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EuropeanGrocerySupplierShowsHowCPFRReallyWorks

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By:RobertJ.Bowman|December01,2002

CollaborativePlanning,ForecastingandReplenishmentmayhavebeenborninthe
U.S.A,butittookaGermangrocerysupplierdoingbusinessinSpaintodemonstrate
truecollaborationamongtradingpartners.
AnyAmericancompanystuckintheearlystagesofaCollaborative
Planning,ForecastingandReplenishment(CPFR)pilotwoulddowelltolook
acrosstheoceanforguidance.InSpain,amajorproviderofcleaning
productshasrealizeddramaticresultswithoneofthecountry'slargest
grocerychains.
ThepartnersareHenkelKGaA,theDusseldorf,Germanybasedmakerof
householdcleaners,adhesives,toiletriesandotherhomecareproducts,and
GrupoEroski,theSpanishgrocerychainwhosethousandsofoutletsrangefrom
"hypermarkets"tominimarkets.TogethertheylaunchedasuccessfulCPFRpilot,atatime
whenfewsucheffortswereinevidenceinEuropeortheU.S.
HenkelmaynotbeahouseholdnameintheU.S.,butit'stoughtoignoreinEurope,which
accountsfor50percentofsales.Thediversifiedcompanyhassoldofforacquirednumerous
entitiesinits126yearsofexistence.In2001,itshedtwochemicalmakingunits,Cognisand
HenkelEcolab.Themovereflectedadesiretofocusonitscoreproductlineofdetergents,
cleansers,adhesivesandtoiletries.Henkel'scurrentU.S.holdingsincludeManco,themakerof
DuckTape,anda27percentshareinTheCloroxCo.

Atatimewhenmanyconsumergoodsmanufacturersare
struggling,Henkelhasdonereasonablywell.Itshowedan
operatingprofitof168meurosinthesecondquarterof2002,
up11.5percentoverthesameperiodofthepreviousyear.In

Ittookaboutayearfor

thefirstsixmonthsof2002,salesoftheHenkelGrouprose3.3 HenkeltogettheCPFR
program'selementsfullyin
percent,to4.9bneuros.StillcontrolledbytheHenkelfamily,
thecompanyhasabout47,000employeesaroundtheworld,

place.

doingbusinessin70countries.
Beneaththesurface,though,Henkel'soperationshaven'tbeensoconsistent.Inthelate
1990s,thecompanywassufferingfromseriousflawsinitsforecastingandexecutionmethods.
Inventorylevelswereunacceptablyhigh,yetstockoutswerechronic.Soweretransportation
inefficiencies.
Muchoftheproblemstemmedfromaninabilitytogaugetheamountofproductneededina
givenmarket.AccordingtoEstebanGarriga,tradeservicesmanagerofHenkelIbericain
Barcelona,thecompanywasexperiencingsalesforecastaccuracyofbetween40and45
percent.Clearlytherewasaneedforbettertieswithretailers.
ButHenkeldidn'trushblindlyintoacollaborationproject.First,saysGarriga,itneededtoget
itsownhouseinorder.Thatmeantimplementinganewdemandplanningsystemforinternal
forecasting.Atthetime,thecompanyhadnocoherentsystem,wasunabletointegratea
continuousreplenishmentprogramintotheforecast,andcouldn'tevencommunicatethebasic
eventsonwhichitrelied.ForecastswereproducedthroughExcelspreadsheets.Theresults

