Collaborative planning, forecasting, and replenishment in the retail supply chain
By Wesley Niemann, Programme Lead: MPhil Supply Chain Management - Jul 10th, 08:56
Grocery retailers often find themselves facing the challenges of overstocking, understocking, missed sales and expired stock. Collaborative planning, forecasting, and replenishment (CPFR) is a framework that has been developed to address these challenges.
What is CFPR?
CPFR is where parties in a supply chain collaborate in terms of promotional activities and synchronised forecasts on the basis of production and replenishment. There are benefits associated with CPFR such as increased supply chain performance and competitive advantage. However, there is a lack of detailed and comprehensive guidelines about the key factors and the implementation framework, this has led to the failure to successfully implement CFPR.
A recent study conducted by supply chain management researchers at the University of Pretoria investigated the key factors that affect the implementation of CPFR at a major grocery retailer in South Africa. The study found that there are eight key factors that affect CPFR implementation.
Communication a key factor
A common goal should be the starting point and driver for a potential collaborative arrangement such as CPFR. In today’s business environment the goal is to maximise profit and efficiencies and cut costs to an absolute minimum, to reach these goals, retailers have to structure collaborative relationships with suppliers to harness those efficiencies. The study found that communication is a key factor for successful collaborative ventures, as effective communication can build successful relationships and build loyalty. Communication with senior members in the firm is crucial to successfully implementing plans and communication can also supplement a lack of competence. Further, ineffective communication can deteriorate these collaborative relationships.
Business understanding is beneficial
Despite the lack of evidence in the literature, the study found that business understanding (the point when two or more people share the same knowledge and clarity on a specific subject) was found to not only be beneficial to the supply chain but the business as a whole. The ability of suppliers and retailers to determine a mutual benefit is a key factor affecting CPFR implementation. Although in practice there is often a deliberate lack of transparency it was found to be a key factor that is linked with strategic information used against competitors and suppliers. Retailers do not always want suppliers to know their current stock levels, as they might want to use it strategically later on, as they know there is a price increase coming and want to be able to decrease the price. If there is trust in a relationship, partners are more likely to share information and invest in relationship-specific assets, if retailers do not trust their suppliers, they might simply not enter into an agreement with them.
CPFR implementation framework
The study outlined a CPFR implementation framework that is used by a major grocery retailer in South Africa. The first step in the CPFR process, as per the grocery retailer, is to develop the rules of engagement and the joint business plan, this includes the aspect of exclusivity where only one major retailer has a promotion on a certain product or product group at a given time. Thereafter, the promotional line should be determined. This can be decided by the retailer or the supplier on a 12-month promotional grid specifying which products they intend to promote throughout the year.
Thirdly, historical figures and timing should be analysed by both the supplier a retailer. This can be done by analysing their historical figures on volume bought from the supplier, volume moved through the distribution centre (DC) and volume sold from the store. A marketing analysis must be conducted to determine the advertising strength that will affect the volumes being moved. It is important that subsidisation by marketing should be analysed and worked into the planning, as it may lead to increased patronage. This would then be linked with the last step of the framework by analysing the performance as a result of the promotion.
Once retailers and suppliers have completed their analysis of sales forecasts, ordering forecasts and variable factors, such as advertising strength, this information should be shared with relevant supply chain members. This information should then be validated and managed accordingly.
Supportive measures are required from several departments, such as the transport logistics department, the seniors in charge of labour on a production line or distribution centre or project managers. This involves planning and strategy regarding spatial constraints, about changes to accommodate additional demand and just-in-time practices.
These supportive measures reduce the ‘isolation’ that characterises forecasting and replenishment activities in most firms. Finally, the plans should be implemented, orders should be generated, and performance should be analysed. The framework found by the study is not like any of the frameworks described in the literature, this confirms that there is still a lack of consensus about an implementation framework for CPFR.
Managers often neglect thorough implementation processes regarding CPFR, this has resulted in achieving unsatisfactory results. By acknowledging, focusing on, and leveraging the key factors described in this study, managers can increase the likelihood of achieving satisfactory results in CPFR implementation. The framework described can be used in benchmarking projects and it can assist managers by guiding them through CPFR implementation.
Supply chain managers can compare the proposed framework with internationally recognised frameworks to determine the framework that may suit their business best. From the suppliers’ point of view, they gain insight into what is most important from the perspective of retailers. When suppliers acknowledge the viewpoints of retailers, they will be more aware of what is crucial to developing and maintaining collaborative relationships. This will aid in promoting the successful implementation of collaborative initiatives, such as CPFR.
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