How walmart enhances supply chain manage .Keywords—CPFR, EDI, RFID, VMI

o Manuscripts that are found to be plagiarized from a manuscript by other authors, whether published or unpublished, will incur plagiarism penalty 1 How Walmart Enhances Supply Chain Management With C.

How Walmart Enhances Supply Chain Management With CPFR

Initiatives:

an extension research to the previous journal entitled “How RFID Technology Boosts Walmart’s Supply Chain Management” by the same Author.

Alexander Harsono STMIK Pontianak Sponsored by IT Consulting firm PT Metadata IT BizSolutions and CV Omah IT Yogyakarta Indonesia

alex189@ymail.com;metadata89@gmail.com

Abstract – The role of collaborative planning, forecasting,

and replenishment (CPFR) in supply chain management

have gained significant interest in researchers and

academics in recent years Yet, very few studies conducted

on how CPFR software could boost supply chain

management (SCM) So this study was to scrutinize how

Walmart harnessed CPFR to enhance supply chain

management Exploratory research approach was adopted

to obtain an in-depth understanding of CPFR and supply

chains through related textbooks, journals and literatures

Then the research was conducted in the form of case

studies on CPFR and SCM, and the benefits Walmart and

P&G could gain from CPFR and SCM practices In general,

the research is more descriptive and interpretive in nature

Findings showed that CPFR played an important role in

SCM to better control inventory, reduce stockouts, bullwhip

effect, reduction in manual orders resulting in a reduction

of excess inventory, and improved service levels The

paper is original that provides empirical support to CPFR

and SCM implementation, and creates value for retail stores

and their suppliers on managing inventory

Keywords—CPFR, EDI, RFID, VMI

-

This research paper is an extension research to the previous journal

research on RFID role in SCM entitled “How RFID Technology Boosts

Walmart’ SCM” by a single author discussing further on how integrated

IT-enabler powerfull tools such as RFID, VMI, EDI, etc enhanced SCM

I INTRODUCTION The complexity of today’s supply chain requires

manufacturers and distributors to search for new methods

to reduce costs, increase efficiencies, reinvent channel

models, engineer collaborative relationships, and span

functional, cultural, and personal boundaries The most

common solution to supply chain uncertainties is to build

inventories, or safety stock, as insurance High levels of

safety stock increase the costs of holding inventory High

inventories at multiple points in the supply chain can result

in the bullwhip effect Low inventory levels increase the

risk of stockouts or insufficient supply and lost revenues

when demand is high or delivery is slow In either event,

the total cost—including the cost of holding inventories,

the cost of lost sales opportunities, and bad reputation—

can be very high While advance planning and scheduling

(APS) and SCM applications provide for the optimization

of the supply chain, CPFR seeks to act as a key enabler

for the realization of synchronized supply chain

forecasting and replenishment CPFR is the latest

generation in a train of channel management

philosophies focused on supply chain synchronization

As illustrated in Fig 1 to 6, CPFR is the maturation of efforts such as quick response, vendor managed inventory (VMI), and efficient customer response and can

be thought of as the perfect joining of ERP and CRM in

an Internet-driven supply chain environment dedicated to the integration and synchronization of the entirety of channel demand while reducing total network inventories and costs

CPFR is a set of data-driven business processes designed to improve the ability to predict and coordinate with supply chain partners CPFR is considered superior

to the earlier electronic data interchange (EDI)-based SCM practices since it is based on much broader cooperative arrangement where retailers and suppliers jointly develop forecast by sharing point-of-sales (POS), inventory, promotions, strategy and production information With CPFR, suppliers and retailers collaborate in planning and demand forecasting in order

to ensure that members of the supply chain will have the right amount of raw materials and finished goods when they need them

In VMI situation, Procter & Gambler (P&G) manages the inventory of its customers, eliminating the need for customers to send purchase orders.The advantage to the vendor is having more advanced notice of product demand.The advantage to the retailer or distributor is minimizing inventory costs Having the correct item in stock when the end customer needs it benefits all partners

One of P&G’s first collaborations was with Walmart P&G continuously replenished Pampers baby diapers at Walmart stores Continuous replenishment is a supply chain relationship in which P&G continuously monitors the inventory of Walmart or distributor and automatically replenishes its inventory when levels hit the reorder point Walmart knows that continued market dominance will

go to those who know how to harness the evolutionary process taking place within their supply chains Therefore, the topic “How Walmart harnesses SCM with CPFR initiatives” becomes an interesting issue to discuss

For further an in-depth exploration of collaboration between Walmart store and its one of suppliers P&G, this case study focused on firstly, understanding the concept

of CPFR, How it works, secondly, identifying the major elements of Walmart’s CPFR success, and analyze the

benefits of the CPFR implementation for both Walmart

and P&G

II LITERATURE SURVEY The keystone of SCM is the willingness of supply

network partners to engage in and constantly enhance

collaborative relationships with each other Unified

channel collaboration makes it easier to ensure

connectivity of all channel nodes, availability of the proper

technology tools for information visibility and real-time

transfer, acceptance of common performance metrics

and benefits, and access to demand patterns and

expectations as they stream across the supply chain

Collaboration is one of the key foundations of SCM and

is recognized as a high-corporate priority, the path to

successful collaboration is blocked by many barriers

Despite that fact that such numbers indicate that truly

cohesive and collaborative supply chain teams are the

exception and not the rule, today’s advanced supply chain

leaders P&G and Wal-Mart are winning and outdistancing

the competition because they understand their success

rests on seeing themselves as the drivers of value chain

collaboration [1]

According to the Voluntary Inter-industry Commerce

Standards (VICS) Association [2], CPFR is “a set of

business processes that entities in a supply chain can use

for collaboration on a number of retailer/manufacturer

functions towards overall efficiency in the supply chain.”

