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Here’s how Canadian Tire marched into CPFR one step at a time.
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.”
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.”
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.