No Speeding

Canadian Tire is more than what it seems. One of Canada’s largest general merchandisers, it rolls out a line of products far beyond what its name suggests. With a chain of some 450 retail stores that sell everything from inflatable backyard pools to audio systems, the Toronto-based retailer has relationships with thousands of suppliers.

While the extent of its relationships may not be unusual in today’s retailing environment, the degree to which it has forged collaborative relationships with suppliers is. Canadian Tire is one of the first big retail chains to operate under a complete CPFR system of sharing sales forecasts, promotions and orders with suppliers. But getting to that point took careful steps into a web-based technology system that may be built on the Internet but depends on ongoing personal interactions between Canadian Tire’s managers and their counterparts at key trading partners.

The 9-step plan

CPFR, or collaborative planning, forecasting and replenishment, is, officially, a nine-step process under which retailers and suppliers set rules on how to collaborate with business data, then share sales forecasts and apply them to a method of matching suppliers’ production plans with retailers’ planned orders. For most retailers and their suppliers, however, operating under a complete system of CPFR is still a distant goal, as they choose instead to work on parts of collaboration; for example, setting business rules on when and how to notify a trading partner of disruptions to supply or demand, but without further sharing information on forecasts related to actual sales data or promotional plans.

Canadian Tire has been a leader in CPFR, practicing the full scope of CPFR for the past few years. As a result it has improved its ability to get the right products delivered to the right stores at the right time, leading to reduced out-of-stocks on store shelves, faster inventory turns and more accurate demand forecasts to support better order replenishment—the overall goal of trading partner collaboration. The issue is significant to retailers: Popular, fast-moving consumer products have an average out-of-stock rate of about 8%, which climbs to 15% when retailers run promotions, notes Rob Garf, retail analyst with AMR Research Inc.

But getting Canadian Tire into a complete system of CPFR took careful steps along the way, as the company migrated to a web-based collaboration software suite that enabled it to move away from the restrictions of its EDI-based system. The NetWorks collaboration suite from Manugistics Inc. is designed to let all concerned parties at the retailer and its suppliers share browser-accessed information for fashioning each step of CPFR. “We didn’t do anything like this in the past,” says Nancy Rae, Canadian Tire’s supply process analyst for collaborative forecasting. “We always had conversations between buyer and seller, but now we can provide a common view to the same data, so buyer and seller are looking at the same information at the same time. In the past, the information on sales and order forecasts might be on different spreadsheets, different pieces of paper, on different desks.”

Big shift

Canadian Tire declines to reveal the cost of its NetWorks suite.But collaboration software from another vendor, 7th Online Inc., runs about $100,000 based on a client’s number of SKUs and can take 30-90 days to implement, says president Louise Thazen.

Although Canadian Tire is still rare among retailers in its full rollout of CPFR with selected suppliers, its experience serves as an example for others in building the several steps of collaboration. And more companies are recognizing the need to do just that. “We’re seeing a significant shift in the mindset of retailers and suppliers,” Garf says. “Adversarial relationships are turning toward more collaborative planning environments, as both sides realize there is value in collaborating and sharing forecast information.”

Fast followers

Still, moving toward broad CPFR systems will take time for most retailers, experts say. “Retailers are fast followers,” Garf says. “They want to make sure others are doing it first and doing it successfully.”

But retailers who may be waiting for the system to prove itself before implementing it don’t need to wait, collaboration experts say. They note that it isn’t necessary to conduct a full-blown CPFR system to reap benefits from retailer-supplier collaboration. “If you don’t have all the pieces in place, that’s OK,” says Joseph Andraski, executive director of the Voluntary Interindustry Commerce Standards Association, which devised the CPFR process in 1998 based on methods followed by Wal-Mart Stores Inc. and other major retailers. “Many companies have adopted one or two or more steps of CPFR and found different approaches to collaborating with trading partners, depending on the existing strengths and weaknesses between them.”

Retailers and their suppliers should evaluate how they communicate and share business data with one another before moving to a technology-based CPFR system, experts say. “If you don’t share information now, internally within your organization as well as externally with trading partners, you have to figure out what you need to change in your work management culture to make sure organizations are properly aligned to begin collaboration,” says Andraski, a former executive in charge of supply chain systems at Nabisco.

“There needs to be buy-in among executives on both sides, and acceptance that this is a cultural change,” Garf says.

That kind of support helped kick things off for Canadian Tire, where top executives from the CEO on down have supported CPFR, Rae says. In addition, it had already taken preliminary steps of collaboration that set the stage for moving toward full-fledged CPFR.

Eight years ago, Canadian Tire began a preliminary approach to collaborating with suppliers. Using documents transmitted through EDI value-added networks and e-mailed forms, it shared order replenishment plans once a week through batched files to key vendors. The system helped vendors better plan production around Canadian Tire’s expected demand, but the process of accepting and analyzing data was laborious, Rae says. And it provided suppliers with insufficient details about the retailer’s sales forecasts, necessary ingredients to help suppliers better prepare for exceptions to the planned orders.

