More precise forecasting methods, a long-sought goal for the supermarket industry, are coming closer to reality, with several major retailers and manufacturers piloting programs to share sales and inventory data as steps toward agreeing on orders.
Participants in these tests are hoping for increased supply-chain efficiency through better planning and lower-inventory requirements, as well as retail improvements such as out-of-stock reductions and sales jumps.
Collaborative planning, forecasting and replenishment -- a hot topic in the industry -- is one of the new approaches. Another new way to forecast is using point-of-sale data for forecasting and replenishing, at store level vs. the warehouse level.
Wegmans Food Markets, Rochester, N.Y.; Schnuck Markets, St. Louis; and Wal-Mart, Bentonville, Ark., all have CPFR pilots in the works this year. CPFR is designed to provide one forecast across the supply chain that is jointly developed by manufacturers and retailers. The goals of CPFR are to grow sales, reduce inventory and out-of-stocks, and improve customer service.
While the concept of sharing data among trading partners sounds obvious, it is not common, sources told SN. Typically, retailers and vendors each do their own forecasts and then do their best to manage supply-chain logistics. However, this method often leads to waste and inefficiencies. Thus, the concept of moving toward a single forecast supply-chain wide is novel, if not somewhat revolutionary, sources said.
"It sounds like common sense, but unfortunately it's rather uncommon," said Bob Drury, vice president of management information systems at Schnuck, which will pilot CPFR in two dry grocery categories later this year. "CPFR lets both sides understand the other's perspective on what's happening. If you know what's going on you can make the proper adjustments."
CPFR involves several steps before reaching the final order: an upfront agreement between trading partners; joint business planning; establishing a sales forecast; identifying exceptions and mapping out solutions to the exceptions. A further set of steps involves establishing an order forecast and identifying exceptions to that forecast, and mapping out solutions to those exceptions. Wal-Mart has four CPFR pilots under way, all in different stages. One is with Procter & Gamble, Cincinnati, which is in the early stages of the upfront agreement and joint business plan, according to Steve Robinson, vice president of supply-chain management at Wal-Mart.
Robinson spoke at a session titled Collaborative Planning, Forecasting and Replenishment/New Proposed VICS Standards, at the Information Systems and Logistics Distribution Conference, sponsored by the Grocery Manufacturers of America, Washington, last month.
"We're also partnering with Sara Lee, Lucent Technologies and Warner Lambert on steps three, four and five, which is the entire sales-forecast resolution loop," he added. "And we've just begun a significant step forward in that we're partnering with Nabisco on step six, which is the order forecast."
Nabisco and Wal-Mart have agreed to walk through this step in a paper pilot so that the proper business processes are in place. "Our expectation is that the pilot will grow and we will continue that dialogue and move to steps seven and eight," Robinson said.
To further promote the CPFR concept, Wal-Mart has also developed its own Web-based CPFR site, which will be part of Retail Link. Retail Link allows Wal-Mart's vendor partners to access the retailer's data via the Web.
"[The site] will be in beta test for another 90 days," Robinson said. "At the end of that 90 days we'll make some enhancements. Our hope is that later this year we're going to be prepared to begin adding partners. We're really thinking through this issue of how scalable it is. How realistic is it that you can collaborate effectively across a vendor base of 5,000 vendors?"
Wegmans and Nabisco, Parsippany, N.J., have agreed to begin testing CPFR on the entire Planters Nut line, consisting of 22 stockkeeping units, beginning June 29, according to Mike DeCory, project manager for CPFR at Wegmans.
"We have agreed to use the Voluntary Inter-industry Commerce Standard Committee model for collaborative planning, forecasting and replenishment," DeCory said.
The VICS model identifies steps such as developing a plan, sharing relevant information and creating a sales forecast that ultimately leads to an order. "We're interested in seeing how it affects traditional benchmarks such as out-of-stocks, inventory and sales, as well as any other areas."
Schnuck's CPFR pilot will involve two dry-grocery items from Nabisco that are "a good match of their product line with some areas we would like to improve," Drury said.
While he declined to name the specific products, he described one of them as being in a "particularly competitive" category. "We're looking forward to this being a way of improving our performance there.
"Initially, we'll be doing it pretty much on paper," Drury said. "The [automated] systems won't really be necessary at first. The initial idea is to understand what the business process is and then apply systems to it later."
Some of the business processes include understanding how each party develops forecasts for promotions, and sharing that information to get a handle on how much will sell during a promotion.
Even during the preliminary stages we'll be exchanging information through the Internet," he added. "It may not be as elegant as the software will look later, but initially we'll be using at least some Internet opportunities to make instant e-mail to e-mail types of connections."
Internet opportunities include exchanging ad copy or a spread sheet, "the kind of things electronic data interchange doesn't lend itself to," Drury said. "We'll be experimenting with all that during this pilot."
But CPFR isn't the only new way to create more precise forecasts. At least one Canadian retailer, servicing 100 stores with three distribution centers, is using point-of-sale data to create a forecast and a replenishment plan for each of its stores, according to Andre Martin, chairman of Retail Pipeline Integration Group, a consulting firm in Essex Junction, Vt. He declined to name the retailer.
The Canadian retailer made a decision to implement the forecasting program across all its stores based on a four-store test that reduced out-of-stocks by 56%, Martin said. The retailer is hoping to achieve these kinds of results across all its stores. Currently, the retailer's out-of-stock percentages range from 4% to 12%, depending on the time of year and the category, Martin said.
The process, called Time Phase Requirements Planning, begins with an initial sales forecast, which is developed from POS data and a minimum of two years' worth of history. The sales forecast is then updated with weekly sales data. Existing inventory at the store at the time of planning is also taken into account, and then a replenishment plan is projected for each store.
The replenishment plan is updated daily with each day's sales data.
The replenishment plan is then communicated electronically to the source of supply, which could either be the distribution center or a supplier, in the case of a direct-store-delivery vendor. Then the source of supply ships products to the store according to the replenishment plan, which takes the form of a shipping schedule, Martin said.
"The whole process is done without the use of purchase orders," Martin said. "Paperwork is totally eliminated from the process.
"In this situation both the retailer and the supplier have agreed to a specific requirements plan, which is time-phased several weeks out into the future," he added. "This approach is synonymous to a blanket purchase order agreement. As sales come in over or under forecast, the schedule is automatically adjusted."