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werenosurprise:highcostsandpoorservice.
Henkel'sgoalswereequallyclear.Itwantedtoeliminateaslewofinternalglitches,including
stockouts,deliveryerrorsandinvoicingcomplaints.Forecastshadtobesynchronizedwith
productionatoneend,andconsumerdemandattheother.Purchasinganddistribution,twoof
thecorporateworld'smostnotorious"silos,"hadtobeintegrated.Salesandmarketinghadto
bekeptintheloopaswell,foraccesstokeydemanddata.
Theanswer,atleastfromaninternalstandpoint,layinacquisitionoftheDemandPlanning
(DP)moduleoftheRockville,Md.basedManugisticsGroup,Inc.Thepurchasewas
accompaniedbyawholesalereengineeringofHenkel'sbusinessprocesses.
Manugistics'DPtoolprovides95percentofthecompany'stotalforecast.Itdrawson
informationfrommarketingandsales,amongothersources.Atthesametime,Henkeltook
painstodefinekeyperformanceindicators(KPIs),mostlyrelatedtoforecastaccuracyand
promotionsplanning.(PromotionswereamongtheareasgivingHenkelthemosttrouble,
Garrigasays.)
Henkel'sfulfillmentanalysisincorporatedsuchkeyelementsastheplanninghorizon,
modificationstotheplan,associatedpromotionalvolumes,andinternalfollowupbyvarious
playersintheorganization.Fromthatanalysis,thecompanyderivedaneventplanthat
identifiedwhowasresponsibleforeachstepoftheprocess.Internalforecasts,especiallythose
relatedtospecialprogramsorpromotions,becameajointeffortforthefirsttime.
RevisedForecasts
Theyalsobecameconsiderablymoreaccurate.Henkelwentfrombimonthlyforecastrevisions
toweeklyandevendailyadjustments.What'smore,theforecastswerebasedonafarlarger
universeofdatathanbefore,suppliedbyalldepartmentsofthecompany.Andtheresources
needtoprocessthedatadeclinedsharply.Before,saysHenkel,staffwouldspend40percent
ofitstimeondataanalysisandmanagement,andtherestonprocessing.Following
implementationoftheDPanddemandforecastingtools,thesameindividualswerespending
80percentoftheirtimeonanalysis.
ImplementationoftheDPsoftwarewasjustthefirststepinHenkel'squestforforecasting
accuracy."EvenwithManugistics,itwasnotenough,"saysGarriga."Intheend,itdoesn't
helpiftheinformationyouputintotheplanningsystemsiswrong."Andpromotionscanstill
goaskewifthemanufacturercan'treacttosuddenchangesindemand.
Forecastingprioritiesofmanufacturerandretailerdifferinkeyareas,saysGarriga.Theformer
focusesonshipments,orderleadtime,productioncapacity,productavailability,promotions
andrawmaterialssupply.Thelatterlooksatvisibilitytoconsumerdemand,instockposition,
varianceinshipments,promotionalactivity,growthplans,anddistributorstructure.
Somehowthosedisparateconcernsmustbemeldedintoacoherentforecastingmodel.For
Henkel,theanswerlayinCPFR,thesetofcollaborativeprocesseswhichhasattractedheavy
attentionintheU.S.andelsewhere,buthassofaryieldedlittleinthewayofcompleted
projects.Thatwaseventruerbackin1999,whenHenkel,itsDPsoftwareinplace,began
castingaboutforaCPFRpartner.
Itdidn'tlookforlong.Eroski,saysGarriga,wasHenkel's"customernumberone"inSpain.The
twoweredoingasignificantamountofbusinesstogether,buttheprocessesunderlyingthat
partnershipleftmuchtobedesired.HalfofHenkel'ssalesforecastshadanaverageerrorof
morethan50percent.Stockoutswerecommon,especiallyonpromotionalitems.Shipments
wouldfrequentlyarrivelateatEroski'scentralwarehouse,whichwasservicing500stores.
OneofSpain'sleadinggroceryretailers,Eroskiwasanaturalcandidatefortheexperiment.
FocusedmainlyontheBasqueregion,thecompanyoperates47hypermarkets,800
supermarketsundertheConsumbrand,andsome2,000Charterminimarkets.Italsohas
threehypermarketsand17supermarketsinFrance.Inadditiontothecentralwarehouse,
Eroskimaintainsanumberofregionaldistributionplatforms,alongwithdirectstoredelivery
fordistantpointsorselectedproducts.
IncraftingaCPFRprogram,thepartnershadlittleinthewayofexamplesonwhichtodraw.
Atthetime,saysGarriga,therewerenomatureprojectsinEurope,otherthanacoupleof
isolatedeffortsinItaly.NotmuchhadbeencompletedintheU.S.either,althoughHenkel
drewheavilyongroundworklaidbytheVoluntaryInterindustryCommerceStandards

