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by fred baumann and joe andraski

Collaborate, externally and internally


In CPFR and S&OP, two planning vehicles are better than one
June 2010

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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 unified process, retailers, wholesaler distributors and suppliers can expect higher performance levels 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, efficiency 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 to see 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 horizons


The 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 future calculations. Best practices in demand management call for multiple views and perspectives with a statistical model being one of many inputs to the final plan. CPFR trading partners can provide validation and additional insight that can enhance the statistical forecast and add insights that cannot be captured in a statistical model.

linkage
To link CPFR and S&OP successfully, pay close attention to the following recommendations: Begin with a best-practice methodology. Manufacturers must find a methodology that ties independent best practices into a more holistic process that involves all partners 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 application 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 will be effective at integrating this data into a unified CPFR and S&OP process. Take a proactive approach. Success or failure in this integration 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 generated 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 developing 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 that consumer demand data is translated into time-phased order plans and integrated into the supply chain, essentially defeating 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 timephased 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 manufacturers and their high-volume trading partners. It is imperative that C-level executives make the process a priority 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 potentially accelerate behavior and process change by seeking out industry-leading consultants with proven track records for facilitating strategic processes and behavioral changes.

keys for a collaborative S&oP infrastructure plan


Ensure 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 historical movement and inventory positions, forecasts, previous demand plans and the assumptions used in the development 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 the performance of the process are built from a common framework 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 supporting 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 be connected to the single data repository to ensure that all constituents in the CS&OP process are measuring and monitoring 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 point to opportunities, weaknesses and threats that should be addressed in the monthly CS&OP meetings. Exceptionreporting 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 collaborative 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 written 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 strategies that mitigate risk and take advantage of key opportunities as they occur.

migrating to a successful CS&oP


Begin your journey in the boardroom. Senior management must have a clear understanding of how this process is executed and how it helps the organization attain strategic and tactical objectives. A natural first step is a briefing 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 identify 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 requirements 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 methodology. Existing business processes most likely will be well-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 companies have accrued great benefits by working through the process steps even before all data and technology components 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 methodology 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. CS&OP offers organizations the capability to seize opportunities 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 production and supply planning will gain a competitive advantage. Many retailers and manufacturers still are struggling with excess 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 from building 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 problems 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 massmarket 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 officer 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 marketing. 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.

Information exchange boosts business


CS&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, conducting 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.

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