in Marysville, Ohio. In November the company will begin operating a CPFR system with a major national retail customer. The move is part of a major refashioning of the supply chain for the world’s largest maker of lawn and garden products, which has 10 regional warehouses around the country to coordinate.

Scotts recently deployed SAP’s ERP software to integrate more than 50 legacy systems into one system that combines back-office functions such as distribution and manufacturing. The company also integrated external point-of-sale data into the ERP system using Ascential Software’s enterprise data integration system. By streamlining operations and placing manufacturing closer to retail partners, the company has reduced inventory on hand by about 30 per cent.

Now Scotts is ready to leverage these applications with the CPFR system from Manugistics to reach an interactive supply chain with its partners, Belcher says. “Forecasting can be based on point-of-sale data. Everything will become collaborative and will take place in real time.”

Kay Williams, vice president of Fort Wayne, Ind.-based Do It Best, the hardware industry’s third-largest cooperative with some 4,300 member stores, is implementing an inventory supply-chain management system with CPFR functionality from JDA Software Group. “We will be able to use it in a collaborative fashion with our vendors so they can take advantage of it to see how well they are doing,” Williams says.

She says JDA offers inventory management that makes available information on forecasting, inventory needs, seasonal demands, and the ability to adjust inventory as needed. Williams says she is planning on extending the CPFR services. “We believe [JDA] enables us to lower inventory and improve our level of services,” she says.

More CPFR to come

Despite the promising gains made in supply chain through CPFR implementation, it has not achieved industrywide acceptance. Although major consumer packaged goods suppliers such as P&G may be making strides, other companies lag behind, says Peter Abell, director of retail research at AMR Research in Boston. “There isn’t a lot of solid activity yet in CPFR. In these CPFR systems, there is all sorts of data that needs to be fixed. The underlying problem is that data synchronization needs to be fixed.”

Cap Gemini Ernst & Young’s Green agrees and says CPFR has drawbacks, including the fact that they are “point-to-point solutions” that are confined to a limited number of suppliers and retailers. In the future, an open-standard system of data synchronization, now in its early stages, will take on much greater importance.

CPFR is developed by the Lawrenceville, N.J.-based Voluntary Interindustry Commerce Standards (VICS) Association, with guidelines that define processes and best practices for establishing and implementing collaborative relationships among trading partners.

But further out is the Global Commerce Initiative, a voluntary organization of retailers supporting universal data synchronization. “The Global Commerce Initiative is the next big step for supply-chain collaboration. A lot of people are working on GCI. It is expected to happen in the next few years,” Green says.

Duker says P&G is working for the initiative with UCCNet, a subsidiary of the Uniform Code Council, a global standards organization. “A lot of work is going on in the GCI,” Duker says. “We are trying to give the standards bodies input.”

Still, the vision of a worldwide open standards for data flow around bar codes and other product information remains in the distance, says Belcher of The Scotts Company. “It’s more of a wait-and-see proposition right now,” he says.