A Healthy Regimen
As a leading manufacturer of vitamins, minerals, and other supplements designed to promote good health, Pharmavite, like other CPG manufacturers, wants to ensure that the right products are on store shelves at the right time. The company is deploying Collaborative Planning, Forecasting and Replenishment (CPFR) software in conjunction with one of its key retailers to improve supply chain efficiency and make sure that products are available when and where consumers want them.
Pharmavite produces the Nature Made brand of vitamins and minerals, Nature's Resource herbal products and Olay Vitamins line. The company joined Rite Aid's collaborative program in March 2003. By using a product called Marketplace Replenish from JDA Software, both Pharmavite and Rite Aid have been able to make significant improvements in their service levels.
Security Blanket
Marketplace Replenish, which is part of JDA's Portfolio Collaborative Solutions suite, allows trading partners to create accurate demand forecasts, identify and manage exceptions, and generate orders securely over the Internet. The software automatically alerts trading partners to exceptions that may have an impact on sales forecasts. If a SKU is performing differently than the thresholds that were predefined by the user, Marketplace Replenish automatically prioritizes the items based on the highest profitability impact. The software also alerts partners of overstock exceptions to ensure that no retail location has an excessive supply of products. Marketplace Replenish enables trading partners to collaborate on regular and promotional demand forecasting, seasonal profiling, supplier brackets, shipping parameters, order fulfillment lead times and order cycle analysis. By leveraging each other's insights into actual forecast and demand, trading partners are better able to estimate future demand.
Meeting the Standards
Pharmavite began exploring CPFR when Rite Aid approached it about enhancing the companies' partnership through improved collaboration and shared knowledge. The companies then launched the CPFR program using JDA's software, says Art Karrer, manager of customer collaborative processes at Pharmavite. The program complies with the standards set by the Voluntary Interindustry Commerce Standards Association (VICS) to simplify the flow of product and information in the retail industry for retailers and suppliers.
The collaborative processes supported by Marketplace Replenish give Pharmavite greater insight into the flow of its products to Rite Aid stores, Karrer says. As a result of the initiative, the manufacturer is able to identify and address many supply chain issues before they become serious problems, he says.
For example, when a supplier announces plans for an occasional increase in the price of a product, retailers are likely to buy forward to take advantage of the older price. Consequently, manufacturers need to have a reasonable amount of inventory on hand at the lower price or risk an undersupply. With collaboration, Karrer says, a supplier can discuss pricing plans upfront with key retailers and plan for any potential impact on the supply chain.
"In the past we would get a tidal wave of orders that we hadn't planned for," says Karrer.
Another example of the need for collaborative planning is the seasonal demand for particular products. During the cold and flu season last winter, there was a spike in demand for vitamin C supplements, says Karrer.
"Because of collaboration we were able to plan ahead and build inventories for those products so that we didn't experience out of stocks," he says.
Karrer says Pharmavite and Rite Aid were seeing tangible benefits within several weeks of launching the collaborative program. Among the benefits were supply chain savings made possible through processes supported by Marketplace Replenish, including demand forecasting, seasonal profiling, collaborative order review and execution, score carding and exception management. The program contributed to Pharmavite's ability to exceed its 2003 sales plan and increase inventory turns.
"We experienced an annualized 5 percent improvement to our service levels," says Karrer. "Those kinds of improvements in service levels equate to significant dollars."
A Fine Forecast
Pharmavite was also able to decrease overall forecast error rates by more than two thirds. Using the JDA product, Pharmavite can help Rite Aid fine-tune demand forecasts for goods. As a result of the collaborative effort with Rite Aid, Pharmavite has uncovered unsuspected seasonality in several of its products. This helps the manufacturer increase the effectiveness of its promotional sales programs and reduce out of stocks.
Karrer says there will be ongoing pressure to squeeze inventory and logistical costs out of the supply chain coming not only from retailers, but from the CPG manufacturers themselves.
"We all know things are not getting any cheaper and we need to squeeze dollars out through reductions in inventories and transportation," he says. "We need to create efficiency throughout the supply chain."
Those supply chain partners that can develop effective collaborative practices that provide multi-tier visibility throughout the chain will see the most benefits, says Karrer.
Rite Aid executives agree that effective collaboration is a key to success in supply chain management. "CPFR has greatly enhanced our relationship with our collaborative trading partners," says Jason Burnett, director of replenishment for Rite Aid. "The regular interaction has given us the ability to question traditional business practices, allowed us to find new and innovative ways to conduct business and allowed both partners to share in the savings."
Rite of Passage
Burnett says Rite Aid developed a "multiple echelon approach" to CPFR, including JDA Marketplace, consensus forecast and Web-based projections. JDA Marketplace is designated for Rite Aid's top suppliers and involves collaborating "one on one" with suppliers to fine tune Rite Aid's forecasts. The partners review scorecards to ensure that the goals of the program are being achieved.