Retail EDI

CPFR®
CPFR is a business model which has received significant attention in Supply Chain over the years.  A noticeable percentage of the VICS website is dedicated to it.  Dozens of papers have been written on the subject.  You as an individual can take classes and become certified and so on.  I first read the VICS CPFR content back in ’05 trying to learn more about VMI processes.  Just as a person learns the difference between a boat and a ship, CPFR didn’t tell me much of anything about VMI, but I kept coming back to it.  The concept of CPFR is amazing.  Collaboration is something our mothers taught us when they first set us into a sandbox with other children.  We all mutually benefited by sharing toys and helping someone build a sand castle can be incredibly rewarding, even fun.  Being in the sandbox with trading partners, working to improve margins, inventory turns or reduce stock-outs is better.   

This paper’s goal was initially to briefly describe in simple terms the methodologies, technology and objectives at the heart of CPFR.  Looking at several case studies on CPFR, my hope was to produce a document identifying what CPFR is, potential benefits and shed light on what CPFR doesn’t require in terms of technology.  In my opinion one of the greatest deterrents to companies exploring CPFR is so many technology companies took hold of it attempting to turn it into a cash cow.  Additionally, I believe more companies would undertake the process if they understood you don’t need a massive IT budget to enter and build a CPFR relationship.  While trying to figure out how to better articulate all of it, Supply Chain Brain caught up to Mr. Andraski in February and did an interview with him (Find it here).  Reading (And watching) the piece changed my focus somewhat.  The interview contends people have given CPFR a bad rap in terms of it living up to expectations, but Mr. Andraski points to Trust as the primary challenge faced by companies looking at CPFR.  The silos of information within our departments and companies, is something we all too often keep close to ourselves.  Perhaps Mom would have been a good CEO. 

While I agree Trust is a major deterrent in preventing collaboration, I don’t agree that it prevents CPFR from getting wins on the adoption side.  CPFR is not a model which companies have tried only to watch fail due to lack of Trust.  CPFR is something people shy away from and this is why it doesn’t live up to expectations – it is never given a chance.  I have not been able to find one study showing where CPFR failed (Is my Google broken??).  If retailers and suppliers shied away from EDI because it looked to cumbersome, expensive and with questionable return it would have a bad rap as well.  The question is: Why do companies not pursue CPFR?  Two answers come to mind: appropriate marketing and documentation and a bare bones framework which can be addressed by even the smallest companies.   

From a marketing perspective zero exposure has been given to SMB participation.  In the Retail industry, we have $5 million dollar companies sitting on shelves side by side with multi-billion dollar companies.  One of the reasons why EDI has seen such widespread adoption is because the process and technology required can be deliverable [inexpensively] to both large and small companies.  This hasn’t been done for CPFR.  The only case study which includes smaller (Under $50 million) companies is the Stanford study on West Marine.  It’s a great paper – but not written or publicized to illustrate how SMB participation can be achieved.  The early participation and most of the marketing done on the subject of CPFR has been done by large software companies.  If the CEO of a company doing $25million only hears about CPFR from two or three very large software companies – chances are they won’t explore it too much further.  It turns CPFR into a technology play by association.  Software purchases tend to intimidate companies and won’t be appetizing to organizations which may be in a position to consider discussing CPFR with trading partners.  If I am going to push the notion, I may stop in my tracks if I can’t do it across a category or can only entertain the idea for a very small percentage of trading partners.  A successful process should be repeatable and processes which are both successful and prolific must be of use to large and small companies.  We can’t all be a P&G.

The CPFR Guideline and Roadmap should be altered maybe.  Update them for the year 2010 and discard all embellishments relating to RFID, GDSN or any other technology except EDI.  If the initial companies accomplished CPFR with just e-mail and spreadsheets, please don’t try to sell other processes inside of CPFR.  Keeping it simple will improve adoption.  Stripping it down and providing simple data flow models and checklists for companies to follow will go a long way in improving the palatability of CPFR.  If someone needs to understand relational database models in order to understand a process which is not supposed to be a technology play – there is a problem.  These are examples of embellishments which are just not necessary except to software people.  More importantly maybe is each additional topic introduced brings into question interoperability.   

