It's tough enough to keep up with demand when you supply large-volume retailers like Walmart, Kmart, Walgreens, and Target, among others. If you're Schering-Plough (Kenilworth, NJ) and you face the challenge of providing these retailers with seasonal products like sun care (Coppertone, Bain de Soleil, and Solarcane) and cold and allergy medication (Afrin, Drixoral, and Coricidin), the demand fluctuations make the task even more daunting. Add demand resulting from promotions, and the scope of the problem expands even further. So, what does a company do to support its customers while trying to improve production schedules and reduce safety inventory? Schering-Plough turned to collaborative planning, forecasting, and replenishment (CPFR) to ensure its production plans support customer demand.
CPFR is a process defined in detail by VICS, the Voluntary Interindustry Commerce Standards Association (Lawrenceville, NJ). In 1998, VICS dedicated a committee to develop a set of best practices for CPFR. The nine steps that make up the business processes were published in November of 1999. These guidelines are available at www.cpfr.org.
Schering-Plough's Healthcare Division implemented its first CPFR program with partner Walgreens in early 1999. At that time, the company used a spreadsheet to share planning and forecasting information and calculate exceptions to those plans. Keith Antilla, Schering-Plough's forecast manager, describes the program at that time as a "very manual, time-intensive process. And we were collaborating on just five items with their distribution center."
In July of 1999, the company migrated to CPFR applications from Syncra Systems Inc. (Waltham, MA). It's no surprise that there's a big difference between using a spreadsheet and an application designed for CPFR. "The big thing about using a product designed to support CPFR is that it puts the information right in front of you and you can go immediately to the exceptions," says Antilla. "One of the advantages is that the graphics show you what each forecast-our customers' and ours-is doing based on historical trends and you can easily see where variances occur. The graphics also immediately show us if we have the right seasonality built in, which helps us figure out where any issues may occur. For example, if we had a customer forecast based on the allergy season (spring and fall) and we had a forecast based on the cold season (winter), our production would be dipping when their demand was peaking."
Like a lot of companies implementing CPFR, Schering-Plough has a commitment to the entire process but has not yet implemented all nine steps. Julie Fraser, principal and director of market strategies for Industry Directions (Boston, MA), a consulting analyst group focused on manufacturing supply chains, says the reason for this in many companies is the amount of business process change that comes along with it.
"CPFR is at an early stage and not many people are taking a complete approach to it," she says. "There's a fair bit of business process change to do a full implementation. Making it even more complex is the fact that the business processes you're working on crosses over between you and your partners. Companies are taking on a subset of the process, getting their feet wet, and learning how to work together and trust each other starting out with something like exception alerts."
Antilla has experienced the complexity involved in sharing data and trying to collaboratively embrace the CPFR process model. "We're committed to get to the nine steps but getting there is a challenge because it depends on your customers' capabilities," he says. "For example, part of the process means having different forecasts available. We can provide a POS [point-of-sale] forecast and an order forecast but a customer may only provide a POS forecast, which means we end up missing three of the steps." Both Fraser and Antilla agree that these limited implementations are still important and significant steps in the right direction of realizing CPFR benefits.
Fraser also makes the point not to underestimate the cultural and behavioral issues. "The big challenge lies in changing the business culture and behaviors to make this possible, and how to manage this level of business transformation," says Fraser. "There's a lot of thought involved in structuring the solution so that it works for both parties. It's much more disruptive than anyone would like it to be. Traditionally, trading relationships have had some element of secrecy to them. Companies recognize that their competitors are also working with the manufacturer so there's the mind-set that says, 'we have to be careful about what we say to them.' This gets turned on its ear when you implement CPFR."
But the fact remains that implementing the process brings huge benefits. Joe Andraski, co-chair for the VICS committee on CPFR, says, "There are four areas that a CEO gets measured on: sales, profitability, working capital, and fixed capital. From what we've seen, CPFR provides improvements in each of these areas. Sales are increased and are more profitable, working capital is improved, and because you're taking much of the guesswork out of the exception process and reducing warehouse size and number, you improve your infrastructure and reduce the amount of fixed capital. This is all magic stuff for CEOs."
Though Schering-Plough has yet to accurately measure its tangible returns, Antilla says the company gained huge intangible benefits just in communication with its customers. "There may be more intangible benefits to the process than tangibles. One of the biggest benefits is communication," he says. "We now have the infrastructure in place to communicate and improve the forecasts for our customers, which drives our planning and manufacturing processes."
Not only does Schering-Plough share data and collaborate with its customers, the company also has processes in place to collaborate internally with its sales and marketing teams. After working with customers, Antilla says, "we work with the sales team responsible for the customer to identify exceptions like a promotion we weren't aware of and build that into the forecast shared with the customer in the next collaboration cycle." When that's done, they roll the updated information up to a national forecast and work with the marketing department's forecasts to identify any other exceptions. Antilla says the goal is to "make this a collaboration across the board."
To Schering-Plough, across the board means eventually collaborating with suppliers as well as customers. The company is beginning to think of ways to collaboratively forecast and plan production with the rest of its supply chain. "After we implement APO, we're going to pilot Web-based collaboration planning with three suppliers. Our suppliers will be able to access and review our plans and make changes to orders to optimize their schedules and Schering-Plough's inventory," he says. "We see it expanding to the entire supply chain."
This is sound strategy, says Fraser, who sees that many of the processes, especially for commodity-type goods, are similar throughout the chain. "Typically, retailers have driven the implementation because retailers have traditionally set the replenishment triggersbut that's changing," she says. "Suppliers that participated in early initiatives are beginning to reach out not only to other retailers but also to their suppliers to drive CPFR initiatives. Manufacturers are going to pick out key suppliers and try to make something similar happen. There are a lot of materials that are replenished on a pull basis into manufacturers just the way they are into retailers based on empty shelves or production progress. The terminology is different, but the processes are similar."
Because this process involves so much change and complexity, only a few companies have attempted full implementations, but even trading exchanges like Transora (Chicago, IL) and the WorldWide Retail Exchange (Alexandria, VA) have implemented CPFR. Fraser says this is a strong indication that this is the right direction. "So far, this has been a top-tier phenomena with companies focused on a few large suppliers," she says. "The smaller, second-tier suppliers are either going to have to be proactive about getting CPFR implemented or simply wait their turn." MA