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Collaborate,externally and internallyIn CPFR and S&OP,two planning vehicles

are better than one

by

fred baumann

and joe andraski

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collaborate, externally and internally

To take full advantage of retailers integrated

and time-phased supply chain plans and translate them into

new levels of customer connectivity, manufacturers must

harness the synergy of collaborative planning, forecasting and

replenishment (CPFR) and sales and operations planning

(S&OP). By creating this unied process, retailers, wholesaler

distributors and suppliers can expect higher performancelevels and a measurable competitive advantage.

Collaboration makes good business sense. It enables

organizations to synchronize effectively and efficiently,

streamline, and optimize their supply and demand chains.

Traditionally, manufacturers and mass-market retailers

have established a joint collaboration so that manufacturers

improve the accuracy of their demand forecasts and better

manage their replenishment and inventory to fulfill demand

from retailers. Still, translating collaboration for long-range

plans has proven elusive.CPFR and S&OP are both great planning vehicles on their

own. Simply put, CPFR is external collaboration, while S&OP

is internal collaboration. Over the course of time, companies

began to realize that CPFR and S&OP werent so disjointed

after all, but were two pieces of an important process that

when put together provided the intelligence and information

for optimized planning at the executive level. Sam Walton, the

founder of Wal-Mart, was ahead of the curve by partnering

with vendors and sharing information with them to optimize

planning decisions for all trading partners in the retailers

supply chain.

Leading mass-market retailers are adopting time-phased

forecasting and multilevel inventory planning capabilities to

generate integrated supply chain plans across an extended

period. This increased visibility benefits suppliers with the

potential to reduce variability, lower expediting costs, improve

perfect order metrics, lower safety stock and proactively plan

their supply chain to enhance overall customer service, effi-

ciency and margin. Its just like anything else though it takes

a little bit of time for the industry to understand what the value

is and to take action to implement the necessary processes tosee success and achieve economies of scale.

Because CPFR and S&OP complement each other and can

enable stronger supply chain links, bringing both processes

together into a cohesive plan can meet and exceed customer

expectations, add greater benefits for organizations, as well as

drive collaboration among all stakeholders to optimize profits.

In some cases, mass-market retailers can represent nearly half

of a manufacturers revenue, and those that can successfully

harness collaboration with this critical retail channel will gain

a strong competitive advantage in a crowded marketplace.

Consider planning-time horizonsThe planning horizon for CPFR is usually short-term and

typically is completed in weeks or months, while the typical

time horizon to support S&OP is 18 to 24 months and is

presented in units and currency. Practitioners have found that

statistical models are only as good as the environments that

they represent and the quality of the inputs that drive futurecalculations. Best practices in demand management call for

multiple views and perspectives with a statistical model being

one of many inputs to the nal plan. CPFR trading part-

ners can provide validation and additional insight that can

enhance the statistical forecast and add insights that cannot

be captured in a statistical model.

inkageTo link CPFR and S&OP successfully, pay close attention to

the following recommendations: Begin with a best-practice methodology. Manufactur-

ers must find a methodology that ties independent best

practices into a more holistic process that involves all part-

ners in the supply chain. Manufacturers also should seek a

methodology for connecting CPFR and S&OP that is built

on insights from a number of retail partners. Additionally,

best-practice committees such as Voluntary Interindustry

Commerce Solutions (VICS) provide an opportunity for

manufacturers and their trading partners to participate

and validate the synergy of connecting CPFR and S&OP

processes.

Evaluate your technology platform. Manufacturers

must ensure that they have technology that is scalable and

can support a linked CPFR and S&OP process. Retrofitting

an emerging process into an old architecture or applica-

tion built for a different purpose will cause more headaches

than positive results. Scalability is critical as time-phased

demand planning generates massive amounts of data, and

an outdated system simply cannot support the integration

of data at this level of granularity. By adopting an advanced

enterprisewide technology foundation, manufacturers willbe effective at integrating this data into a unified CPFR and

S&OP process.