“Suppliers would see indications of changes in demand, but the information was only part of the order replenishment plans we shared and contained no details on actual sales data,” Rae says. As suppliers received Canadian Tire’s order replenishment data through EDI, they had to download it into their own software applications and translate it into their preferred data format. And for merchandise and logistics managers to get practical use of the data, they had to rely on IT experts to help run analytical reports.

But even after analyzing the data, there was still much missing from the full scope of CPFR. There were no pre-set business rules, for example, that would set supply chain performance thresholds that could trigger alerts to trading partners of exceptions. And because there was no system of sharing sales forecasts and plans for promotions, suppliers were left with scant details for getting a better understanding of the retailer’s order replenishment plans and prepare for exceptions that might be revealed by a look into sales forecasts.

Getting a retailer to share forecast data on sales and promotions, however, crosses a traditional line of defense in the retail industry. But to really use CPFR to its ultimate potential, sharing sales and promotional forecasts is a crucial part of the mix, experts say.

Pick the best

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So how do retailers get over that hump? By starting out slowly with the most trusted suppliers whose collaboration could have the most significant impact on improving the flow of goods onto store shelves, experts say.

“Look at your top 20% of suppliers, pick one or two that you have good relationships with, then start to put some rules in place about sharing information,” says Garf.

But going much beyond that step needs a supportive technology infrastructure, Rae says. It’s one thing to establish business rules and agreements—such as defining which managers at each trading partner need to stay in contact, how often and through what communication channel—but getting broad and timely participation requires a technology infrastructure that provides universal access to a central core of information. In other words, the web is crucial to making this work, experts say.

“CPFR is a business process, but when you have a technology application that enables that process, it definitely enhances the collaboration by making the relationship more formal,” Rae says.

That technology infrastructure emerged at Canadian Tire through its web-based Manugistics NetWorks suite. Manugistics was a natural fit because the retailer was already using its software to analyze its sales as a preliminary step to producing the order replenishment forecasts sent through EDI and e-mail to suppliers. Canadian Tire configured the NetWorks suite with a Collaborate module for sharing data and a Monitor module that automatically alerts managers at retailer and supplier to changes in expectations. Retail companies using its software to collaborate with suppliers average a 10-25% reduction in inventory, Manugistics says.

The NetWorks application, which gets an integrated data feed from Canadian Tire’s Manugistics sales forecast software, sits on Canadian Tire’s own web servers, providing web browser access by any authorized manager at the retailer and at its designated suppliers.

The first step under the new system involved setting business rules. Though these can differ with each supplier, they always require a retailer to first review how each trading partner needs to conduct business.

If a supplier has four departments that need to review the retailer’s sales and order forecasts, for example, Canadian Tire will meet with each department manager and learn which data they need to see, including data that may need to be adjusted for particular managers during different selling seasons.

Collaboration technology doesn’t replace human interaction, it supports it, Rae says. “We have regular reviews with suppliers and internally, both in person and remotely, and analyze the way our partners use the information we provide them.”

Identifying exceptions

Getting the business rules down pat sets the table for Canadian Tire’s next phase of CPFR, creating a sales forecast, identifying exceptions to expected sales and establishing ways to collaborate on exceptions.

Canadian Tire’s move into this phase of CPFR was partly helped by its experience working with sales forecasts to plan the order forecasts it had been sharing with suppliers through EDI and e-mail transactions.

Suppliers under the old system got used to getting updates on changes in demand. But without extra details on the sales and promotional forecasts that went into devising the order forecasts, suppliers were less capable of preparing for exceptions to planned orders.

Rae says that learning to use the NetWorks system was not difficult for Canadian Tire managers, who were already accustomed to using sales forecast data. But Canadian Tire did conduct in-person and telephone sessions with trading partners, she adds.

One of the advantages of sales forecast collaboration, experts say, is that it opens up analysis to suppliers as well as retailers. And often two heads are better than one. “Part of the collaboration process is being able to decide whose forecasts are more accurate,” says Karim Bursa, vice president of marketing for Logility Inc., a provider of collaboration software.

A critical part of this phase is for the retailer and supplier to agree on tolerance levels in dealing with exceptions to such things as sales forecasts and delivery times. When alerted of exceptions, managers contact other managers within their own organization as well as at their trading partner to make changes to production, delivery and merchandising plans.

Full circle

With its business rules and sales forecast phases in place, Canadian Tire took its collaboration program full circle by bringing it back to its order forecast stage. Rather than having to gather information on sales forecasts, replenishment plans and order generation from different sources and assorted spreadsheets, managers can access and analyze all data from a single web page.

Now when Canadian Tire shares order forecasts with suppliers, the retailer and its suppliers have already worked through exceptions that could impact order forecasts. “The information in our 26-week order forecast is golden, because we have few last-minute changes,” Rae says. “Now when production planning takes place, suppliers are a lot more comfortable about it.”