A Profitero study showed Target’s online prices were 25% more expensive than Wal-Mart’s, which were just slightly more expensive than prices on Amazon.
When undertaking a collaborative supply chain initiative, start with the people and the culture, not the technology.
When TruServe Corp., the co-op that serves TrueValue Hardware stores, wanted to start a collaborative supply chain program, supply chain managers realized quickly that the biggest issue they faced was not which technology to employ-it was setting the standards of what they expected from suppliers and what the suppliers could expect in return.
“We started out addressing some issues of compliance like shipping product on time and incomplete orders,” says Greg Linder, director of supply chain capabilities with TruServe. “Some were our issues and some were vendor issues, but we had to address them.”
TruServe’s experience is typical of what it takes to launch a collaborative supply chain project-it’s not the technology or the products that retailers need to address first, it’s the relationships and the processes. “Any collaborative process requires three elements: understanding the workflow, making sure all entities have access to all the relevant data and then having the technology base to exchange the information,” says Kevin Stadler, senior vice president of collaborative solutions at JDA Software Group Inc., which bought E3 Corp., developer of supply chain technology, last year. E3 provided TruServe’s supply chain system. “Any successful collaboration builds off those three.”
It seems that a retailer can hardly attend a trade show these days without hearing about collaboration in the supply chain and all the benefits that working closely together creates. The web has made it possible for trading partners to talk to one another with an immediacy that was unknown five years ago.
Processes and culture
But if there’s one thing that business managers have learned it’s that the revolution that a web-enabled process promises is not as easy or as quick as proponents would have one believe. And nowhere is that truer than in the supply chain.
Moving an internal procedure to the web-such as reporting sales data from the store to headquarters-is a difficult process, but it at least is still only communicating data within an organization. Moving the supply chain to the web, however, adds an incredible layer of complexity not only because it involves so many entities but also because it affects so many processes.
For that reason, most participants in collaborative supply chain projects stress that the starting point for any collaboration comes long before any technology decisions are made. “The starting point is the entire business relationship,” says Mike Schrader, manager of forecasts for pharmaceutical manufacturer Schering-Plough Corp., which has been engaged in a supply chain collaboration effort with drugstore chain Rite Aid Corp. for nearly two years.
Says Harrison Lewis, vice president of data management and e-business at the Great Atlantic & Pacific Tea Co.: “It’s not really about the technology, it’s about processes and cultural issues.”
With so much to understand and automate and so many procedures to have in place before a CPFR program can really start, it’s no surprise that some would-be participants are overwhelmed-and thus hold back waiting for someone else to make the first move. “CPFR is a giant multiple choice test in which there is no right answer,” says Matt Johnson, chief technology officer and a founder of Syncra Systems Inc., provider of collaborative supply chain technology.
Collaborative planning, forecasting and replenishment has caught the attention of many retailers and suppliers who are attracted by the promises of increased sales, reduced inventory costs and more accurate forecasting for production purposes. CPFR is the trademarked name of a process being developed by the Voluntary Interindustry Commerce Standards Association. For all the attention CPFR has garnered over the past couple years, few retailers have adopted it. Boston-based AMR Research Inc. reports that perhaps as few as 45 and no more than 60 retailers are piloting or using CPFR. On the manufacturing side, that number could be as low as 100 or as high as 150, but no more, AMR says.
AMR cites a number of reasons for the lag. For one thing, the decline of the economy got in the way just as retailers were getting interested in CPFR. For another, some retailers are watching the development of trading exchanges to see what effect they might have on the development of CPFR. And finally, many would-be participants are confused about where to start and others questions whether CPFR is really beneficial.
Getting off the blocks
As with any complex technology, web-based supply chain automation has any number of starting points. And getting one’s hands around a single starting point is not easy. Participants advocate a number of jumping off places. Analysts most often cite: Determining which products make the most sense for collaboration, developing close working relationships with partners, cleansing data and making sure that all data feeds into a central database.
TruServe, for instance, is collaborating with only 15 of its 2,000 suppliers. And while Linder expects the program to grow substantially this year, it still will involve collaborating with only as many as 50 suppliers-2.5% of its vendor base. “But they’re a significant part of our business,” he says, and so they’re the most valuable to convert to collaboration. Among TruServe’s collaboration partners are Black & Decker Inc., The Scotts Co., Delta Faucet Co., Manco Inc., General Electric Co.’s lighting products and Genova Products Inc., providers of pipe and plumbing supplies. Narrowing the partners “streamlined what was a daunting task,” Linder says.
Each organization must determine the minimum size partner with whom they will collaborate, some say. “Everything you do has to be thought of in terms of economy of scale,” Schrader says. “Unless your partner represents at least 5% of your business, collaboration would not have enough impact.”
Once a retailer has chosen products and partners, the next step is building the right relationships, most participants in CPFR programs say. “The hardest part is the communications,” Schrader says. Schering-Plough, which is using the E3 technology from JDA, is actively seeking to collaborate with other chains and has done some collaboration with CVS Corp. and J.C. Penney Co. Inc.’s Eckerd Inc. “You have to develop the relationship between two companies so that communication works just as if two individuals were sitting in cubicles next to each other,” he says.