Launching CPFR at Texan Foods - Essay Example

Launching CPFR at Texan Foods: Improving Inventory Replenishment with Collaborative Activities and Technologies Introduction In the present day business context the efficiency and effectiveness in the supply chain management is of paramount importance for enhancing the competitive edge of any business. The efficiency of supply chain management is greatly facilitated by the concept of Collaborative, Planning, Forecasting, and Replenishment. (CPFR) CPFR is the first step in a multi-step process towards 'Value Chain Collaboration'. CPFR is identified as instrumental to the competitive transformation of the firms. CPFR can be considered as the essence of joint planning between the manufacturers and the retailers on the processes of demand and supply that are aimed at increasing the effectiveness of the supply chain management. Traditionally the products were designed and manufactured by the manufacturing firms to be distributed by retailers and other agencies. This entailed only a very little communication between the manufacturer and the retailers. But the modern day business concepts have undergone tremendous changes with the relationships between different players of the industry are no longer defined by the old standards. In fact many retailers have begun manufacturing and many manufacturers have started their retail operations. Thus the traditional concept of supply chain model has been subjected to a radical change and it has become a supply complex. In order to obviate the complexities involved in the present day supply chain, CPFR acts as a transformational strategy. CPFR takes the business processes, people, and technology to higher levels of performance. The process of CPFR strives to promote "openness, information sharing, data exchange, visibility, and joint decisions". (Aghazadeh, Seyed-Mahmoud, 2003) Thus the ultimate aim of CPFR is being about total value chain collaboration among all the players in the supply chain who help to improve the value of the product to the end-customer. With this background this paper details of the challenges being faced by Texan Foods in the launching of full CPFR and also possible solutions for the effectiveness of the CPFR project. CPFR - an Overview "The concept of collaborative planning, forecasting, and replenishment has been promoted as a cure for what ails the food industry's supply chain." (Len Lewis 2007) CPFR has a greater role to play in the promotion of business for any business where there is a large network of supply chain is involved. The concept aims at improving the final value of the product at the hands of the customer. In this process the process links all the supply chain partners who have a role to play in improving the value. The use of the latest information technology is at the root of the success of any CPFR plan. Hence it is important that the companies collaborating with each other are technologically savvy. A definition of the process of CPFR goes like: "Collaborative planning, forecasting, and replenishment (CPFR) is an innovative and relatively new business process that allows supply chain partners to use their information technology for collaboration on forecasts of future demand, and for planning for future inventory replenishment. Usually, the partners involved in a CPFR initiative use the Internet to share data, exchange ideas, or otherwise collaborate with respect to inventory management tasks that are shared by the involved companies. At other times, the members of the alliance will meet in person to discuss various issues that arise in the weekly or monthly operation of CPFR." (Chad W. Autry) Texan Foods - A Background Texan Foods is a gourmet grocery chain founded in the year 1941 as a combination general store and family food market. Over the time the store developed into well-known medium sized grocery chain with about 65 store locations in South and Southwestern United States with most of the stores located in thickly populated areas. "The chain was known for the quality of its fresh produce, its wide variety of breads, meats, cheeses, and exotic delicacies and most of the stores were offering a full service kitchen and eat-in restaurant with completing catering services and online ordering for those people who were hard pressed for time. The company has earned a good reputation for its quality among the customers. Due to the large variety of food items the company is catering to it was maintaining a large supplier base of more than 3000 suppliers. Being a technology savvy company Texan is managing the supply chain through more automation. Even though the company has more than 35,000 different items to offer to the customers, most of its earnings is derived from four categories of products only. These categories include produce, wine; gourmet prepared foods and baked goods. Of these categories the company had problems with the 'baked goods' category for reasons unknown to the company. Though the sales in this category showed a slow and steady increase, the inventory holdings had out placed forecasts which had affected the contribution margin from the baked goods category. In addition there were increased distribution center stock outs and inaccurate forecasts were made for certain items in this category. In order to overcome these deficiencies with respect to the baked goods segment which contributes more revenues for the company, Texan was looking for a strategic alliance with Valley Bakers for the implementation of a pilot project of CPFR. Valley Bakers - A Background Valley Bakers is a small bakery outfit having around 100 employees and has established a niche brand by providing the customers with extremely fresh and unique flavors. The company uses natural ingredients to the maximum extent possible and is also consciously concerned with the health of the consumers. Impressed with the background of Valley Texan introduced 38 of its products in its stores which were later increased to 128 products. Valley's products proved an instant success for Texan and were contributing more to its revenues. Valley was experiencing difficulties because of the inconsistencies in the order cycles of Texan and this caused a two week distribution center stock out of several products of Valley. It is precisely at this point both the firms agree to enter into a strategic alliance for implementing CPFR with respect to certain of the products of Valley. Challenges being faced by Texan Food in the Full Implementation of CPFR An absolute trust among the partners to the CPFR arrangement is at the root of the success of eh project. "Because the collaborating companies share information across electronic linkages, connecting their respective information systems, it is important that the partners trust one another." Though allowing another company a free access to another firm's strategy and the financial position may in reality be rather a risky proposition, the advantages flowing from the CPFR is great. Exactly the foremost challenge for the implementation of the CPFR between Texan and Valley is the lack of mutual trust among the two companies. While Texan wanted to go slow and steady with the project allowing Valley to have restricted range of sales and pricing data, Valley wanted to have a full time Electronic Data Interface-linked access to a large data base including the information on the competitors' movements on the product releases. The next problem being faced in the implementation is with respect to the number of products that could be included in the CPFR. While Valley wanted as much as twice the number of its products, Texan settled the number of products at 34 for the initial pilot project. The duration of the pilot period was another point of contention from Valley. In addition to the above issues there was the lack of compatibility among the ERP systems of both the companies posed another issue. Lack of synchronization, unconnected