CPFR is a registered trademark of the VICS Association

The Council of Supply Chain Management Professionals

(CSCMP) describes CPFR as: a concept that aims to

enhance supply chain integration by supporting and

assisting joint practices CPFR seeks cooperative

management of inventory through joint visibility and

replenishment of products throughout the supply chain

Information shared between suppliers and retailers aids

in planning and satisfying customer demands through a

supportive system of shared information This allows for

continuous updating of inventory and upcoming

requirements, essentially making the end-to-end supply

chain process more efficient Efficiency is also created

through the decreased expenditures for merchandising,

inventory, logistics, and transportation across all trading

partners [3]

The objective of CPFR is to optimize the supply chain

by improving demand forecast accuracy, delivering the

right product at the right time to the right location, reducing

inventories across the supply chain, avoiding

out-of-stocks and improving customer service This can be

achieved only if the trading partners are working closely

together and willing to share information and risk through

a common set of processes

The real value of CPFR comes from an exchange of

forecasting information rather than from more

sophisticated forecasting algorithms to improve

forecasting accuracy The fact is that forecasts developed

solely by the firm tend to be inaccurate When both the

buyer and seller collaborate to develop a single forecast,

incorporating knowledge of base sales, promotions, store

openings or closings and new product introductions, it is

possible to synchronize buyer needs with supplier production plans, thus ensuring efficient replenishment The jointly managed forecasts can be adjusted in the event that demand or promotions have changed, thus avoiding costly corrections after the fact

On the surface, when decisions are made with incomplete, one-sided information, it may appear that companies have “optimized” their internal processes when, in reality, inventory has merely shifted along the supply chain Without supply chain trading partners collaborating and exchanging information, the supply chain will always be suboptimal, resulting in less-than-maximum supply chain profits

Using CPFR, companies are working together to develop mutually agreeable plans and are taking responsibility for their actions The collaborative effort leads to benefits that are greater than if each partner were

to go at it independently According to VICS, the CPFR concept is consumer driven without losing focus on best practices within the supply chain Setting common goals for organizations pulls individual efforts together into a cohesive plan, supports better execution of the plan and invites improved planning in the next business planning exercise The improved planning drives sales gains through to the consumer and lowers costs throughout the supply chain [4] Besides P&G and Walmart, other companies using CPFR initiatives include Eastman Kodak, Federated Department Stores, Hewlett-Packard,

JC Penney, Kimberly Clark, Kmart, Nabisco, Procter & Gamble, Target, Walmart and Warner-Lambert The industries that are most involved with CPFR are consumer products and food & beverage

A EDI and Supply Chain Management

SCM needs technology-based drivers to make it working Technology is the driver of SCM, and technology tools enable companies to automate supply chain functions to remove redundancies and cost, generate information and assists supply chain activities The earliest technology is electronic data processing (EDI) where companies can exchange simple and similar information within and across-organizations

EDI is computer-to-computer exchange of routine business documents, using an approved, standard format, without human intervention These documents include things like purchase orders, shipment updates, invoices and others [5] The process of data exchange is straightforward, beginning with a trading partner’s business system, traveling through the internet, and arriving securely to your system EDI has the capacity to transmit data in the exact way it was received Because

of its accuracy, errors occurring while re-keying are no longer a concern As a direct result, costs involved with mailing and postage are virtually eliminated, lead times and inventory carrying costs are drastically reduced, and customer service and loyalty are significantly improved EDI uses a common language that is shared amongst businesses, allowing for companies with dissimilar computer-based systems to communicate with each other Although the language must initially be translated,

once it has been completed, no further encoding must be

done Many companies have used EDI to send business

information to suppliers and customers as illustrated in

Fig 1 and Fig 2 illustrated exchange of information

through CPFR in SCM

In most cases, this information was limited to orders,

quotations, invoices, and similar documents In supply

chain cooperation, information exchanged between the

partners, or granted access to, is much more detailed and

often rather sensitive It includes sales plans and

forecasts, inventory levels, resource utilization, status of

orders, shipments, and more Obviously, companies are

concerned about this information Disclosing it to other

companies, be they partners in supply chain management

or not, is a sensitive matter What if the partner uses

internal information to the company’s disadvantage? For

example, if the customer sees that the supplier’s inventory

level is too high, they might use this information to

negotiate a price reduction that the supplier otherwise

would not have given Despite the risk of making internal

information available, an increasing number of companies

perceive the advantages they derive from exchanging

information with their supply chain partners They realize

that the benefits they receive from effective supply chains

outweigh the potential disadvantages from disclosing

information Two prominent approaches that unleash the

benefits of information exchange between two partners

are vendor-managed inventory (VMI) and CPFR [6]

