Making the Case for Better Supply-Chain ManagementJune 11, 2014 By Keith Lehmann
It has been said, “We need to keep inventory levels higher if we want to maximize our business.” A better statement might be, “If we had the right inventory in the first place, we would be able to maximize our sales with fewer models remaining unsold at month-end.” If that statement is true, then merely having higher inventory levels would have no direct connection to maximizing sales – particularly if you took steps for initially having the right models in inventory.
Some of you might have heard of the Collaborative Planning, Forecasting and Replenishment (CPFR) business model. This is a supply chain management approach that combines the best practices of sales and marketing with the supply-chain planning and execution processes to improve availability, reduce inventory and cut the costs of storage, logistics and manpower. CPFR is highly dependent on the collaborative flow of information – I stress the word “collaborative,” as this is crucial to the success of the program.
The CPFR model consists of three relationships (customer, retailer and manufacturer) and how they are managed through four phases:
1. Strategy and planning: Creates the platform for the collaborative relationship among all active participants. This includes the establishment of joint business goals, choice of business partners, assignment of roles and responsibilities, and metrics planned against a calendar. Retailers are choosing vendors and managing product categories as part of this phase of the process, while manufacturers are performing account planning and determining how much value they have to their dealer base.
2. Demand and supply management: Establishment of the sales plan, product demand forecasting, inventory planning by model, production plan and transit lead times. Notice how sales planning and demand planning are two separate tasks; it’s not just what you expect to sell in a given period. You also need to know which accounts are doing the ordering as well as the demand by model.