Collaborative Planning Forecasting And Replenishment Commerce Essay

Collaborative Planning prodigy And Replenishment Commerce probeCon viewr a company XYZ which produces various automotive parts. One such part is alphabet, for which there is a rise in size up level. The marketing team up decides to launch a promotional campaign to boost the sales and ABC and curtail this rising memorial level. This promotional campaign was a great supremacy and there was an annex in the sales of product ABC. The production department noticed this rise in sales of product ABC and they started producing more than than of ABC in anticipation of rising lead. This again upshoted in an affix in stock certificate level (negated the entire motive of the campaign). This is a perfect example of the spl revokeor of cultivation overlap (collaboration and Communication). A similar kind of issue occurs, when we do not shargon info in a render Chain, resulting in Bullwhip Effect.In an organization, if unalike departments have different owners with different view s and goals, they entirely try to maximize their individual profits. In the path of achieving this, they get deviated from their common goal of maximizing the boilers suit profit of the entire furnish Chain. This deviation from the true goal leads to lack of coordinationInappropriate flow of informationDue to incomplete sharing of information amid stages (inter-organization and intra-organization), information is distorted. Today, for a given organization, there argon a thousand of products. This increase in variety of products makes it next to impossible for the companies to ex multifariousness all information among all its suppliersSuch inappropriate flow of information results in BULLWHIP effect. Here, fluctuations in shapes increase as we move up the supply cooking stove from consumer to retailer to wholesalers to manufacturers. monitor and Gamble was the first to observe the bullwhip effect in its supply chain for Pampers diapers. They found that the raw material replenis hment order at the supplier side had huge fluctuations as comp ard to fluctuation in contract at retail pedigrees. Same way, HP also found that the fluctuations varied significantly with being genuinely little at resellers point and increasing as moving up in the chain towards integrated circuit division (ICD). Here also, while the alteration in product demands were rattling little, replenishment orders placed with ICD saw much more variability. A similar phenomenon can be seen in apparel and securities diligence effort.Lack of Coordination and its effects on Performance The Bullwhip effectA supply chain is said to be lacking in coordination if each stage (level) is have-to doe with about optimization of its own objective. In doing so, various individual entities get deviated from a common objective or organizational goal to cope with consumers by satisfying their needs and there by generating maximum profit for the organization. breeding distortion is also adept of t he causes of Lack of Coordination, as in the case of diaper supply chain of PG.Areas affected by Bullwhip effectManufacturing addressInventory approachReplenishment lead convictionTransportation appeal bray cost trains of product availability ( service level)Relationship across the supply chainManufacturing CostAs a result of Bullwhip effect, Manufacturing unit of PG have to produce to satisfy the demand of diapers with much more variability. PG can respond to such variability by either holding of excess inventory or by producing more capacity, both of which leads to increase in manufacturing cost.Inventory costThe Bullwhip effect also results in increase in inventory cost. With increase variability in demand, P%G has to carry a blueer level of inventory than would actually require in absence of Bullwhip effect. Thus, we can see a study increase in Inventory cost. A higher level of inventory will also mean an increased warehouse space requirement (again an increase in cost).Re plenishment Lead TimeThe Bullwhip effect results in increased replenishment lead time. With the increase in variability in demand overdue to Bullwhip effect, programming at suppliers and PG are much more difficult as compared to a level demand. in that respect are situations when the available option (inventory) is not enough to fill the demand and there by resulting in higher replenishment lead time.Transportation costThe Bullwhip effect results in higher transportation cost. With the increased fluctuations in demand due to Bullwhip effect, there is a proportional fluctuation in the requirement of transportation. This results in a rise in transportation costLabor CostLabor cost increases in presence of Bullwhip effect. Labor cost at PG and its suppliers increase due to fluctuations in demand. Also, labor cost for receiving at retailers end increases due to this increased uncertainty. Now all these stages have option of either operating at excess labor or variable labor, both o f which results in increase in labor cost.Level of Product availabilityOne of the major outcomes of Bullwhip effect is the Out Of Stock situations. As we know, with increase in fluctuations in orders, PG is not capable of satisfying the needs of all its retailers on time, which in turn increases the likelihood of retailers going OOS resulting in a sales loss in the supply chain.Relationship across the supply chainThe Bullwhip effect, having a negative effect on performance at all levels of supply chain results in bitterness in the relationship between these various stages of supply chain. Since each stage is working independently