New Standard Takes Guesswork Out Of Supply-Chain Management

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February 23, 1998 (1:32 PM EST)

New Standard Takes Guesswork Out Of Supply-Chain Management

By John Evan Frook,

Retailers are looking to slash $150 billion from the industry's supply chain through a Web standard for sharing inventory data.

Key to the newly published specification, dubbed Collaborative Planning Forecasting and Replenishment (CPFR), is its promise to free retailers and their suppliers from the guesswork in supply-chain management.

Today, suppliers replenish inventory based on forecasts and historical data they collect in the course of doing business. CPFR would standardize the organization of that data and make it available to trading partners over the Internet, arming them with live sales data they can use to optimize inventory in real time.

"CPFR is a dynamic enabler that ties our customers, retailers, suppliers, and their suppliers together," said Robert Bruce, vice president of supply-chain management at Wal-Mart Stores. "It has a real value to the total value chain, supporting full supply-chain integration."

Pilot tests are under way with brand-name suppliers including Nabisco Food, Kimberly-Clark, Hewlett-Packard, Lucent Technologies, Procter & Gamble, and Warner-Lambert, as well as retail giants Kmart, Circuit City Stores, and Wal-Mart.

The Voluntary Interindustry Commerce Standards Council, a retail trade group focused on supply-chain issues, will publish the 170-page spec by the end of the month. VICS members will vote on adoption sometime this spring.

CPFR support is expected to show up in commercial applications early next year.

CPFR unifies the business rules adhered to by multiple trading partners, as well as the way sales data is organized so disparate enterprise, database, and messaging applications can exchange relevant data. It works in conjunction with messaging protocols such as EDI and Standard Interchange Language, as well as object technologies such as COM and CORBA.

The group also is considering a marriage with the newly approved XML, a metadata format for the Web.

IBM this week disclosed plans to CPFR-enable a number of its collaboration and database platforms, including Notes/Domino and DB2. At least one pilot project is already under way that features a CPFR application running on top of Notes, according to Carl Salnoske, IBM's general manager for e-commerce. He said he expects the application to be in production in 1999.

"When you combine traditional forecasting tools with real-time collaboration capabilities, you get a lot more fine-tuning" of the supply chain, Salnoske said. "A retailer can now say, gee, because of El Nino, I need more umbrellas on the West Coast and fewer snow shovels in the East."

CPFR could turn inventory management on its head. Today, each trading partner can see and analyze only its own internal data assets, supplemented by reports from others in the supply chain. Secondhand data, much of it based on other secondhand data, is prone to error, resulting in costly "inventory stuffing" tactics to ensure product availability, according to Ted Rybeck, chairman of researcher Benchmarking Partners.

The prospect of giving every partner a total and unified view of the sales picture also means retailers can shift the burden of inventory management to suppliers, who can then manage price and promotional changes more rapidly.

"Some retailers will gain benefit through CPFR, but it takes a lot of work, interaction, and relationships to make it happen," said Steven Gold, a partner in the supply-chain strategy practice for KPMG Peat Marwick Consulting.

Supply-chain optimization using the Internet is becoming commonplace, with hubs forming around individual suppliers and buyers that are large enough to influence their partners to standardize on a specific set of technologies and business practices.

CPFR is an attempt to expand that notion to cover an entire industry segment, which is how many IT authorities expect such standards to emerge. Indeed, industry-specific supply-chain initiatives are under way in the IT and automotive industries, among others.

Yet some believe manufacturing-oriented industries are more alike than different.

"CPFR is not specific at all to our industry," said Joe Androwski, vice president and customer operations at Nabisco. "In all business, planning is essential. Whether selling gasoline, hubcaps, cars, or rugs, there's a CPFR application."

In a CPFR white paper obtained by InternetWeek, Benchmarking Partners predicts between $150 billion and $250 billion in inventory costs can be driven out of the retail supply chain as a result of CPFR applications.

Benchmarking Partners received grants to develop CPFR two years ago from IBM, SAP AG, and Manugistics, a developer of supply-chain management and logistics software. Benchmarking director Jim Uchneat and partner Matt Johnson worked with consultancy Ernst & Young LLP to craft much of the spec.

Uchneat acknowledged that CPFR faces challenges.

"The challenge is the time and energy necessary to implement CPFR," he said. "A smaller supplier devoid of a strong vested retailer interest may want to put less energy into that relationship than a significant brand driving an entire category of purchases."

Yet Web technologies enable smaller suppliers to begin thinking about the efficiencies of data swapping, Uchneat said. CPFR's Web slant means smaller suppliers who lack expensive database and enterprise applications can view and manage their sales data using a standard browser, he said.

-- David Joachim contributed to this story.