Home | Business News | Browse by Publication | I | Industrial Management

Nurturing the supply chain.

Article Excerpt
EXECUTIVE SUMMARY

There is one reason that supply chain performance improvement is still a hot issue: Superior supply chains still deliver on the promises of improved productivity and profits. although it's still a relatively new technique, collaborative planning, forecasting, and replenishment offers great promise.

**********

Economic slowdown and Sept. 11 shock created major stresses for many supply chains. Companies are still challenged to keep critical products and supplies moving, manage inventory levels effectively, maintain productivity. and keep emergency transportation costs in check. Despite the unexpected events and slowdown, many companies continue to implement supply chain improvement initiatives. The reason? The growing recognition that excellent supply chain performance has strategic value that could lead to improvements m productivity and profits, rapid financial payback (often within months), improvements in customer positioning and product quality, and enhancements in long-term relationships with suppliers.

Lack of collaborative planning has a significant impact on supply chain performance. A recent study by AMA Research shows that supply chain collaboration can add as much as 3 percentage points to profit margins for all types of supply chain players. Wal-Mart has experienced significant success in this regard. Using a joint initiative with P&G called collaborative forecasting and replenishment, managers at Wal-Mart and P&G jointly forecast sales of P&G products at Wal-Mart stores and plan replenishment strategies.

To enhance the buyer-seller relationship further, some trading partners are moving toward more collaborative relationships. In 1995, Wal-Mart, along with Warner-Lambert, Surgency, and software companies SAP and Manugistics, spearheaded an effort to define a process that would link customer demand with replenishment needs through the entire supply chain. The result was a set of business processes called collaborative planning, forecasting, and replenishment (CPFR), which helps eliminate demand and supply uncertainty through improved communications between supply chain partners.

In 1998, the Voluntary Interindustry Commerce Standards Association set up a committee to identify the best practices and design guidelines for collaborative supply chain forecasting and planning. Participating in the project were leading retailers, consumer packaged goods manufacturers, consultants, and software providers. The CPFR process model represents voluntary guidelines aimed at structuring and guiding supply chain partners in setting up their relationship and processes. With the involvement and support of the standards association, more companies were willing to participate in the validation and testing of CPFR. According to a survey of manufacturers, retailers, distributors, and...