The Shelf-Connected Supply Chain: Strategically Linking CPFR with S&OP at the Executive Level

EXECUTIVE SUMMARY | Consumer goods manufacturers have made significant investments in cross-functional customer teams with the hopes of gaining better insights into consumer demand to improve sales. Many built these teams to assist in driving efficiencies back through their supply chains and formally link the customer's perspective into their on-going corporate sales and operations planning (S&OP) process. Yet it is still very common that the data and insights of these teams are lost in translation, and corporate planning functions continue to build their future plans off of historical shipments out of their plants and distribution centers (DCs) versus the demand signal from the shelf. This article highlights strategies for consideration for deploying a shelf-connected supply chain that links collaborative customer execution with executive level planning. While globalization has resulted in many bottom-line benefits, it has simultaneously increased the level of complexity and uncertainty by which companies operate today, making the sales and operations planning (S&OP) process more critical to a company's success than ever before. Companies now face a host of new business challenges, including increased service level expectations from retailers, shorter product life cycles, and heightened cost pressures from global competition. As such, their position in the market is being defined by how quickly they can profitably respond to these challenges. With this new level of variability, companies must have the ability to synchronize their demand and supply plans to that of their largest customer - especially now when critical-mass retailers have more influence than ever over manufacturing supply chain planning. To achieve this, companies must sense demand signals further down the supply chain and have a process in place to synchronize the executive planning and execution sides of S&OP. It's Easier Said Than Done For supply chain leaders, the goal of formally linking customer collaborative processes with corporate S&OP cycles makes sense. However, many companies have struggled to link these processes effectively. Figure 1 highlights a framework that has become all too common for fast-moving consumer goods manufacturers. In it, the boxes to the left of the brick wall highlight some of the key supply chain corporate processes in place today to support key downstream customers, including these: * Raw Material Planning * Production Planning and Scheduling * Replenishment Planning * Demand Planning The predominant demand signal driving the above processes for many manufacturers has been shipments out of their distribution centers (DCs) and/or plants or in some cases historical orders on these supply nodes in the network. Improved fill rates or "perfect order" attainment were the primary metrics for success. Manufacturers have created pools of inventory as a buffer against the "bullwhip" of demand to maintain their key targets and have often been caught short when dramatic demand shifts have occurred at the shelf, thereby creating excess inventory and lost sales. To the right of the "wall" in Figure 1 are the same manufacturer's crossfunctional teams that support the sales and service of their products to their critical mass customers. These teams have added significant value in executing Collaborative Planning, Forecasting and Replenishment® (CPFR) activities and vendor managed inventory (VMI) programs to improve sales and coordination. Market consolidation has created an environment where an ever-increasing share of the business is coming from a shrinking list of very large retailers. Some of the key planning processes of these teams include: * Sales Account Planning * Collaborative Retailer DC Forecasting and Replenishment * Promotions Planning * Category Management * Sales Reporting The cross functional retail teams working with the supplier account teams are closest to the consumer demand signal. …