Today 84% of the retail industry still relies on an ERP system to manage their inventory needs. But is it efficient enough in today’s digital era?
As the market continues to grow increasingly complex, unpredictable, and volatile, it has become more vital than ever for retailers to control the different parameters in their supply chain to respond to customer demands.
For the past several decades, retailers have been aware of this increased volatility. They have been vigorously working to optimize the visibility of the global supply chain. This gave rise to various concepts. One of the most common concepts of all is Control Tower and Network Synchronization (CPFR). Once popular back in the 1990s and 2000s, these solutions are no more robust enough to incorporate the complexities of the modern world. The recent pandemic uncovered several weaknesses of the system that was slowly visible over time.
How does CPFR work in Principle?
The CPFR approach is often applied to products for which demand is irregular, such as new products, seasonal products, or promotions. It is, therefore, mainly aimed at those retailers that offer a wide range of products or target various markets. These types of businesses rely on knowing about the habits of their customers so that they can dynamically generate relevant, reliable forecasts and supply plans.
In 1995 Walmart was one of the first adopters of CPFR in collaboration with P&G, where managers of both companies joined forces to forecast demand and make a better supply chain. Follow by Heineken and Coca-cola.
What were the main challenges in implementing CPFR?
A study was conducted by GMA (Grocery Manufacturers of America) amongst the members who had implemented at least a pilot CPFR system for either a product category or a limited number of points of sale to determine the main barriers to CPFR, concluding:
- Cost of implementation (93% of businesses reported that this was a significant barrier)
- Changes to internal processes (67%)
- A lack of human resources (35%)
- A lack of experience and training (23%)
- Difficulty in extending the process to a broader range of products or a greater number of points of sale (20%)
- A lack of appropriate commercial partners (18%)
As we can see, the choice to implement CPFR is not one to be taken lightly. It requires a structural change within the business and significant investment, but it also involves making a consumer-focused organizational change to move towards an inter-business approach. CPFR requires a change in mentality and the adoption of “win-win” strategies, and this demands greater coordination, information sharing, and the standardization of IT systems and data.
And something that is far from obvious is the need for businesses not just to synchronize but to integrate solutions with their commercial partners.
The fear of losing any competitive advantage by sharing sensitive data is still there, and this is hindering businesses. Still, without such sharing, it is impossible for this project to get off the ground.
As CPFR has several drawbacks in today’s time, the missing link connecting retailers with their suppliers still exists. How can retailers attain transparency, the protective share of information, and better optimization throughout the supply chain?