Take a proactive approach. Success or failure in this inte-

gration process hinges on creating a foundation of support

with key trading partners. Without that support and trust,

manufacturers will not receive the data and visibility gener-

ated by time-phased demand planning. Manufacturers

should portray accurately how the data will be used to drive

value to their trading partners. This includes committing to

such benefits as shorter lead-times, higher order fill rates,

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improved on-time delivery and lower supply chain costs as

a result of sharing this data.

Establish a cross-functional team. Cross-functional

teams historically have played a critical role in develop-

ing a single, shared forecast and replenishment plan with

an assigned mass-market retail customer. However, in the

past these teams have not been effective in ensuring thatconsumer demand data is translated into time-phased order

plans and integrated into the supply chain, essentially defeat-

ing the purpose of the mass retailer providing this visibility.

Manufacturers need to ensure that cross-functional teams

have proven processes for migrating data pulled from time-

phased demand planning and transformed into a holistic

CPFR and S&OP process.

Seek executive sponsorship. Significant change in

management will need to take place on behalf of the manu-

facturers and their high-volume trading partners. It isimperative that C-level executives make the process a prior-

ity to drive organizational change and build a foundation

of trust. Senior leaders will require a business case that can

support the transition to this new working model. Value

analysis models are available to assist with quantifying the

value to gain required resources. Companies also can poten-

tially accelerate behavior and process change by seeking out

industry-leading consultants with proven track records for

facilitating strategic processes and behavioral changes.

eys for a collaborativeS&P infrastructure planEnsure that there is a single data repository to support one

version of the truth. It is critical that accurate inputs are

leveraged when creating demand plans. Inputs include histor-

ical movement and inventory positions, forecasts, previous

demand plans and the assumptions used in the develop-

ment process. Many of the data elements are dynamic, so it is

important that solutions leverage this single source for input

to plan creation so the timeliest data is modeled. A single

repository also ensures that the metrics used to monitor theperformance of the process are built from a common frame-

work and data source.

Make certain that the planning solution is flexible enough

to work in different hierarchical views and reconcile planning

views that are created at diverse levels. Different functions

within a supplier organization plan at varying levels within

the time, location and product dimensions. Sales teams often

plan at the account/item level, product and marketing often

work at the product group level, while executives support-

ing the S&OP process generally work at the highest levels of

product and geographical hierarchies. It is imperative that the

participant views of the planning process can be summarized

and changed at different levels of aggregation and then revised

up or down the product location/hierarchy via automation.

Incorporate a common framework and access approach to

monitor performance of the collaborative S&OP (CS&OP)

process. A common analytical environment should beconnected to the single data repository to ensure that all

constituents in the CS&OP process are measuring and moni-

toring performance from a common point of view. To allow for

continuous process improvement, team members must buy

into the measurements that are put in place and have timely

access to metrics that they are chartered to deliver. Because

many of the constituents in the process will be dispersed

geographically, Web-based architectures are best suited to

fill this requirement. Inventory, sales, margin, demand plan

accuracy and other key operating plan metrics will pointto opportunities, weaknesses and threats that should be

addressed in the monthly CS&OP meetings. Exception-

reporting capabilities will go a long way to assist management

and improve the efficiency of the process.

Ensure the planning environment balances statistical views

with human intelligence. It is a given that a statistical demand

planning engine should be in place to support the collabora-

tive demand planning process. It is critical, however, that the

statistical engine be balanced by human intelligence that

calls out assumptions incorporated into the working plans.

The solution should have a place to incorporate these writ-

ten assumptions into the demand planning view so plans

and assumptions can be reviewed continually for validity. In

addition, there should be documentation placeholders for

vulnerabilities, opportunities and action items related to the

associated planning views. This will help guide future strate-

gies that mitigate risk and take advantage of key opportunities

as they occur.

igrating to a successful CS&P

Begin your journey in the boardroom. Senior managementmust have a clear understanding of how this process is

executed and how it helps the organization attain strategic

and tactical objectives. A natural rst step is a brieng session

on how the process is executed and the best-practice approach

to be deployed.

Assess demand planning and S&OP processes against

best-practice leaders. Determine how your company compares

to leaders in your industry in execution and maturity level.

