At issue is CPFR, or collaborative planning, forecasting and replenishment, an industry-wide effort to define processes and best practices for helping retailers better manage their inventories. CPFR helps retailers and suppliers predict upcoming supply and demand, and to use that information to better match the retailer’s merchandising plan with its trading partner’s supply plan.
CPFR isn’t new—it was developed in 1997 by the retail industry’s Voluntary Interindustry Commerce Standards Association.
But in recent weeks, three e-markets—retail-oriented GlobalNetXchange L.L.C. and WorldWide Retail Exchange L.L.C., as well as manufacturer site Transora—have all chosen vendors to help them install new, Web-based CPFR services.
A typical CPFR transaction might start with a retailer feeding sales and order forecasts back into its supplier base. Equipped with that data, the supplier can more accurately gather supplies and fine-tune its manufacturing processes to meet the retailer’s needs. As sales start to occur, the retailer feeds real-time point-of-sale data back into the supply chain, further fine-tuning the forecasts and ensuring that neither manufacturer nor retailer holds more inventory than necessary.
The recently launched exchanges, which encourage cross-company collaboration by their very existence, will enable CPFR to overcome the technical challenge of standardizing how data is shared, as well as the cultural issue of feeling comfortable trading mission-critical data with partners.
"Businesses have to get used to operating in a more transparent way," said WWRE CEO Colin Dyer. "[CPFR] requires sharing information in a way that was not customary in the past."
CPFR-type supply chain processes are behind the success of retail giant Wal-Mart Stores Inc., which has "put people inside its business from suppliers" to help co-manage its inventory, Dyer said. An interesting effect of the exchange phenomenon was that it was "accelerating people’s awareness of this technique," he added.
A recent CPFR survey of 120 companies by consultancy Industry Directions found early CPFR trials have helped participating companies reduce their inventory levels by 10% and improve forecasts by 20%.
"CPFR is enabling a very positive return on investment in terms of increased sales and more efficient inventory practices," said Julie Fraser, director of market strategies for Industry Directions.
CPFR will likely get an even bigger boost thanks to the effort of the
industry e-marketplaces. In the past few weeks:
n Transora, the consumer packaged goods exchange, chose Syncra Systems Inc. as its CPFR technology provider. Transora executives estimate that the CPG manufacturers today carry more than $1 trillion of "just-in-case" inventory because industry forecasting systems can’t adequately synch b-to-b supply and demand.
n The Sears, Roebuck and Co.-led GlobalNetXchange said it will work with Manugistics Group Inc. on CPFR. GNX began running CPFR trials this month. GNX CEO Joe Laughlin called it "one of the most powerful tools we can provide the retail industry."
n WWRE tapped i2 Technologies Inc., one of its core e-marketplace technology providers, to also offer CPFR services. WWRE will debut its CPFR pilots later this spring with retailers in both the U.S. and Europe.
While the three exchanges will likely have to integrate their CPFR services, allowing companies to flow CPFR transactions across the exchanges, they also will be in competition with one another.
For instance, Transora execs assert their hub, which sits in the middle of the supply chain between raw material suppliers on one end and retailers on the other, is the perfect spot to coordinate CPFR efforts. However, retailers contend that since it is, in the end, their inventory and data that is being managed, they should drive the process.
"The better position to be in is on the demand end of the chain, where the consumers are," Dyer said.
Dyer also downplayed any speculation that retailers were giving up a competitive advantage by buying an off-the-shelf CPFR service that would be available to their competitors through the same exchange.
"You can give [two cooks] the same top of the line stove, but the food they cook with it will be very different, based on their skill level and recipes," Dyer said. "CPFR is a tool. Differentiation becomes a matter of retailer skill, insight into the marketplace and the quality of their communication."