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Association(VICS),andtheexperienceofCPFRpioneerssuchasformerNabiscoexecutive
JosephAndraski.
Workbeganinlate1999.HenkelandEroskiwereaidedbyAccenture(thenAndersen
Consulting),whichactedasconsultantandsystemsintegrator.Accenturehadalreadydefined
theCPFRstandardforprocessesandinformationexchangeonbehalfoftwodozencompanies
(includingHenkel)thatmakeupthegroupknownasECREurope.(ECR,forEfficient
ConsumerResponse,isacollaborativeplanningeffortwithinthegroceryindustry,which
predatesCPFR.)ThateffortleddirectlytoHenkel'sindividualpilot.
Onthesoftwareside,HenkelonceagainchoseManugistics,whoseNetWORKSCollaborate
moduleprovidedtheplatformforinformationsharing.ThecustomerwasthefirstinEuropeto
implementManugistics'collaborationproduct,accordingtoMartineGosse,thevendor'sParis
basedmarketingdirectorforEurope.Thepilotinvolvedtheentirecategoryofdetergent
productssoldbyHenkelthroughEroski'smarkets.
OpeningthePipeline
Itsowninternalforecastingprocessesfinallyinplace,Henkelwasabletoassumesole
responsibilityforprovidingtheproductionforecast,figuringpropersupplylevelsand
generatingorders.YetitstillneededafreeflowingpipelinefordatabetweenitselfandEroski.
Thepartnersbeganexchanginginformationonceadayonoutgoingstock,stockfiguresand
ordersonceaweekonorderforecastsevery15daysonsalesforecasts(eventuallythrough
theNetWORKSCollaboratetool),andeveryfourmonthsonthepromotionaleventscalendar.
Withthehelpoftheinternet,HenkelandEroskidevelopedcommonbusinessandpromotional
plans,comparedsalesforecasts,orderforecastsandexceptions,andobtainedinformationon
changesinpromotionsandproductavailabilityrelativetodemand,amongotherthings.
Theyalsopaidcloseattentiontomeasurements.Thepilotwasbuiltaroundaselectnumberof
KPIs,includingcustomerservicelevelsatEroski'scentralwarehouse,numberofstockouts,
numberofpromotions,stockrotation,forecastreliability,truckfillrates,palletfillrates,and
numberofurgentorders.
Nomajorprocesschangeiswithoutobstacles.JaumeFerrer,Accenture'spartnerresponsible
forsupplychainincontinentalEurope,saysthemajoronewashumaninnature.Atthepilot
stage,hesays,CPFRislargelyamatterofchangemanagement.Entrenchedpractices,suchas
manufacturersofferingdiscountstostimulatesaleslongbeforegoodsareactuallyboughtby
consumers,mustbestopped.
Gosseagreesthata"mentalitychange"wasnecessaryinorderforthepartnerstocollaborate
fully.CPFRisstillarelativelynewconceptinEurope,shesays.Soisthenotionofsupplychain
management,wherebycompaniesteardownbarriersbetweentraditionalfunctionsand
encouragethefreeflowofdata.
WiththeCPFRpilotinplace,thequalityofHenkel'ssalesforecastsimprovedsteadily.Inthe
periodbetweenOctober1999andMarch2000,theshareofforecastsshowinganaverage
errorofmorethan50percentdeclinedfromnearlyhalfofthetotaltoaround5percent.
Meanwhile,forecastswithanerrorrateoflessthan20percentareasonablelevel,giventhe
vagariesofconsumertastegrewfrom20percentto75percent.
OtherKPIsduringthatperiodshowedsimilarlystrongresults:a98percentcustomerservice
level,fivedaysofsupply,2percentstockouts,betterthan85percentforecastreliability,98
percenttruckfillrates,and99percentpalletfills.Perhapsmostimportantly,saysGarriga,was
theintegrationofdataonnewproductintroductionswiththatconcerninglocalactivities,into
asingle,reliableforecast.Previously,suchinformationwasnotaregularpartoflogisticsplans.
Thepartnerssetuparelativelysmallteamtogetthepilotrolling.Henkelcontributedfive
people,includingaconsultantfromManugistics,whileEroskisuppliedfour.Theywerebacked
byinternalinformationtechnologystaffers,aswellasateamofAccentureconsultants.The
latterwereinstrumentalinplottinghowthepilotcouldbeexpandedtoincludeadditional
products,Garrigasays.
Ofspecialnoteonthepersonnelsidewasthecompanies'insistenceontheinvolvementof
salesandcustomerservicestaff.Salespeoplehaveapoorrecordofparticipationinsuch
partnerships,saysGarriga.Andcustomerservicerepsaren'tschooledintheintricaciesof
salesforecastingorcommercialplanning.Butthemarketknowledgeofthoseindividualsistoo

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valuabletowaste.SoHenkel'skeyaccountmanagerforEroski,notademandplanningexpert,
waschosentospearheadcollaborationthatwouldleadtocreationofasalesforecast.Andthe
customerserviceteamwasgivenresponsibilityforincorporatingpromotionsintotheforecast.
Demand,ProductionLinked
Thedemandplanner,meanwhile,focusedonsynchronizingthatendofthechainwith
productionplanning.Toavoidsupplyglitches,planswouldbesquaredwithcapacity
constraintsbeforefiguresweretransmittedtoEroski.Intheeventofadiscrepancy,the
systemwouldgenerateawarningmessage.Forthepilot,Henkelestablishedaforecasting
horizonoffiveweeks,givingproductionenoughtimetogetitsoperationsinline.Theperiod
wouldlaterbeexpandedtotwomonths.
WithinsixmonthsoflaunchingtheCPFRpilot,Henkelpresenteditspreliminaryresultsatan
ECRconferenceinEurope.Butittookanothersixmonths,saysGarriga,togetallofthe
program'selementsintoplace.
Alongtheway,thepartnersdiscoveredhowharditwastoimplementallninestepsofthe
CPFRprocessmodelasdevelopedbyVICS.Theycanbebrokendownintothreecategories
planning,forecastingandreplenishmentwiththefinalonefocusingoncollaborativeorder
generation.
Henkeldidendupaddressingmostoftheninesteps,butonlyintheformofahighlevel
businesscase,aidedbyAccenture,onthefeasibilityofimplementingCPFRthroughout
Europe.And,inthecaseoftheEroskiproject,itbypassedatleastonesteptheuseof
technologytoolsforvalidatingexceptionsaltogether.Instead,thecompanyisrelyingonthe
telephoneandemailforthatpurpose.

