We have talked for years about the many who are on an endless search for the “silver bullet” to increase in stock, anticipate demand, and have the goods in the right place at the right time. Most continue to look for the perfect forecasting system to address their needs. Sophisticated multiple algorithm comparisons, best fit, black box approaches are sought to obtain the ultimate solution in improving forecast accuracy.
I must admit that I was also a student of these forecasting systems and approaches over the years taking scientific approaches to improving the reliability of systematic forecasts. We continued to supplement the basic forecasting systems with techniques to further qualify, tailor and refine the forecast, further enabling it to anticipate those “special circumstances.” These techniques were to address various challenges from new items, short cycle products, limited life cycles, seasonality, and geographic and demographic preferences. All of these were designed and implemented to improve forecast accuracy systematically. These techniques and the supporting business analytics and data analysis did improve responsiveness and refinement.
The challenge was to break the paradigm and increase service while decreasing inventory-remember the old adage? For every tenth of a percent increase in stock service level, you geometrically increase inventory investment. In an environment where service levels were already leading the industry, taking in-stocks from 98 to 99 and approaching 100 percent while decreasing inventory investment required transformational thinking.
Neural Networks, artificial intelligence, case based reasoning were all used, but out of the process came a revolutionary step. Leverage People. Back in the early to mid 90’s my thought was how better to increase the accuracy of forecasting than to leverage knowledge. Retailers do not have all the answers and manufacturers do not have all the answers, but together and as trading partners they can leverage the knowledge, capabilities and expertise in their respective fields. This was the basis that drove Sam Walton to change the paradigm and relationship between buyer and seller-retailer and supplier back in the late 80’s. He helped break down the traditional adversarial relationship with a new model jointly crafted between Wal-Mart and Procter & Gamble.
If you look at forecasting systems, they are all pretty darn good and sound. What raises the bar and standard on forecast accuracy is refining the causal inputs that drive the forecast in the first place. It gets back to people. It means providing rules, systematic approaches, disciplines, consistency, and most of all open collaboration internally and externally. This, along with a new and open trading partner relationship based on trust, was the basis and driving force in defining CFAR and its successor CPFR. Collaborative Planning, Forecasting and Replenishment is not a stand alone set of business processes, but an evolutionary step from opening communications between trading partners (retailers, suppliers and transportation providers) to jointly or “co-manage” the business.
As far as forecasting accuracy, people truly make the difference.
Internalizing CPFR – The Building Block for Enterprise Wide Collaboration
Back in the mid 90’s, we did not envision or design collaborative planning, forecasting and replenishment (CPFR) as the end state. Actually, collaborative merchandise planning and optimization was the first intended phase of trading partner collaboration. Collaborative joint business and merchandising planning is logically the start for building a sound foundation and integration of consumer demand to feed replenishment, forecasting, supplier demand planning and logistics execution. The third planned phase was collaborative transportation management.
From a practical standpoint and to produce visible benefits in the shorter term, we focused on integrating the total replenishment cycle, which had a shorter development time horizon and would produce more immediate results. Results are important for any organization because it energizes the organization behind the effort and the longer-term strategy that drives it. Obstacles and challenges were still present even for the world’s largest retailer in embracing co-managed and collaborative initiatives.
We have often said that internal collaboration is often the hardest, and I have experienced the same. Various change management techniques were used to address:
- Understanding
- Old attitudes
- Existing ways of doing business
- Behaviors
These were challenges, but were managed through education, involvement, peer pressure and realigning goals, objective setting and performance incentives. There was a larger obstacle that both retailers and manufacturers face – divisional alignments within the company. For a retailer, it is store operations, merchandising and distribution/logistics. There is a similar alignment for a manufacturer with sales, marketing and manufacturing. Retailers are often merchandise driven while manufacturers are marketing driven – it is extremely important that key executives become business owners, drivers and change agents. These executives across divisional lines must also be knowledgeable, involved and help drive the process. This involvement translates in reinforcing the process of linking consumer demand through the organization from planning, merchandising, replenishment, forecasting, demand planning, and manufacturing to supply chain execution. The key to implementing any new program like CPFR is to “bridge the great divides” or functions within the organization. You cannot have some divisions sitting on the sidelines not involved.
An early key process step is the “internalizing of CPFR” within the organization by concentrating on:
- Education
- Benefits analysis
- Strategic visioning and project migration
- Project planning
- Resource definition and commitment
- Defining roles and responsibilities
The first two I consider the most important. It is critical to provide a complete education and understanding of what CPFR is and is not and how it supports all key process and financial goals of the company. The benefits analysis must be extensive enough to also reinforce the company’s team and divisional direction, goals, objectives and operational focus.
When you properly lay the foundation and bridge the main operating divisions of the company, the building blocks are laid to support cross-functional internal and external collaboration. I need to reiterate how important it is to build a structure of executive process leaders and change champions to help breakdown some of the barriers that may get in the way of change.
Once you lay the foundation for CPFR, you have laid the groundwork for other forms of collaboration beyond CPFR. These are comprehensive joint business planning, category and assortment analysis, merchandising, as well as distribution and logistics incorporating transportation management. This is upstream and downstream alignment and collaboration over the extended enterprise of our passion and our knowledge to Total Value Chain Collaboration.