and is trying to achieve its individual goal, they are chthonian an impression that they are doing it in right way. They start blaming new(prenominal) department of inefficiency and there by resulting in loss of consecrate.Performance MeasureBullwhip effectManufacturing cost join onInventory CostIncreaseReplenishment Lead TimeIncreaseTransportation Cos tIncreaseShipping and Receiving CostIncreaseLevel of Product availabilityDecreaseProfitabilityDecreaseThus, we can say that the Bullwhip effect has a significant effect on the overall positivity of the supply chain. There is an increase in cost and decrease in responsiveness.Obstacles to achieving coordination in Supply ChainFactors leading to local optimization at various stages of supply chain or increase in information delay are the root cause of difficulty in coordination in supply chain. The five major categories of obstacles areIncentive obstaclesInformation processing obstaclesOperational obstaclesPricing obstaclesBehavioral obstaclesIncentive obstacleWhen there is a variation in incentive offered at different stages in a supply chain, there is an increase in variability in the productivity and reduction in total supply chain profits.local anesthetic Optimization Suppose that the incentive of a floor manager at a local grocery store depends up on the profit they reelect fo r that particular store. Here, the managers take all their purchasing and inventory decisions to achieve this goal l whizz(prenominal) and not for the benefit of the entire supply chain. Buying and stocking decisions which are establish on single stage optimization can never result in over all supply chain profitability.Improper sales posture incentive Very often, sales force incentive are designed in a manner to achieve local goals. Sales force incentive are base on the quantity sold to the distributors and not the end consumers. For example, consider an umbrella manufacturing firm, which offers its sales force an incentive on the sales organize achieved in off season. To maximize their bonuses, sales force convinces distributors to buy more umbrellas even though there is no demand. This results in order variability with more demand in off season and less demand when actually there are sales. This kind of sales forces incentive result in order variability more than guest deman d variability.Information processing obstaclesInformation processing obstacles occurs in a situation when there is a distortion in information regarding demand as it moves from clients to retailers to distributors to manufacturers. calculate based on orders and not on customer demandWhen there is a Bullwhip effect is a supply chain, the only communication between different stages is the orders they receive. Each stage sees its responsibility as fulfilling orders to its downstream. In such a scenario, a actually small change in customer demand will result in large variability in orders placed by the distributors. The fact that each stage in a supply chain forecasts demand based on the stream of orders received from the downstream stage results in a magnification of fluctuations in demand as we move up the supply chain from the retailer to the manufacturer.Lack of information sharingSuppose a retailer increases the size of order for a particular product due to its planned promotion. Now, if the manufacturer is not aware of this planned promotion, it will see this increase in order as increase in customer demand and place orders with suppliers accordingly. So, when the retailer finishes its promotion, both manufacturer and distributor has a piled up inventory.Operational obstaclesOperational obstacles occur at the time of placing and filling of orders. There are a number of fixed costs associated with placing of order, receiving or transportation of an order. Different retailers may prefer orders in lots to understate such costs. Thus at the suppliers end there is large variability in order as compared to demand variability at retailers end. Now, if there a number of retailers associated with the same supplier, and due to placement of orders in lots, there might be some days when order may be erratically high as compared to other days as compared to demand. Such situations may also lead to large replenishment lead time.Pricing obstaclesLot size based quantity d iscounts occurs when there are discounts offered on large lots of order placed. These resulting large lots magnify the Bullwhip effect. There are a number of switch over promotions and short term discounts. Such offers always boost orders, which are nowhere in sync up with the real demand. Such forward buying result in large orders during promotional activity or special discount rates but very small orders after that.Behavioral ObstaclesBehavioral obstacles are problems in learning within organizations which later on contribute to the Bullwhip effect.Each stage of supply chain acts locally and is not aware of the consequences of its action on others.Different stages of the supply chain react to the current situation locally rather than trying to identify the root cause.Due to lack of common judgement and coarse trust, each stage plays a blame game on each other with no one taking the responsibility of these fluctuations.Lack of trust with in supply chain makes them all opportunis tic at the expense of the overall supply chain profitability. This also results in duplication of efforts. Since individual entities do not share ideas and work in isolation, many a times they turn up doing the same task.Means to Overcome obstacles of Collaborative information sharing Collaborative