SCM is defined as the integrated, process-oriented

design, planning and control of goods, information, and

cash flows along the entire value chain from customer to

the raw-material supplier with the aims of improving

customer orientation, synchronizing supply with demand,

making the production more flexible and responsive to the

demand, and downsizing of the inventory along the value

chain [7] The better the supply chain member

collaborates, the better the supply chain works And the

better the supply chain works, the stronger the partners’

competitive position on the market SCM seeks to develop

the collaborative aspects of integrative information

technologies to better manage networked customers and

inventories

B Evolution of SCM or E-SCM Systems

Today supply managers expect powerful solutions to their business problems However, organizations did not always have sophisticated systems at their disposal TABLE 1 traces the evolution of e-SCM systems [8] Early uses of information systems were in the accounting and financial areas However, beginning in the 1970s more IT resources and software solutions were allocated to purchasing, operations, and distribution Organizations installed systems such as material requirements planning (MRP) and distribution requirements planning (DRP) These systems were used to improve the planning and control of inventory in manufacturing (MRP) and distribution (DRP)

Because MRP and DRP systems were primarily internal, an electronic linkage to suppliers and customers was needed Led by efforts of the railroad and retail sectors, electronic data interchange was developed as a solution to transfer customer and supplier information in the 1980s

Although these early efforts provided efficiencies in the supply chain, intense competition in the final two decades

of the 20th century forced firms to re-engineer their business processes to become even leaner During this period, almost every major Fortune 500 company went through some form of restructuring, as thousands of workers and managers were shed in an effort to increase productivity and reduce costs In conjunction with this change, organizations further increased their information systems to perform tasks previously done by these workers Thus enterprise resource planning (ERP) systems became the rage of the 1990s and they continue today The goal of ERP systems is to integrate all business function planning and processing, and to avoid data interruption in order to make better business decisions and run the business more effectively and efficiently Ideally, all the different functions in the organization have access to and are working with the same data Supply managers were at the center of this trend and were challenged to develop accurate databases

to improve their decision making

TABLE 1 THE EVOLUTION OF E-SCM SYSTEMS Solution Time

Period

Focus Primary Use of System

MRP-DRP 1970s

Internal/

managin

g inventory

Inventory planning, inventory control, and distribution efficiencies

EDI 1980s External

Electronic transmission of purchase orders

ERP 1990s Internal

Integration of all business functions for processing and reporting

SRM &SCM 2000s External

Managing and controlling the interface between buyers, suppliers, and customers

Collaboration 2001s External

-internal

CPFR systems permit constant communication within the supply chain

Fig 2 Information flows via CPFR

Fig 1 Information flows via EDI Exchange of information in SCM through EDI & CPFR

via RFID and point of sale systems

Advanced

Sourcing

Analytics

2010 &

Beyond

External-internal

Sourcing analytics and computerized

negotiations

C Collaboration

Collaboration can be defined as an activity pursued

jointly by two or more entities to achieve a common

objective It can mean anything from exchanging raw data

by the most basic means, to the periodic sharing of

information through technology-based tools, to the

structuring of real-time architectures capable of

leveraging highly interdependent infrastructures in the

pursuit of complex, tightly integrated functions ensuring

planning, execution, and information synchronization [9]

as shown in Fig 3

The intensity of the collaborative content can vary as

depicted in Fig 3 to 5 It can be internally driven and

focused on the achievement of local objectives It could

seek to use technology to deepen inter-channel

operations linkages, drive shared processes and

co-development, and even foster a common competitive

vision for the whole channel The value of collaboration is

gauged by how effectively firms are leveraging the

competencies of the distributed knowledge of the channel

base, reducing redundant functions and wastes, sharing

a common vision of the supply chain, and constructing the

technical and social architectures, thereby enabling whole

channel networks to achieve marketplace leadership

B What is CPFR?

Two prominent approaches that unleash the benefits

of information exchange between two partners are

vendor-managed inventory (VMI) and CPFR VMI is an

approach for close cooperation between a supplier and a

vendor based on trust The concepts of continuous

replenishment, VMI, and collaboration evolved into the

more comprehensive model known as CPFR CPFR is a

set of data-driven business processes designed to

improve the ability to predict and coordinate with supply

chain partners With CPFR, suppliers and retailers

collaborate in planning and demand forecasting in order

to ensure that members of the supply chain will have the right amount of raw materials and finished goods when they need them CPFR streamlines product flow from manufacturing plants all the way to customers’ homes The Voluntary Interindustry Commerce Solutions (VICS) Association (vics.org) describes the structure of CPFR activities and guidelines for implementing them Since 1986, VICS Association has worked to improve the efficiency and effectiveness of supply chains CPFR comprises four main collaboration activities (see Fig 4):

1 Strategy&planning: Setting the ground rules for the

collaborative relationship and specifying the product mix

2 Demand&supply management: Forecasting consumer

demand and order and shipment requirements over the planning horizon

3 Execution:Performing activities, such as placing orders,

shipping and delivery, receiving, stocking, tracking sales transactions, and making payments

4 Analysis: Monitoring outcomes of planning and

execution, assessing results and key performance metrics, sharing insights with partners, and adjusting plans to improve results