Akeylesson,saysGarriga,wasthateachcustomerrequiresa
uniquefocus,emphasizingsomestagesattheexpenseof
others.TheEroskipilotcenteredoncollaborativeforecasting,
CPFRisstillarelativelynew

anareainwhichHenkelhadconsidereditselfespeciallyweak.A

conceptinEurope.Sois

subsequentCPFReffort,withtheCataloniangroceryretailer

supplychainmanagement,

Condis,tackledupfrontagreementsleadingtopromotional

whichencouragesthefree

calendars.AccordingtoGarriga,thesoftwaretoolscreatedto

flowofdata.

supportCPFRmightfocusononeareaortheother,butnever
both.

It'seasytogetlostinthemassofrequirementsthatmakeuptheCPFRmodel.Garriga
recommendsthatcompaniesavoidtreatingtheeffortasasingle"superproject."Ratherthey
shouldapproachitasaseriesof20to30smaller,moremanageabletasks.Suchanapproach
canalsobehelpfulinimplementingCPFRwithsmallercustomers.
HenkelalsolearnedabouttheimportanceofmaintainingaCPFRprocessindefinitely.Long
afterapilothasbeenimplemented,companiesmustkeepinplaceataskforcetooverseeits
continuedsuccess,Garrigasays.
Henkel'ssuccesswithEroskileddirectlytothesubsequentpilotwithCondis,whichoperates
300storesinSpain'sCataloniaregionunderthebrandnamesofCondisSupermarketsand
Distop.Thistimearound,Henkelsoughttoincludenotjustthemanufacturerandretailer,but
anupstreamsupplier.Thegoal,saysGarriga,wasendtoendintegrationofthesupplychain
throughthedeploymentofCPFR.
LaunchedinSeptember2000,theCondispilotwascompletedearlierthisyear.Therelatively
lowtecheffortinvolvedtheuseofspreadsheetsfordata,withcollaborationtakingplace
throughemailandtelephone.ThefocusthistimewasonpromotionalSKUs.
JointlydefinedKPIsintheCondispilotincludedforecastingaccuracy,promotionplanning,
promotionplanchanges,servicelevels,inventorylevels,numberofrushorders,andtheuseof
fullpalletsandfulltrucks.Initialresultsshoweda15percentimprovementinforecast
accuracybetweenJanuaryandJulyof2001,alongwithbetterjointplanningofpromotions.
Customerservicelevelsclimbedto99percentwithoutanincreaseininventorylevels.Overall
supplychaincostsfell6percent,largelyduetoadeclineinrushorders.
Fromthestart,saysGarriga,Henkel'sbiggestchallengewasgettingitsarmsaroundthe
complexCPFRmodel,andwhatwasneededtoapplyit."Wehadtoknowallofthedriversof
theforecast,"hesays."Thenwehadtodecidewhattofocuson."

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Longerterm,CPFRcontinuestobeimpededbyageneralreluctancebysupplychainpartners
tocollaborateinameaningfulway.Manytoutthevirtuesofcollaboration,butfewseemwilling
toundertaketherevampingofbusinessprocesses,andsharingofsensitiveinformation,that
makeitpossible.
FurtherblockingprogressisacontinuedlackofcommunicationsstandardsforglobalCPFR,a
deficiencythatmembersofVICS,theECRmovementandtheGlobalCommerceInitiative,
amongothers,areworkingtorectify.Still,thathasn'tstoppedsome50Europeancompanies
frommovingbeyondthepilotstagetofulluseofCPFR,saysFerrer.AndGossepointstothe
workofGlobalNetXchange,L.L.C.(GNX),anelectronicmarketplacewhichincludessomeofthe
largestretailersinEuropeandtheU.S.GNXfeaturesasupplychaincollaborationsuitebuilt
aroundtheCPFRmodel.
AsforHenkel,itisbentonextendingitssuccessintheEroskiandCondispilotstoother
customersduringthecomingyear.Followingitsownadvice,thecompanywilltakemodest
stepstowardthatgoal."Insteadofbigprojects,"saysGarriga,"we'llbelookingformore
smalleronesthatwecaneasilyimplement."

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