technologies, and differences in the operating systems, incomplete data fields, significant missing data points, and confusing terminologies due to specificity of the individual businesses were the issues that not only hindered the progress of the pilot project but also resulted in excessive cost to both the companies. During the continuance of the pilot program the initial euphoria drained off and at a point of time after four months there were nobody available from both the companies who can be identified as in charge of the project to whom queries could be raised. When the pilot period was nearing the completion, there were several issues which could be identified as real challenges to Texan for the launching of full CPFR. The first issue related to the cost of the project which ran over more than 50 percent of the estimated costs during the period during which the project was tested. This was due to the increase in the Information Technology cost which were much in excess of what was estimated due partly to the higher cost of software and hardware than expected and also due to the cost of the additional software professionals appointed for the implementation of software. The following demands were raised by Valley in connection with the full launching of the CPFR: A complete restructuring of the initial agreement that had the effect of placing most of the responsibilities and financial liability for the technological components on Texan A complete restructure of the collaboration providing for sharing of more information even on those data bases which are not relevant to the products covered by CPFR An extension of the pilot period by another six months Still there was insistence from Valley about the additional number of products to be included in the CPFR project. Moreover Valley did not want to invest anything further in the project unless the company sees tangible results from coming from the CPFR pilot. Confronted with the above issues Texan may be offered the following suggestions to make the CPFR full implementation effectively. Suggestions for Possible Solutions to Texan for Tackling the Challenges During the extended pilot period Texan should review the whole initial agreement entered into with Valley to arrive at possible solutions on the various points being raised by Valley. The company should have more frequent communication with Valley to sort out these issues so that the launching of full CPFR can be controlled effectively to derive maximum benefit from it, Texan should once again go through the process of CPFR reviewing the following phases among other things: Developing revised Front-end Agreement Texan should have a review of the existing front-end agreement to have the agreement of Valley on various issues which are presently being contended by them. This includes having a relook on: Determining the revised objectives of CPFR - this has to include the improvement in the increased sales and reduction of distribution costs for Valley and reduction in orders and inventory and increased inventory accuracy for Texan Discussion on the resources competencies and systems - here both the companies on the basis of continuous meetings and dialogues arrive at technological responsibilities including the identification of the system software, the cost, supplier, and support to be provided by the supplier of the system. Since the IT cost is a major issue for both the companies it is important that a consensus is arrived at on this issue Determination of the information sharing needs - it is really important that Texan realize the need for Valley to share the required information from the data base of Texan. Since mutual trust forms the basis of the success of CPFR it is crucially important that this issue is addressed in full with a definite consensus arrived at. At the same time Valley should be advised to withdraw its demand for access to unnecessary information and data. This is possible only by Texan showing its commitment to share the required data with Valley Redefining the Collaboration points and responsible business functions - this involves a clear understanding of each other's responsibilities in the operation of the CPFR as presently there seems to be some inconsistencies with respect to the data sharing and reporting. Creating a Joint Business Plan As the logical next step the collaborating companies should review the existing common business strategies and arrive at fresh joint business plans. This necessarily involves establishment of proper communication in between the companies. The issue that needs to be discussed among the companies is the number of products that need to be included in the CPFR. A consensus on this issue may be evolved by Texan giving a time bound plan for the inclusion of additional products based on which a joint business plan may be chalked out. In this way the confidence of Valley on the inclusion of the number of products may be enhanced to a large extent. Creating Sales Forecasts Based on the joint business plans and the time table for the inclusion of the additional products in the CPFR the companies may develop sales forecasts for a definite future period. This involves analyzing the data and information to be received from the points of sale and also on an identification of definite promotion plans if any by Texan. The sales forecasts should also take into account the exceptions that may have its impact on the sales. This issue is very important from the points of view of both Texan and Valley, as the confidence of Valley and the consequent commitment of the company in the CPFR are largely dependent upon the increase in the sales revenues to Valley as a result of the strategic arrangement of CPFR. Creating Order Forecast Both Texan and Valley should collect all possible information to create an order forecast which serves as the basis of the future business relationship among them. The information may be generated from: Sales Forecasts Data from Points of Sale Events that have an impact on ordering like seasons, festivals, holidays etc The inventory strategies of Texan which definitely have a bearing on the order forecast for Valley The current inventory position and the stock out situations the company faced in the last testing periods if any Analysis of the information relating to the historical data on the shipments effected by Valley of baked goods Analysis of information relating to the limitations on the capacities of Valley Order filling and shipment execution data including the dates of placing the orders and the dates on which shipments effected to arrive at average lead time for different products to different stores locations Data on exceptions on orders Conclusion According to Ireland and Bruce (2000) there are distinct advantages that result from the adoption of the CPFR. While reviewing the renewed commitments and responsibilities on both sides it is important that Texan and Valley consider the countless advantages of CPFR. "Some of the major benefits are: decreased transportation costs, reduction in cycle times, decrease in forecast errors, reduction of inventory, increase in fill rates, reduction in stock outs, increased merchandise turns, improvement in customer service levels, increased revenues. Trading partners can collaborate on business planning, merchandising direction, promotional planning, and new-item/category development." (Ireland, R. and Bruce, R., 2000) References: Aghazadeh, Seyed-Mahmoud (2003) 'Going toward a better production by CPFR' Journal of Academy of Business, and Economics March 2003 Chad W. Autry 'Launching CPFR at Texan Foods: Improving Inventory Replenishment with Collaborative Activities and Technologies . Ireland, R. and Bruce R., "CPFR only the Beginning of Collaboration", Supply Chain Management Review, September 2000, Vol. 4 (i4), September 2000, 80. Len Lewis (2007) 'Planning for Success' Elsevier Food International Read More