CPFR is an approach for the collaboration of manufacturers and retailers that starts with sales planning Instead of planning separately, both sides exchange their forecasts in the planning phase and discuss diverging estimates in order to come to a single forecast Later, when the sales processes are running, both sides actively work together, allowing them to quickly recognize and correct planning mistakes [11]

CPFR was initiated in 1995 in a pilot project by Walmart, the world’s largest chain of department stores, and one of their suppliers In this project, the partners realized that further benefits from industry-trade collaboration would require a standardization of business processes For this reason, Walmart initiated the CPFR Committee of VICS VICS is an inter-industry association, focusing on the improvement of the efficiency and

Fig 3 Span of collaboration [9]

3

4

2

1

Fig 4 CPFR Model with Retails and Manufacturer Tasks Aligned with Their Corresponding Collaboration Tasks [10]

effectiveness of the entire supply chain and the

development of cross industry standards Members of the

CPFR committee are well-known manufacturers and

retailers of consumer goods

The mission of the CPFR committee is “ to develop

business guidelines and roadmaps for various

collaborative scenarios, which include upstream

suppliers, suppliers of finished goods and retailers, which

integrate demand and supply planning and execution

[12].” By integrating processes on the sides of supply and

demand, CPFR aims to improve the efficiency, increase

revenue, lower tied-up capital, and reduce inventory

levels throughout the entire supply chain

In order to achieve these goals, a reference model is

provided, as shown in Fig 4 This model defines eight

major activities where the parties involved should

cooperate It includes important steps such as creating a

common sales forecast and how to handle exceptional

situations, namely: Sales forecasting; Order

planning/forecasting; Order generation; Order fulfillment;

Exception management; Performance assessment;

Collaboration arrangement; Joint business plan

During the execution phase, the forecasted

requirements are automatically translated into delivery

orders, provided that no exceptions apply If, however, a

situation is exceptional, the responsible employees on

both the retailer’s and manufacturer’s sides have to be

informed and work together to find a solution

Today, software vendors offer solutions and support

for VMI and CPFR, although CPFR does not depend on

specific software However, since CPFR partners

normally exchange information in electronic form, they

should employ common standards (e.g., XML-based

standards such as EAN.UCC or EDIFACT [13]

Large manufacturers of consumer goods, such P&G

has superb supply chains resulting from their use of

CPFR As part of a pilot project, P&G shared strategic

plans, performance data, and market insights with

Walmart.The company realized that it could benefit from

Walmart’s market knowledge, just as Walmart could

benefit from P&G’s product knowledge as illustrated in

Fig 5 [14]

The mission of CPFR is for all partners in a supply

channel network to develop collaborative planning

processes based on the timely communication of forecasts and inventory replenishment data to support the synchronization of activities necessary to effectively respond to total supply chain demand CPFR begins with the development of an agreement between trading partners to develop a consensus forecast that begins at the retail level and makes it way all the way back to the manufacturer This plan of supply chain demand and replenishment describes what will be sold and when, how

it will be merchandized and promoted, in what marketplaces, and during what time period CPFR interoperable technology permits this data to be freely transmitted up and down the supply channel so that planners at any node in the network can see demand and adjust the plan within certain limits based on possible exception conditions, such as promotions, store openings, or capacity constraints that could impact delivery or sales performance anywhere in the channel Trading partners would then collaborate to resolve any potential bottlenecks, adjust demand and replenishment plans, and then execute alternative courses of action The final step in the process, channel replenishment, occurs after consensus on the final forecast

Fig 6 Evolution of supply chain planning techniques

In the past, supply chain partners sought to utilize channel inventory management tools such as CRP and VMI to remove excess assets from the supply network and smooth out demand irregularities While effective, these toolsets, however, lacked the ability to solve the twin problems at the core of channel replenishment management: forecast inaccuracies and the capability

to utilize exception messaging to notify network partners

of impending bumps in supply and demand CPFR provides answers to these two issues by providing for the real-time sharing of sales promotions, point-of-sale (POS) transactions, and total channel inventory positioning that postpones inventory replenishment by linking each level

in the supply network with the pull of actual demand In addition, by systematizing the communication of critical demand and supply data among trading partners, CPFR Fig 5 Model of CPFR [13]

P&G Walmart

makes visible all plans and planning variances, thereby

assisting companies to improve their forecasting and

replenishment decisions to yield the best results

C Vendor-Managed Inventory (VMI) and CPFR

In traditional inventory management, the customer

places an order with the supplier when demand for the

goods is noticed The order time and quantity are under

the control of the customer because the customer

monitors the inventory levels It is worth noting the fact

that the supplier’s total control of inventory management

does not change the ownership of the goods The

customer still has to purchase the goods from the supplier

to become the owner, or if the goods have only been

commissioned, they remain the property of the supplier

VMI has advantages for both partners: Important demand

and sales information is available to both the retailer and

the supplier, transmission errors are reduced, stockouts

are avoided, the service level is improved, etc [15]

