Target and Toys R Us posted overall sales declines during the holidays.
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Faced with a mandate from its board of directors to produce supply chain benefits through improved information sharing with suppliers, METRO in 2002 started working with the GlobalNetXchange, a retail industry Internet-based trading service, to implement CPFR with seven of its leading suppliers, including Kimberly-Clark Corp., Procter & Gamble Co., Johnson & Johnson and Colgate-Palmolive Co. "We started with them not necessarily because we thought they would bring the highest ROI, but because we were just beginning and needed partners with an affinity for this," Hopp says.
The big-name suppliers in its CPFR project had all at one time or another been the category manager, or lead supplier, for a particular line of products. As a category manager, a supplier received basic information months ahead of time about the assortment of products to be promoted within a category and the scheduled time for the promotion. A few other suppliers would receive partial information in case they needed to step up deliveries, but they wouldn`t receive the information until about three weeks before the promotion was scheduled to begin. Smaller suppliers were even further out of the loop.
Cutting through the hodgepodge
As planned promotions got closer to the scheduled date, managers at METRO and their counterparts at the category managers would work out the details of specific products, quantities and pricing through a mixture of meetings and communication methods. METRO would share some demand data like sales forecasts and projected demand for particular product sizes, but there was little if any sharing of supply data related to the supplier`s ability to meet METRO`s orders. "On the supply side, there was no collaboration," Hopp says. "Suppliers just got their orders and hopefully met them."
There were exceptions, but not without faulty communications, he adds. For unusually large promotions, there might be more communication between METRO and its suppliers, but the hodgepodge of communication methods without a central means of coordinating and recording messages often resulted in confusion. "It was a classic case of a lot of people talking to one another, with a lot of misunderstanding," Hopp says. "Somebody might have been on vacation, for instance, and no one saw a supplier`s message in his mailbox."
Such poor communications could result in an inability to respond to unexpected changes in demand or production, leading to missed opportunities, lost sales or over-delivery of products that would have to be either returned to the supplier or sold at markdown prices. As planned promotions got closer to their kick-off dates, for instance, METRO might learn that demand was lower or higher than initially expected.
"If detergent or diapers were selling at a higher demand than planned, we might not be able to get the trucks to deliver more products, or we might have to pay extra for labor and transportation to do rush orders," Hopp says. "But the worst case is that we don`t get any merchandise at all."
Reaching critical mass
But offering web-based collaboration through GNX`s CPFR service has provided the missing visibility into updated supply and demand information necessary to assuring the proper flow of products into METRO`s distribution centers and stores, Hopp says. The technology itself, by enabling both sides of the negotiating table to easily view information through a web browser, makes partners more willing to contribute information, he adds.
In the meantime, demand for some product categories supports having more than one category manager. So instead of working with one category manager and two or three additional back-up suppliers for each promotion, METRO now often works with up to three category managers for, say, three types of detergents, plus a team of six or seven back-up partners. Using web-based CPFR, Hopp says, makes it possible for all of these suppliers to share information with METRO, giving it plenty of alternatives should demand rise unexpectedly or if a lead supplier experiences unexpected disruptions to supply. "We have category managers plus others to give us a critical mass," Hopp says. He adds that CPFR partners who get information on planned pricing and quantities can add information into the system to suggest different products or pricing. "With CPFR, it`s become more democratized for suppliers," Hopp says.
METRO`s CPFR program is at the core of a 5-tier system of suppliers. The top suppliers or category managers have exclusive access to METRO`s Category Management Plus, a web-based application from Wincor Nixdorf Inc. for sharing initial information on planning assortments and times for product promotions.
A broader view
The category managers and the second tier of suppliers participate in the CPFR system, where they can share in details on pricing and quantities of planned promotions and make suggestions for alternate products and pricing. "Now suppliers can make those suggestions earlier," Hopp says.
CPFR partners, with their knowledge of other retailers` planned promotions, may also share with METRO through a GNX workflow system market data about expected demand for particular products throughout the retail industry. "Without violating their confidentiality obligations with other retailers, a CPFR partner may tell us that a planned promotion might be tough to do in a particular week," he says.
Third-tier suppliers can access METRO`s METROLink extranet, where they can share in some data on promotions but not participate in the planning process by inserting suggested products or pricing. The fourth and fifth tiers receive basic information on promotions through EDI or other means outside of METROLink.
Working with five tiers makes it possible to include all levels of suppliers in information sharing on promotions, creating an even larger critical mass of potential contributors. Beginning to view and share some information in lower tiers helps suppliers to build confidence with METRO as a reliable partner, and it`s a good way for suppliers to get in the habit of planning further ahead. "If suppliers have been used to planning as late as possible, they need to learn the discipline of planning months ahead," says Bharat Popat, CPFR manager at GNX who worked with METRO.