Use industry experts and benchmarking materials to iden-

tify gaps and opportunities related to your current approach.

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collaborate, externally and internally

Map processes to models and industry best practices that have

been developed. Highlight opportunities and potential return

on investment (ROI) to senior management to acquire the

resources for the project plan to achieve your desired end state.

Evaluate your current technology infrastructure. Make sure

your existing technology toolset supports the best-practice

planning steps in your earlier assessment. Build a require-ments document that begins with the formalized business

process developed through the assessment stage of your

migration path. It will be important to document the scope

of the initiative, including the trading partners involved, the

number of product families incorporated and the planning

horizon used for the initiative.

Define the CS&OP team leads for the deployment and

execution of the planning exercises. These team leads need

to have the authority to implement the new planning meth-

odology. Existing business processes most likely will bewell-entrenched and difficult to change. The CS&OP team

leads need to have the leadership and empowerment to change

the status quo.

Begin the process sooner rather than later. Many compa-

nies have accrued great benefits by working through the

process steps even before all data and technology compo-

nents are fully loaded. This approach helps companies begin

to build the integration and communication points between

functions and customers that will be critical to the ongoing

success of the initiative. As better technology and data

become available, the output of the process will be more

accurate and completed quicker.

Create a framework that fosters continuous improvement.

Researching and documenting the baseline performance of

the organization prior to the kickoff of CS&OP and then

monitoring the ongoing results will add momentum and

continued buy-in to the process. A formal reporting meth-

odology will ensure that the participants constantly strive for

improved results and will enable the planning and executive

teams to weigh the views of functional participants properly.

Information exchange boosts businessCS&OP builds a framework for integrating the insights of

customers downstream for a truly demand-driven approach to

consensus planning. Manufacturers can achieve business and

operational improvements by not operating in silos, conduct-

ing self-evaluations across functions so that each function

has an opportunity to build on strengths and improve upon

weaknesses, and then determine what trading partners to

participate with to provide a greater ROI in technology as well

as in making changes within the organization.

CS&OP offers organizations the capability to seize oppor-

tunities created by a changing customer landscape and take

advantage of technology and process innovations. Progressive

manufacturers who unify the S&OP and CPFR models into a

single process approach and shift to demand-driven produc-

tion and supply planning will gain a competitive advantage.

Many retailers and manufacturers still are struggling withexcess inventory as a result of the economic downturn. As

the economy continues to improve, however, there is risk that

companies operating too lean will be unable to fulfill orders

and will lose sales by not having a proactive plan in place for

future demand shifts. Theres a tremendous opportunity to be

garnered by strategically planning sales and supply through

this integrated process.

To stay competitive, manufacturers have to improve their

supply chain practices. Supply chain practice improvement

begins with the knowledge and intelligence that comes frombuilding capabilities from within the organization, as well as

sharing information with trading partners, both upstream and

downstream. That intellectual exchange of information then

can be turned into an operational plan, which is really what

CPFR and S&OP is about. CS&OP is not about fixing prob-

lems on an ongoing basis, but it is about the ability to project

what those problems are and take proactive steps before they

become a critical issue.

To stay ahead of the competition, manufacturers must

shift to demand-driven production and supply planning.

Unifying CPFR and S&OP models into a single process

will enable manufacturers to realize unprecedented levels of

customer connectivity, positively impact profitability, leverage

time-phased demand-planning data generated by their mass-

market retail partners and drive supply chain value to serve

the end consumer better.d

Fred Baumann is vice president, industry strategies at JDA Software.

He leads product and industry strategy for forecasting, replenishment

and collaboration solutions to the retail, wholesale and manufacturing

demand chain verticals at JDA.

Joe Andraski is the president and chief executive ofcer of VICS and

has been an adjunct professor at Penn States Smeal College for nine

years. Prior to joining VICS, Andraski held several positions with

Nabisco Inc., including vice president of supply and customer market-

ing. He had been active with the Grocery Manufacturers Association,

serving as the chair for the logistics committee. He also served as a

senior vice president of OMI, a retail software provider.

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