Collaborative Trading Partner

In an effort to get closer to its customers, optimize its supply chain and become a low-cost supplier, Diageo North America tapped into a collaborative planning, forecasting and replenishment (CPFR) program with its distributors. To enable this process, the company brewed up a robust IT strategy to encompass SAP AG back-office software across North America -- a $110 million project -- and supply chain management software from Manugistics. This powerful combination provides Diageo with the necessary platform needed to engage demand and supply planning and provide a forum to reconcile sales goals with the company's CPFR data. This revolutionary approach will also simplify Diageo's complex web of software systems inherited through multiple brand acquisitions.

Out to Launch
The CPFR program was launched in February 2003 in the Diageo-Guinness USA division. Initial goals were to free the sales force from administrative duties and improve customer satisfaction by providing distributors with collaborative processes to improve inventory management. Distributors are providing required data each week, and depletion forecast collaboration is conducted on a monthly basis. Replenishment requirements are reviewed and agreed upon each week.
"The CPFR program allows us to generate detailed forecasts and define real-time sales and inventory data," says Alan Douville, VP of Information Systems, Diageo. "Where the sales people used to spend 20 percent of their time, looking at inventory, generating orders and working with data, they now focus their time on the revenue-generating process."

Forecast numbers are posted to a Web site, and customers are alerted via e-mail that the forecast is available. Alerts are issued if the customer's forecast is significantly different from Diageo's. If the figures are off by more than 10 percent for a particular class of items, the two companies adjust them or they use Diageo's forecast. If the distributor adjusts the numbers, Diageo receives an alert. Once an order is approved, the Manugistics system sends the order to the SAP system, and the product is shipped. These parameters are established in the initial agreement between the two parties. Diageo and its partners now have the flexibility to plan by brand or brand/pack. Both sides can also plan according to different time schematics.

Great Expectations
Diageo expects an inventory reduction on its side alone of between $0.7 million to $1.1 million. Freeing the sales team from inventory and order management duties should result in an annual sales uplift of $2.9 million to $3.3 million, and annual logistics costs could be cut by $600,000, based on reduction of internal transfers and reduced obsolescence. Results of the first pilots support these projections. The Manugistics system has provided exception management and alert capabilities. Diageo has since organized its partners into different tiers and plans to base its level of collaboration on the customer's capabilities. About 25 customers will have a highly automated CPFR relationship, with another 100 key accounts using more basic CPFR methods. Another 125 mid-tier accounts will collaborate through exception management.

Customers in emerging markets with simple tech capabilities will interface with Diageo through telesales or a Web portal.