Where Are We on the Demand-Driven Journey? A Look Back and a Look Forward.
Nrf13 brasil varejo conectando a indústria ao cliente
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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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Completing the Information Link
in the Supply Chain
• 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.
Shortcomings of Most Retail
Replenishment Systems
Factory MDC RDC Store
• 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.
Why not exclusively focus on POS
for Planning?
POS Analytics Alone Do Not Provide
Forward 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
Store Retail DC Manufacturer DC Factory
Forecast Calculation Calculation Calculation
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
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.
Source: Adopted from Red Prairie Collaborative Flowcasting Group, LLC.
Enabling Retailer/ Manufacturer
Store Planning, S&OP & IBP
Retailer’s Sales & Operations Plan - HD TV Category
Supplier
Schedules
Supplier’s Sales & Operations Plan
Demand Planning Segmentation Level 1, 2 & 3
Visibility CPG can see their own network Customer maintains visibility of their network.
LEVEL 1
Today Planning CPG plans their network Customer plans their network
Execution
CPG creates internal network replenishment Customer creates inbound WH order
orders placement.
CPG begins to see Supply Chain information beyond its WH network. Customer Store & WH
Visibility
inventory, WH & and POS information.
LEVEL 2
Utilizing
down Customer plans orders to the store, but more
Planning CPG plans their network
stream visibility allow.
Data
CPG creates internal network replenishment Customer creates inbound WH order
Execution
order placement.
CPG begins to see Supply Chain information beyond its WH network. Customer Store & WH
Visibility inventory, WH & ordering rules, Network info., POS & Customer Forecast info.
LEVEL 3
End to End CPG begins planning internal network and orders from them into Customers Customer plans
Planning
Integration WH. orders to the store.
Customer creates
Execution CPG creates internal network replenishment and Customers WH orders.
store orders.
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Retailer/Manufacturer – IBP & Gap Analysis
Gap Analysis
Retailer/Supplier
• Questions to Answer:
1000
Annual Integrated Business Plan – Why the gap – which
products, which
800 stores…?
Volume
– What actions do we
600 jointly need to take
to close the gaps…?
400 • Best Practice:
– VICS Roadmap to
200 Flowcasting’s Day To Day Operating Plan IBP’s : The 8 Step
Updated daily based on consumer sales Collaborative Process
& reviewed monthly
0
1 2 3 4 5 6 7 8 9 10 11 12
Period
Supplier driven Flowcasting
Case 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 DRP
Case 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)
The critical missing link
• 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.
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Value to Retailers and their Trading Partners
For Trading
Partners
In the CPG
Industry
the single largest
cost of doing
business is the
cost of production
On average
It 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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