The Meat of CPFR   

             
Definition of CPFR:  A shared process of creation between two or more parties with diverse skills and knowledge delivering a unified approach that provides the optimal framework for customer satisfaction.
Voluntary InterIndustry Commercial Standards (VICS)
www.vics.org

Collaborative Planning, Forecasting, and Replenishment (CPFR) is a business model developed and trademarked by the Voluntary Interindustry Commerce Standards (VICS) association which works to reduce the differences between supply and demand (What is needed by consumers vs. what is in the supply chain). VICS outlines CPFR in four basic steps, which are shown below. CPFR provides retailers and suppliers with a method for sharing key supply chain information and coordinating efforts. Using CPFR, trading partners form one comprehensive forecast relating to specific items. Suppliers and retailers form this one forecast either by working collaboratively or by first developing their own individual forecasts, which are then used to create a single forecast. This coordination and information sharing allow retailers and suppliers to optimize their supply chain activities. Production schedules are set based on demand at the retailer. As part of CPFR, companies implement processes which enable problem identification and resolution.  What this provides is a business model which includes the basic tools necessary to work together (Collaborate) on planning, forecasting, executing, then measuring and making corrections.

CPFR is a four step concentric process model consisting of:
Analysis
Strategy and Planning
Demand and Supply Management
Execution

The collaborative nature of CPFR leads to better forecasting of demand and product requirements. The improved forecast, in turn, helps to increase supplier fill rates, improve in-stock levels, and reduce buffer stock. The primary desired outcome of CPFR is to increase sales while reducing inventories. To accomplish this goal efficiently, however, CPFR requires data-sharing technology and a solid business partnership.
 
Take a look at most of the relationships you see between retailer and supplier.  You will probably see the following:
• Arms-lengths relationships
• little or no joint planning (Even in VMI scenarios)
• Relationships are often adversarial.

The lack of information sharing makes these relationships more costly than they needed to be.  Ordering patterns are not cost effective, one or the other trading partner is stuck with excessive inventory, lack of information sharing can also catch one or both parties unprepared leading to service failures.  It can’t be said CPFR would solve all of these problems, nor does it [CPFR] lend itself to all product categories. 

Collaboration (Back to the sandbox!)
CPFR is seen as a complicated business model when it is really a collection of processes most companies already perform to some extent.  Performing it with stakeholders e.g. clients or suppliers improves results.  CPFR could be described as the joint development, execution and monitoring of business planning and forecasting between trading partners.  There is an opportunity for buyers and sellers to both participate in this process and for both to walk away profiting with better sales, improved margin, reduced risk and better relationships.  The results expected could include: improved sales, reduced inventory, and greater profitability.  The key to this is collaboration. 
 
There are really four types of information in CPFR which play a critical role, including: planning, forecasting, execution and metrics related information.  Successful collaboration depends on groups being able to share required information in order to be effective.  Both retailers and suppliers can be guilty of doing this.    

Collaboration yields results by fostering innovation and continual improvement. In fact, true innovation is virtually impossible without collaboration. And innovation is indispensable to success. Business leaders recognize this. In IBM’s CEO study, more than three quarters of the 765 chief executive officers surveyed cited collaboration and partnering as very important to their innovation efforts.  Too often, organizations solely look at collaborating in terms of furthering distribution: "Get as many sold as possible".  In looking at CPFR, we are stopping and saying: "We have a client, let's work with them, put a system in place to continually address and improve how we are getting product to them." 
 
Technology
It’s important to point out again: CPFR is not a technology play, nor is it reliant on a specific set of technologies.  Look at the case studies on the VICS website or do searches on the subject.  CPFR is a business model where technology can help enable or facilitate various operations within the process, but in no case can you go and “buy” a CPFR system.  For example: creating forecasts, sharing forecasts, sharing POS data and communication of orders, etc. are example of events which take place but are not required to be performed using one specific type of software.  In other words, if you are using hosted EDI and your retailer is not – it’s not a problem.  Nor do you as a team, need to use a central company to store all communications, reports etc.  The same data should be used to view and build reports.  Reports should be pulled centrally to insure uniformity of script, formula, etc. 