VMI is a process through which the supplier rather than

the customer manages the flow of product into the

customer’s operations This flow is driven by frequent

exchanges of information about the actual off-take or

usage of the product by the customer With this

information the supplier is able to take account of current

inventories at each level in the chain, as well as goods in

transit, when determining what quantity to ship and when

to ship it The supplier is in effect managing the

customer’s inventory on the customer’s behalf In a VMI

environment there are no customer orders; instead the

supplier makes decisions on shipping quantities based

upon the information it receives direct from the

point-of-use or the point-of-sale, or more usually from off-take data

at the customer’s distribution center The supplier can use

this information to forecast future requirements and hence

to utilize their own production and logistics capacity

better This is what Walmart and P&G collaborate in

managing their supply chain and inventory control CPFR

is the name given to a partnership-based approach to

managing the buyer-supplier interfaces across the supply

chain The idea is a development of VMI [16]

VMI is an approach for close cooperation between a

supplier and a vendor, based on trust The supplier takes

on the responsibility for the customer’s inventory, making

a commitment to act in the interest of the customer In the

VMI approach, the supplier monitors and maintains the

customer’s inventory at an appropriate level [17] This

requires the customer to allow the supplier to access their

inventory data and provide the supplier with up-to-date

point-of-sales data The customer also entrusts the

supplier with creating the purchase orders This means

that the supplier is in control of the customer’s stock

quantities, the replenishment time, and delivery of the

goods to the customer

Coordination tools focus on supply event management

and performance management whereas collaboration

tools focus on sharing information to achieve supply goals

through CPFR, support for VMI, and support for Supplier

Managed Inventory (SMI)

The next era in electronic commerce broadcast different applications on the World Wide Web Similar to the events that occurred 20 years earlier, ERP systems were primarily internal and lacked the linkage to suppliers and customers The Internet provided the bridge; because

of its low cost, lead software providers developed systems that could link customers and suppliers into the ERP system These systems are popularly termed “supplier relationship management (SRM)” and “customer relationship management (CRM)” systems

D RFID Enhances VMI and Affects CPFR

Continuous replenishment is a supply chain relationship in which a vendor continuously monitors the inventory of a retailer and distributor and automatically replenishes their inventory when levels hit the re-order point In Walmart’s case, P&G manages the inventory of its Walmart and eliminates the need for customers to send purchase orders [18]

Continuous replenishment is a supply chain relationship in which a vendor continuously monitors the inventory of a retailer or distributor and automatically replenishes their inventory when levels hit the re-order point In this vendor managed inventory (VMI) situation, P&G manages the inventory of its Walmart eliminating the need for customers to send purchase orders The advantage to the vendor is having more advanced notice

of product demand The advantage to the retailer or distributor is minimizing inventory costs Having the correct item in stock when the end-customer needs it benefits all partners A good example of logistics partnership is the growing use of VMI The underlying principle of VMI is that the supplier rather than the customer assumes responsibility for the flow of product into the customer’s operations [19]

The concepts of continuous replenishment and collaboration evolved into the more comprehensive model known as collaborative planning, forecasting, and replenishment (CPFR) CPFR is a set of data-driven business processes designed to improve the ability to predict and coordinate with supply chain partners With CPFR, suppliers and retailers collaborate in planning and demand forecasting in order to ensure that members of the supply chain will have the right amount of raw materials and finished goods when they need them Supply chain monitoring and control is implemented using smart labels (such as passive RFID for tracking and active RFID for cold chains) and VMI [20]

E CPFR Reduces Bullwhip Effect

Bullwhip effect occurs as orders are placed from retailers, to wholesalers, to manufacturers, with fluctuations increasing at each step in the sequence The

“bullwhip” fluctuations in the supply chain increase the costs associated with inventory, transportation, shipping, and receiving while decreasing customer service and profitability Bullwhip effect is the increasing in orders that often occurs as orders move through the supply chain [21] P&G found that although the use of pampers diapers was steady and the retail-store orders had little fluctuation, as

orders moved through the supply chain, fluctuation

increased By the time orders were initiated for raw

materials, the variability was substantial Walmart

succeeded in adopting CPFR together with RFID to boost

its supply chain has caused reducing the bullwhip effect

and improving opportunities in the supply chain

III RESEARCH METHODOLOGY

Exploratory research was conducted to explore the

CPFR technology and the supply chain through related

case studies; literatures and textbooks survey related to

CPFR, VMI, EDI and supply chain management The

literatures and books used in this paper were based on a

wide range of online industry sources including P&G and

Walmart’s official Web sites, and whitepaper and press

releases The online sources were complemented by

hardcopy documentation including academic papers such

articles and research journals The relevant material was

gathered, categorized and sorted into like themes which

formed the basis for analyzing how CPFR and related

technology boosts and enhances supply chain

management Second, descriptive research was

conducted to describe characteristics of CPFR

technology and supply chain management that have been

implemented in Walmart giant store Lastly, the aim of this

research is to delve deeply into how the CPFR boosts and

enhances Walmart’s supply chain management, and

analyze the objective

As the previous research journal “How RFID boosts

Walmart’s SCM” suggested that this survey covered

potential benefits of RFID technologies in supply chains;

cost reduction and value creation, particularly related to

inventory inaccuracy and the bullwhip effect which RFID

technologies can provide several advantages in supply

chain management through better traceability and

improved visibility of products and processes all along the

chains Increase of efficiency and speed of processes,

improvement on information accuracy, reduction of

inventory losses are some of these advantages There

have been important implementations conducted by

pioneer companies such as Wal-Mart and Procter &

Gamble However, real applications of RFID technologies

are still limited because the costs of RFID are still often

much larger than the costs of current identification

technologies

The primary method of data collection in this case

study were based on secondary data sources such as

articles, journals, etc related to the research purpose

Most of the data required through internet and Web

browsing (www.walmart.com) Walmart Stores, Inc.,

based in Bentonville, Arkansas founded by Sam Walton

in 1962 Walmart was the world’s largest retailer with

more than 6,500 stores worldwide, including stores in all

50 states Its sales volume reached $ 312, 4 billion in

2006 One of Walmart’s major suppliers in this CPFR is

P&G “With Walmart selling over $245 billion worth of

goods in fiscal year 2003, a 1% improvement in stockouts

issue could generate nearly $2.5 billion in very profitable sales.”

