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The Long Road to CPFR
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Key to developing that relationship is a commitment from management within the organizations, Schrader says. “You have to have a catalyst,” he says. “Each account has to have a champion who is committed to making sure the relationship is created.”
Another crucial starting point is the state of the data. For one thing, the data must be consistent and clean. The retailer’s database must report each product in the same way, no matter the source of the data or where the data reside. And the retailer must also have a centralized view of data throughout the system-“visibility” in the current term. “One of the biggest failings of CPFR initiatives to date has been that retailers have tried to implement collaboration without visibility to their demand levels,” says Scott Pulsipher, director of business solutions for Yantra Corp., provider of management software in a number of areas including retailing.
But if not having a view of the demand level isn’t bad enough, most don’t have a view of their supply level either, Pulsipher says. “Even if they can get that demand data, many still are unable to figure out where all the available inventory is to sell against that demand,” he says. “There’s a lot of data work to be done for organizations to understand what they have in their global environments.”
Finding the people
Yet another early requirement for making a CPFR project work is making sure the right people are in place. “Systems are important, but the really critical piece to making collaboration work is the people,” Schrader says. “Making collaboration work takes a different kind of person.”
“Five years ago, the type of person that we need didn’t exist,” Schrader says. “To make collaboration work, you really need a new person who understands development, manufacturing, distribution, production as well as marketing.”
While retailers may have a hard time getting their hands around a CPFR project, results to date of the limited tests show the effort is worth it. TruServe, for instance, has reduced its inventory by $200 million in that time, Linder says, while the rate at which stock has been available on the shelf for customer purchases has gone up a couple of percentage points.
Similarly, Schering-Plough reports a significant increase in in-stock positions for seasonal items at Rite Aid. Coppertone profitability is up 20% at Rite Aid, due to more timely stocking, Schrader says. AMR’s study showed, among other findings, that retail store shelf stock rates improved 2% to 8% while inventory levels dropped 10% to 40% and sales increased 5% to 20%. Manufacturers’ inventory levels fell as well while sales increased 2% to 10% (see box).
Those results were achieved on a fairly modest investment by retailers, AMR says. Suleski says software license fees range from $300,000 to $3 million, although a retailer can make a quick start in a few areas for a range of $125,000 to $175,000. Or a retailer can start with a CPFR system hosted by a vendor for $90,000 to $250,000 and expect to pay about $30,000 a month. “Retailers can pilot CPFR processes without making large up-front financial investments,” Suleski says in her report from AMR.
Those improvements in inventory and stock availability rates make AMR optimistic about the future of CPFR. Retailers and their trading partners last year spent $21 million in software licensing fees for CPFR, Suleski says. She expects that figure to rise to $250 million in 2004.
Suleski’s report underscores what retailers and their suppliers have learned about the CPFR process. Once again, the web makes it possible, but it’s the people who have to make it work. “The learning process, not the software, is the biggest commitment your organization will need to make,” she concludes.
|The benefits of CPFR|
|Better shelf stock rates||2-8%|
|Lower inventory level||10-40%|
|Lower logistics costs||3-4%|
|Lower inventory level||10-40%|
|Faster replenishment cycle||12-30%|
|Better customer service||5-10%|
|Source: AMR Research Inc.|