When CPFR was introduced EDI was not as widespread as it currently is.  It is the one technology most pilots and production CPFR systems seem to have in common.  Why is EDI good news?  Historically, EDI has been viewed by many (Particularly smaller suppliers) as an expense they can’t recoup or see ROI on.  Companies that engage in CPFR use their EDI more fully and see greater ROI on their technology investment because they have an opportunity to apply EDI to more than simply sending and receiving order related information.  Even if you currently use the 852 or other documents for optimization or sales reporting, – you still have other uses to apply the same data, albeit recast.   

Case Studies
It has been several years since any CPFR initiatives were documented.  Companies like Procter & Gamble, Wal-Mart, Sara Lee, Hewlett Packard [And so on] all experienced positive results.  Wal Mart created CFR (VICS added the Planning).  CPFR has proven itself to be a system which works in every documented case while not requiring a one-size-fits-all approach to implementation.  What you must take away from the case studies is everyone went looking for improvements – but everyone used different methods and technologies in applying their version of CPFR.

The business benefits stakeholders were able to gain by embracing CPFR include:
• Enhanced relationship,
• Increased sales revenues,
• Better category management,
• Improved product offering,
• More reliable and accurate order forecasts,
• Reduction in inventories, and
• Improved technology return on investment

I intentionally didn't include a table of improvements gained in each of the case studies as each had different goals, etc.  You can find some of the case studies here on the VICS website. 

Trust and Transformation
Trust is required between companies as well as between internal departments of the participants.  Trust the process will be prioritized, trust in the process itself, and trust in the use and distribution of information could all be at the top of the list.  So many relationships are asynchronous or one-sided.  CPFR is designed as a ‘win-win’ process.  While so many of the relationships currently in place are adversarial or have clearly developed as ‘win-lose’ or “win vs. win a little less scenarios”.  Transforming the way we do business and how we work with clients or vendors is difficult.  There are issues around internal alignment, and a ‘we don’t do it that way’ mentality which also should be examined. 

Specific relationship areas which need change or to be transformed include: alliance guidelines, willingness to share information, shared risks and rewards, and inconsistent goals to name a few.  An example of this could include a retailer and supplier team realizing that based on existing forecasts additional product will need to be held in inventory by the supplier.  The risk at this point is high for the supplier and greater benefit is shifted to the retailer.  In an ideal process, the supplier could be compensated to share the risk.  The alignment and understanding of each group’s goals need to be examined and considered in order to remove barriers and align the goals of both organizations within the process.  By investing time in this area and going through this transformative process, teams can build trust in the process and the relationship.

Investment
Cost, in my opinion isn’t a valid reason for companies to not explore collaboration efforts with any relationship and CPFR should be considered at the top of the list.  Once we understand that little to no software needs to be purchased, companies should be able to see value much faster.  As seen from the case studies and other CPFR documents the technologies used are already in play commonly throughout the industry so there are no large capital outlays required on either side.  The expense of getting educated, trained and coordinating meetings for planning are negligible.  CPFR is viable and something both retailers and retail manufacturers should look into for several reasons, including:   
• Most companies have the technology in place and where there are gaps the technology is very inexpensive. 
• We are in an economy where companies need to reinvent themselves in order to stay viable, there is a real opportunity to change the culture within companies - between departments, as well as changing the dynamics between companies. 
• Improving relationships on an inter and intra company basis in addition to putting a system in place to continually improve the ability to deliver the 'right' amount of product where and when needed - this is too great a thing to pass up.

The biggest investment in the process is developing trust in the relationship. 

Conclusion
The reasons for CPFR not being in greater use is not due to weak value proposition or ROI, but instead [I believe] due to the information VICS has chosen to publish, their measurement and control of the companies using the process and occasional software companies who have marketed various solutions.  VICS is a great organization and has been a great friend to the supply chain at large, retail or otherwise.  Changing up the documentation a little is not a great challenge and would go a long way in demonstrating adoptability.  Including more case studies showing the system can be applied by small and large companies will also go a long way towards improving market perception.  Put all that together with EDI which is very successful and you have increased the value and removed perceived barriers.  The value proposition of reduced inventory waiting to be sold within the value chain along with improved sales and service levels is too enticing to ignore.

Maybe I should have broken this into a couple different document – and I may be off base on a couple of points.  Tell me what you think.  Regardless, go to www.vics.org and read about CPFR.

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