IV RESULTS AND ANALYSIS

Walmart and P&G had initiated its plan to employ CPFR technology in its supply chain in 1995 Subsequently Walmart reinforced its plans and actively asserted on defining the CPFR standards it would be implementing

By means of CFPR, P&G logistics executives could easily examine the order patterns for one of their best-selling products “pampers diapers” at any minute at Walmart shelves to real-time inventory monitoring At retail stores, Pampers sales were fluctuating, but the variability was not excessive However, as they examined orders of distributors, the executives were surprised by the higher degree of variability When they looked at P&G’s orders of materials—the manufacturing level—to its suppliers such as 3M, they discovered that the variability in the size of orders were even greater Economists call it a bullwhip because even small increases in demand can cause a big increase in the need for parts and materials further down the supply chain.The bullwhip has broad implications as companies rush to fill orders while also restocking warehouse shelves

CPFR has transformed the way Walmart ran its retail store The movement of goods along the supply chain was reflected by corresponding movements of information sent by RFID reader, and then proceeded to P&G for managing the inventory Walmart's collaboration with P&G meant that P&G would assume more responsibility for inventory management, something retailers had traditionally done on their own When P&G's products ran low at the distribution centers, the system sent an automatic alert to P&G to ship more products In some cases, the system went all the way to the individual Walmart store It let P&G monitor the shelves through real-time satellite link-ups that sent messages to the factory whenever a P&G item swooped past a scanner at the counter and register With this kind of minute-to-minute information, P&G knew when to make, ship and display more products at the Walmart stores It did not need to keep products piled up in warehouses awaiting Walmart's call Invoicing and payments happened automatically too The system saved P&G so much in time, reduced inventory and lowered order processing costs that it could

afford to give Walmart "low, everyday prices" without

putting itself out of business

P&G used EDI and CPFR for keeping Walmart’s shelves stocked Its supply chains worked smoothly when sales were ready, but often broke down when confronted

by a sudden surged in demand, especially when Walmart campaigned a special promotion that caused its shoppers snapped up all the promotional items The RFID tags that supported CPFR could change that by providing real-time information about what was happening on store shelves

Here’s in Fig 7 below shows as an example how the

system works for P&G’s pampers:

In Fig.7 Box 1: When P&G's products run low at the

distribution centers, the system sends an automatic alert

to P&G to ship more products In some cases, the system

goes all the way to the individual Walmart store It lets

P&G monitor the shelves through real-time satellite

link-ups that send messages to the factory whenever a P&G

item swoops past a scanner at the register For instant,

each box of Pampers has an RFID tags Shelf-mounted

scanners alert the stockroom of urgent need for restock

In Fig 7 Box 2: This shows how vendor-managed

inventory (VMI) works Continuous replenishment is a

supply chain relationship in which a vendor continuously

monitors the inventory of Wal-Mart or P&G and

automatically replenishes their inventory when levels hit

the re-order point In this vendor managed inventory (VMI)

situation, P&G manages the inventory of its customers

eliminating the need for customers to send purchase

orders The advantage P&G is having more advanced

notice of product demand The advantage to Wal-Mart or

distributor is minimizing inventory costs Having the

correct item in stock when the end-customer needs it

benefits all partners Wal-Mart’s inventory management

system tracks and links its in-store stock and its

warehouse stock, prompting quicker replenishment and

providing accurate real-time data Here, three main

problems of supply chain management that can be

improved through RFID; inventory inaccuracy, the

bullwhip effect and replenishment policies

In Fig 7 Box 3: RFID has transformed the way

Wal-Mart runs its retail store The movement of goods along

the supply chain is reflected by corresponding

movements of information sent by RFID reader This

information is captured via a bar code reader and can

then be read immediately anywhere in the distribution

chain Wal-Mart systems are linked to the P&G supply

chain management system Demand spikes reported by

RFID tags are immediately visible throughout the supply

chain

In Fig 7 Box 4: After the deployment of RFID

technologies, Procter & Gamble and Wal-Mart

simultaneously reduced inventory levels by 70%,

improved service levels from 96% to 99% They also

reduced administration costs by re-engineering their

supply chains P&G’s logistics software tracks its trucks

with GPS locators, and tracks their contents with RFID tag

readers Regional managers can reroute trucks to fill urgent needs

In Fig 7 Box 5: P&G logistics executives examined the order patterns for one of their best-selling products, Pampers diapers P&G’s suppliers also use RFID tags and readers on their raw materials, giving P&G visibility several tiers down the supply chain, and giving the suppliers the ability to accurately forecast demand and production

