Collaborative planning still eyed with caution

Despite potential to improve inventory forecasting, users go slow on CPFR

After running a pilot program with Kmart Corp. last year (see story), vitamin maker Pharmavite Corp. now wants to start using collaborative planning, forecasting and replenishment (CPFR) technology on a wider basis. But it's starting small; the number of retailers it expects to partner with this year could be as low as two.

And Pharmavite must look beyond Kmart. A Kmart spokeswoman said last week that the struggling Troy, Mich.-based retailer pulled the plug on its CPFR program because the collaborative technology duplicated an existing inventory management system.

The paths being taken by Kmart and Northridge, Calif.-based Pharmavite illustrate the cautious acceptance rate that software supporting collaborative demand forecasting and inventory planning is getting from companies. Despite CPFR's potential to help retailers and their suppliers ensure that the right amount of inventory is available in stores, users and analysts said adoption of the technology continues to be a slow process.

Few companies have gone beyond the test phase with CPFR, according to Janet Suleski, an analyst at AMR Research Inc. in Boston. As many as 65 retailers have rolled out test systems, Suleski said. But she estimated that only about a half-dozen have launched large-scale CPFR projects.

Much of the slow growth can be attributed to the fact that implementing CPFR systems requires changes that many companies are unwilling or unable to make, especially during a recession. The nature of the business changes can be "overwhelming," Suleski said. For example, CPFR requires suppliers and retailers to share closely guarded sales information.

Art Karrer, CPFR manager at Pharmavite, said the vitamin manufacturer saw a 36% improvement in sales forecast accuracy on the products that were part of its test run with Kmart, which involved applications from Atlanta-based Logility Inc. The pilot project paid for itself, Karrer said, and Pharmavite would like to link the CPFR system to a total of six to nine retailers.

He added that manufacturers such as Pharmavite need to get 30% to 50% of their biggest customers on board to reach "critical mass" on CPFR implementations.

The Kmart spokeswoman said CPFR technology duplicated the retailer's Kmart Workbench system, which lets suppliers track sales, inventory levels and other data about their products at individual Kmart stores. She added that executives at the company, which filed for Chapter 11 bankruptcy protection last month (see story), decided there was no point in supporting redundant systems.

There have been some early CPFR success stories. For example, Oak Brook, Ill.-based Ace Hardware Corp. is using CPFR tools to collaborate with 23 manufacturers. The technology is already yielding benefits, said Scott Smith, manager of Ace's inventory department.

Competitive Advantage

Kimberly-Clark Corp. in Irving, Texas, is another CPFR advocate. Larry Roth, a senior consultant at the maker of consumer products, said the company is expanding its use of collaborative tools developed by Syncra Systems Inc. in Waltham, Mass., "as quickly as possible." He declined to comment further, saying that CPFR "has become a matter of competitive advantage."

But even early adopters such as Ace aren't close to reaching the full potential of CPFR. Indeed, Ace is working collaboratively with a only tiny fraction of its 1,500 suppliers.

The main obstacle to CPFR is a general misunderstanding of the technology, said Joe Andraski, a vice chairman of the CPFR committee within the Voluntary Interindustry Commerce Standards Association in Lawrenceville, N.J. Companies have to thoroughly evaluate their IT systems, organizational structures and business processes before rolling out CPFR systems, Andraski said.

Reporter Carol Sliwa contributed to this story.

Related stories:


Standards Developments

New steps in the CPFR standards process include the following:

The committee responsible for CPFR specifications plans later this month to release guidelines for setting up international collaboration processes among companies.

The first standardized XML specification related to CPFR systems was approved by the committee in November.


Copyright © 2002 IDG Communications, Inc.

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