Planning, Forecasting and ReplenishmentMeans to overcome these obstaclesImproved information accuracyAlignment of goals and incentive across the channelBuilding strong partnership and mutual trustImproving Operational PerformanceAll these efforts can be achieved by Collaborative Planning, Forecasting and Replenishment. So what exactly is Collaborate Planning, Forecasting and Replenishment (CPFR)? Here, both sellers and buyers at all the levels come together and collaborate along all or few of these activities.Strategy and PlanningDemand and Supply ManagementExecutionAnalysisAt strategy and planning stage, all the partners involved discuss upon the scope of collaboration and assign roles and responsibilities and define checkpoints. They align all their activities including promotions, new product introduction, store opening and closing and inventory policies. Then, at demand and supply management, sales forecast using point of sales selective information give an accurate picture of demand. Now, as the forecasts become firm, they are converted to actual orders. Then, processes like production, shipping, receiving and stocking are executed. Now the last but most definitive task is analysis of KPI. There is always a need for identifying exceptions and evaluating metrics that are used to access performance.One successful CPFR implementation has involved Henkel, a German detergent manufacturer, and Eroski, a Spanish food retailer. Prior to CPFR, Eroski saw frequent stock outs of Henkel products, especially during promotions. At the inception of CPFR in December 1999, 70 percent of the sales forecast had an average faulting of over 50 percent and only 5 percent of the forecasts had an error below 20 percent. But, right within four months of CPFR implementation, the numbers changed drastically. Forecast errors above 50 percent reduced to 5 percent and more than 70 percent of the time, forecast error was below 20 percent. node service level also increased to 90% with an average inventory of just 5 days.CPFR implementation ScenariosMentioned below are the most common CPFR implementation scenariosCPFR scenarioWhere applied in Supply ChainIndustries where appliedRetail event collaborationHighly promoted channelsAll industry other than those that practice EDLPDC replenishment collaborationRetail DC or distributed DCDrugstores, hardware, groceryStore replenishment collaborationDirect store delivery or DC to store deliveryMass merchants, Club storesCollaborative assortment planningApparel and seasonal goodsSpecialty retail special K CPFR ScenariosRetail event CollaborationIn any retail supermarket, there are a number of events such as promotional activ ities and they affect demand very much.OOS and excess inventory, unplanned logistics cost and order placement costs are sometimes very high and may affect the overall profitability in the supply chain. Here the deuce parties involved identify specific brands that are to be included in collaboration. Each and every minute level like promotion time and place, display tactics, advertisement are shared. Once, information sharing is done, a demand forecast is prepared and shared with in the two parties.PG is one such example which has implemented Retail event collaboration with many big retail chains including Wal-Mart.DC replenishment CollaborationThis is one of the simplest and mostly used collaboration scenarios, where partners need to collaborate for forecasting on demand and DC withdrawals. This collaboration is comparably easy to implement since this collaboration requires aggregate forecast and does not require sharing of point of sales data. And slowly, with due course of time , this collaboration can be moved up to all other storage points in supply chain (from retail shelves to Inventory warehouse)Store Replenishment collaborationStore replenishment collaboration is one step earlier of DC replenishment collaboration. Here, collaboration is on store level point of sale forecast. These forecasts are used placing store orders. Benefits of store Replenishment collaboration is increased replenishment accuracy, improved service level and less Out of Stock situations, reduced inventory and greater visibility of point of sales data.Collaborative sort PlanningFor fashion apparels and seasonal products, demand follows a seasonal pattern. Thus, collaborative planning in these categories follows seasonality Hence, the forecasts rely more on collaborative understanding of industry trends, customer tastes and less on horizontal data.Why is CPFR important?Consider a consumer walking in to a retail grocery outlet to take place that the product which he is looking fo r is not available (out of stock). For the consumer, it is great inconvenience and for the store owner, it is a loss of revenue. Such a situation is not only a plague in retail industry, but also a nightmare for manufacturing sector. Out Of Stock of one particular inventory in the manufacturing declination can lead to zero overall production (bottlenecks). Mostly (70% to 75%), out of Stock occur at retailer level.Reasons for Out of Stock at retailer levelLengthy Ordering Processes/CyclesUnderestimated demandUn stocked shelves even though the products are at the storeSo, what is required to tackle such problems? closedown to end information channel Point of Sale information coming from retailer to the supplier. CPFR is one such process where we use common tools to capture data at all stages in the supply Chain. Pioneers to this practice are Wal-Mart and Tesco. They first linked their Point of Sale data from Retail stores to their Warehouses. This laid down