Walmart and P&G have successfully implemented CPFR where is an approach that addresses the requirements for good demand management Walmart has harvested the benefits of CPFR include the following:

1 Strengthens partner relationships with its suppliers P&G where a common forecast of customer demand guides the activities of both partners

2 Collaboration is coordinated, from establishing a common forecast to finding common solutions for operative problems and provides analysis of sales and order forecasts

3 Uses point-of-sale data, seasonal activity, promotions, new product introductions and store openings or closings to improve forecast accuracy

4 Manages the demand chain and proactively eliminates problems before they appear, and allows collaboration

on future requirements and plans

5 Companies are enabled to operate proactively, with respect to customer requests, as opposed to reacting to problems when they occur

6 Integrates planning, forecasting and logistics activities where P&G receive guaranteed orders from retailers, while retailers can rely on guaranteed deliveries by the manufacturers because both parties operate on the basis of a common forecast

7 Provides efficient category management and understanding of consumer purchasing patterns

8 Provides analysis of key performance metrics (e.g., forecast accuracy, forecast exceptions, product lead times, inventory turnover, percentage out-of-stocks) to reduce supply chain inefficiencies, improve customer service and increase revenues and profitability

Walmart has grown to be the world’s largest retailer by seeking every opportunity to streamline its supply chain and cut costs in order to live up to its promise of “everyday low pricing.” Getting there entails more than

merchandising, however Walmart also is a leader in pioneering technologies to achieve operational efficiencies that ultimately bring savings for its customers

V CONCLUSION AND PERSPECTIVE The inception of EDI, had made Walmart and P&G using EDI-enabled to leverage existing technology investments to quickly launch CPFR initiatives By the end

of the 1990s, however, the high cost of EDI technologies and the ubiquitous deployment of the Internet enabled even the smallest retailer and manufacturer to leverage

Fig 7 P&G uses CPFR &RFID to manage inventory

2

4

5

the collaborative power of CPFR In addition, Web-based

applications provided business partners to escape from

the one-way transmission of data in favor of an

interoperable toolset enabling open two-way conversation

in real-time supported by formal standards

Nevertheless, VMI has failed to become widely

implemented This is due to several reasons where on

one hand, no one can decide on appropriate inventory

levels as well as the customers themselves And on the

other hand, disruptions in the information flow may occur

It can happen that important information, such as losing a

major customer, is not transmitted to the supplier In

addition, when the customer’s and supplier’s information

systems are not well integrated, data may need to be

explicitly exported from one system and imported into the

next, requiring manual editing and conversion to fit the

format of the new system Lastly, the effort needed to

implement this approach is relatively high, requiring high

revenues to make the venture worthwhile This means

that VMI is better suited for large partners than for small

It does not mean that by adopting CPFR, Walmart can

smoothly without challenges The top three challenges for

CPFR implementation are difficulty of making internal

changes, cost and trust As with any major

implementation, internal resistance to change must be

addressed by top management Change is always difficult;

however, if top management is committed to the project,

then the project is much more likely to succeed

Companies will need to educate their employees on the

benefits of the process changes and the disadvantages of

maintaining the status quo There is also the question of

reducing the scale of CPFR and, therefore, the cost of

implementation for smaller trading partners While cost is

an important factor, companies with no plans for adopting

CPFR should determine if they are at a competitive

disadvantage as more and more companies implement

CPFR Trust, a major cultural issue, is considered a big

hurdle to widespread implementation of CPFR because

many retailers are reluctant to share the type of proprietary

information required by CPFR While the suppliers of

Walmart, for instance, may be willing to share sensitive

data with Walmart, they do not want other suppliers to

obtain this information However, other experts do not

believe that trust is the stumbling block for mass adoption

of CPFR CPFR won’t shift the power dynamics in a

retailer/buyer relationship If people are hoping that this is

the case and refer to this as ‘trust,’ then they are fooling

themselves Lack of trust is more often related to the

unreliable data in systems and the lack of integration

internal to retailers and manufacturers

Walmart is able to offer consumers an

every-day-low-price largely in part because it is able to control its costs

The cost of its products, however, is not only a function of

its efficiency or lack of it but also the efficiency/inefficiency

of its suppliers Because of the volume of products sold

by Walmart, it has a great influence over its suppliers and

often pressures its suppliers to find ways to lower costs

Sharing benefits and costs in, instead of mandating the

use of technology implementations is an effective way for

Walmart to cultivate a mutually beneficial relationship with

P&G

The real challenge to widespread adoption of CPFR is that it requires a fundamental change in the way buyers and sellers work together Companies must ensure that their information technology systems, organizational structures, business processes and internal data are conducive to implementing CPFR For instance, many organizations are hampered by legacy systems that will have to be replaced, lack of executive management support and an unwillingness to share sensitive information

REFERENCES

[1] Ross, Frederick, David, Introduction to Supply Chain Management Technologies, 2 nd edition, CRC Press, 2011: pp 27-29

[2] The CPFR Model, Voluntary Industry Commerce Standards (VICS) Association: www.vics.org/committees/cpfr/cpfr_model_faqs/ [3] Supply Chain Management Terms and Glossaries —Council of

http://cscmp.org/digital/glossary/document.pdf [4] Http:// www.vics.org accessed on October 20, 2014 [5] [Process Pro: www ProcessProERP.com: p 2]

[6] Kurbel, E., Karl, Enterprise Resource Planning and Supply Chain Management: Functions, Business Processes and Software for Manufacturing Companies, 1 st edition, 2013, Springer: pp 229-230 [7] Kurbel, E., Karl, Enterprise Resource Planning and Supply Chain Management: Functions, Business Processes and Software for Manufacturing Companies, 1 st edition, 2013, Springer: p 223 [8] Robert M Monczka, Robert B Handfield, Larry C Giunipero, James

L Patterson, Purchasing and SCM, 4e, 2009, Cengage: pp 668-669 [9] Ross, Frederick, David, Introduction to Supply Chain Management Technologies, 2 nd edition, CRC Press, 2011: p 28

[10] VICS, 2004, p 9 [11] Karl E Kurbel, Enterprise Resource Planning and Supply Chain Management: Functions, Business Processes and Software for Manufacturing Companies, 2013: pp 231-232

[12] http://www.vics.org/committees/cpfr/

[13] VICS, 2004, p 21 [14] Turban, E., and Volonino, L., Information Technology for Management 8 th edition, 2012, John Wiley & sons Inc: pp.313-383 [15] Kurbel, E., Karl, Enterprise Resource Planning and Supply Chain Management: Functions, Business Processes and Software for Manufacturing Companies, 1 st edition, 2013, Springer: pp 230-231 [16] Christopher, Martin, Logistics & Supply Chain Management, 4 th edition, Pearson, 2010: p 94

[17] (Baily et al.2008, pp 180–182)

[18] Alexander, Harsono, How RFID Technology Boosts Walmat’s Supply Chain Management, April 6, 2014: p 6 can be accessed at www.academia.edu/AlexanderHarso

[19] Waters, Donald, GLOBAL LOGISTICS: New Directions in Supply

Chain Management, 6st edition, KoganPage, 2010: p:121 [20] Weiser, Philippe, Francis-Luc Perret, Francis, L, Jaffeux, Corynne, Essentials of Logistics and Management: The Global Supply Chain, 3 rd edition, EPFL Press, Swiss, 2013; p 314

[21] Heizer, Jay, and Render Barry, Flexible Edition, Operations

Management, 9 edition, 2009, Pearson: pp 451-455

ADDITIONAL READINGS

Chopra, S and Meindl, P., Supply Chain Management: Strategy,

Planning, and Operation, 5th edition, 2013, Pearson; pp 5-15

Wisner, Joel, T., Tan, Keah, Choon, and Leong G., Keong, Principles of

Supply Chain Management: A Balanced Approach, 3rd edition, 2012, Cengage; pp 10-25

Andreas, Meier and Stormer, Hendrik, e-Business and e-Commerce:

Managing the Digital Value Chain, 1st edition, 2009, Springer

Adolfo, Crespo, Márquez, Dynamic Modelling for Supply Chain

Management Dealing with Front-end, Back-end and Integration Issues,

1 st edition, 2010, Springer

Brown, V., Carol, DeHayes, W., Daniel, Hoffer, A., Jeffrey, Martin,

Wainright E., and Perkins, C., William, Managing Information

Technology, 7th edition, 2012, Pearson

Blanchard, David Supply Chain Management: Best Practices, 2nd

edition, 2010, John Wiley & Sons

-, Logistics and Supply Chain Management: Creating

Value-Adding Networks, 3rd edition, 2005, Pearson

Cousins, Paul, Lamming, Richard, Lawson, Benn, Squire, Brian,

Strategic Supply Management: Principles, Theories and Practice, 2nd ,

2008, Pearson Inc,

Ross, Frederick, David, Introduction to e-Supply Chain Management:

Engaging Technology to Build Market-Winning Business Partnerships,

2003, St Lucie Press

-, The Intimate With Supply Chain: Leveraging the Supply

Chain to Manage the Customer Experience, 2008, St Lucie Press

-, Distribution Planning and Control: Managing In The Era

Of Supply Chain Management, 2nd edition, 2004, Kluwer Academic

Publishers

David Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith,

Managing the Supply Chain: The Definitive Guide for the Business

Professional, 2004, Mcgraw-Hill

Harrison, Alan, and Van, Hoek, Remko, Logistics Management and

Strategy: Competing through the supply chain, 3rd edition, 2008, Pearson Inc

John, T Yee, and Seog-Chan Oh, Technology Integration to Business:

Focusing on RFID, Interoperability, and Sustainability for Manufacturing, Logistics, and Supply Chain Management, 3rd edition, 2013, Springer-Verlag London

Myerson, M., Judith, RFID in the Supply Chain: A Guide to Selection and

Implementation, 2007, Taylor & Francis Group

Meier, Andreas and Stormer, Hendrik, eBusiness & eCommerce:

Managing the Digital Value Chain, 2009, Springer

Monczka, Robert, M., Handfield, Robert, B., Giunipero, Larry, C.,

Patterson, James L., Purchasing and Supply Chain Management, 4th

edition, 2009, South-Western

Palmatier, George E., and Crum Colleen, Enterprise Sales and

Operations Planning: Synchronizing Demand, Supply, and Resource For Peak Performance, 2003, J Ross Publishing, Inc