the bricks to the make o f an open information infrastructure. The second and more critical task in implementation of CPFR is managing cultural change. There has to be a willingness to share information. A mutual trust between different stakeholders is a must, since the required information to be shared is confidential most of the time.Benefits of Collaborative Planning, Forecasting and ReplenishmentLower inventory levelsIncreased salesLess overheadReduced human errors ( data exchange)Better insight in customer demand resulting in better resource utilization, reduced inventory requirements.Improved and direct communication with customersOpportunity to provide category managementReduced replenishment timeLess redundancyIncrease service level and reduced stock outsLower Inventory LevelBy having knowledge of exact inventory status of customer, the supplier has better check off on lead time of his inventory. He knows his exact inventory requirements due to depress uncertainty. A better forecasting leads to lo wering the need for safety stocks (also termed as buffer stock is the level of extra stock maintained to mitigate the risks of stock outs due to uncertainties in forecasting). All these factors combine to result in lower inventory.Increased SalesCPFR in place ensures the product availability at any given point. This results in a better customer experience and customer satisfaction. A satisfied customer becomes your loyal customers. A loyal, regular customer generates more revenue than a first time customer. Also, less stock outs at outlets result in less customers returning without any purchase. This results in increased sales.Better Resource UtilizationProper knowledge of customer demand due to end to end information sharing, results in a better forecasting. An improved forecasting numbers result in more planned decisions, clarity of genius in terms of inventory requirements and so a better RU plan.Increased Service LevelCollaborative Planning, forecasting and Replenishment build s up a better forecasting model. In CPFR system, at each level, a supplier has access to real time sales and inventory data of a customer. As soon as the inventory goes below the safety level, a replenish order call is triggered. It helps customers to operate at higher service levels and lower inventories. Now, these are the benefits every supplier aspires for.Challenges in implementation of CPFRIt is a universal truth that no benefit comes without a cost. Same way, with so many benefits associated with Collaborative Planning, Forecasting and Replenishment, there are also few risks and hurdles to its implementation. With sharing of information at such a large scale, its misuse is one such risk. Often, one entity may have relationship with various competitors. Another risk involved is viability of change in technology. If one of the partners in collaboration changes its technology, the other is forced to do so or it may lose its collaboration. Thirdly, with the requirement of close i nteraction of the partners, a variation in their cultures can also play a very important role in making decisions of CPFR implementation. The inability to foster a collaborative culture across the partner organizations can be a major hurdle to the success of CPFR. However, one of the biggest challenges is that the demand information which is shared between the partners is often not used in an integrated manner within the organizations. It is crying to have integrated supply and demand, logistics and corporate planning within the organizations. This will help in maximizing the overall profit generated in the supply chain.Factors change Distribution Network designElements of customer service influenced by network structureResponse timeProduct varietyProduct availabilityCustomer experienceOrder visibilityReturn abilitySupply chain costs affected by network structureInventoriesTransportationFacilities and handlingInformationSupply Chain Costs affectedWith a better visibility due to in formation sharing, the inventory requirement decreases, thereby reducing overall inventory cost. Also, a common supplier may have information (real time) of all its customers and can very easily club in various orders. This can be achieved by using MILK RUN model of distribution One truckload stopping at multiple points to replenish various customers. This helps him to reduce his transportation cost also. Implementation of centralized information systems (ERP, SAP) may eliminate the hassles of manually data entry and transfer. Though, the onetime cost of implementation of such systems might be very high, they reduce the human error probability. Such errors may result in inaccuracy in forecasting which will again result in higher inventory costs and out of stocks (loss of sales).Elements of Customer Services influencedResponse time and Product availabilityCPFR builds up a better forecasting model. The actual demand information is used to generate replenishment orders. This helps ven dors to improve their response time and less out of stock situations in the retail outlets.Customer ExperienceWhen a customer walks in to a retail store, there is a lesser chance of him finding an out of stock situation. Product availability (right product at right place) helps to increase customer satisfaction.Order VisibilityWith CPFR in place, the supplier can see the customer demand in actual and can anticipate the orders. This helps in reduction in errors in forecasting. A well informed and collaborated partners increases order visibility. All this is possible only due to Collaborative information sharing in the system.