Chain Reactions

CPFR: Collaborate but separate

I am writing to comment on the article called "Why has CPFR failed to scale?" by Richard J. Sherman, which was published in the Quarter 2/07 edition of Supply Chain Quarterly.

In my opinion, the scalability of the current CPFR business process has been "the elephant in the room" for quite a few years now, so I was immediately ensnared by the title. I wholeheartedly agree with Mr. Sherman's assessment of the current state of collaboration in the supply chain and what needs to happen to get things back on track. The simple fact is that the highest levels of both out-of-stocks and finished-goods inventory in the CPG (consumer packaged goods) supply chain are at the retail store. In and of themselves, higher-level management processes like CPFR were not designed to deal with what goes on day by day, item by item, and store by store.

As Sherman states: "When we collaborate, we need to separate the processes that create demand from the processes that fulfill demand." The basic premise of collaboration is that two (or more) heads are better than one when it comes to trying to predict the future. Best to focus these scarce resources (heads, that is) where they can add the most value: working exclusively on the demand side of the equation (i.e., consumers) and letting the supply side recalculate and respond accordingly.

Jeff Harrop
Principal, Demand Clarity Inc.

Editor's note: Mr. Harrop is co-author of the book Flowcasting the Retail Supply Chain.

One step at a time
As I read through Rich Sherman's article on CPFR (Quarter 2/07), I couldn't help but reflect back on my years heading both information systems and supply chain management at Meijer. (The job later changed to "logistics and customer service.")

Rich and I have had many conversations on the topic of collaboration. We both have advocated collaboration for nearly 30 years, and I agree with everything he has to say. How well we all remember the $30 billion in savings and 40-percent reduction in inventory that rallied the industry around ECR. ECR, CRP, VMI, and CPFR all have their place and they can work, but the statement "Let's all do it my way" comes to mind. …

Trust? Our suppliers would refer to "forward buys" and "diversion"; we would look at making "investment buys" and collaborating with each other to get the biggest economic punch from the pricing programs offered by our suppliers. Only when the focus is on reducing total logistics cost can collaboration succeed.

When Meijer opened a cross-dock center and tested the system with food, we did realize some great savings. However, even with a large percentage of food being cross-docked, it was not perfect. For 65 weeks we kept item movement to the store level and the ad-price level, and we still had to build in safety stock. Consumer demand is too variable and unpredictable.

One thing we learned early on at Meijer was that information technology can give everyone the tools needed to manage supply chain complexities and variability. That's why in the early days we combined management of both supply chain and IT in one department.

At Meijer we did not try to make changes all at once. It is a bit like climbing a ladder: You move up one step at a time, and as you get to the next step, you see things that you could not see before. We never ran out of ideas for improvements as we climbed each step.

From the time we started the collaboration process at Meijer until the time I left, we had reduced our total logistics cost by more than 50 percent. For most companies, savings are there, but it does take time, motivated people, and enabling technology.

A long letter to say Rich's article is right on.

Ed Nieuwenhuis
Grand Haven, Michigan

No to a North American Union
With the opening of countries around the world through so-called "free trade," agreements like the North American Free Trade Agreement (NAFTA) have been pushed as the solution for an underdeveloped country to begin establishing a solid economy. The reality is that this hasn't worked.

After the signing of NAFTA, cheap corn flooded into Mexico from the United States. With the value of their crops reduced to next to nothing, many Mexican farmers were forced to seek employment in extremely low-paying manufacturing jobs from companies that moved to Mexico from the United States. Others fled to the United States as illegal immigrants, widening the gap between Mexico's elite and lower classes.

NAFTA has had negative effects on the United States, too. Nearly 4 million manufacturing jobs have been lost as companies either outsourced or moved their own facilities into countries that have much cheaper production, regulation, and labor costs. Alan Blinder, former vice chairman of the Federal Reserve Board of Governors, told The Wall Street Journal in March of this year that free trade "will put as many as 40 million American jobs at risk of being shipped out of the country in the next decade or two." The decline of the American worker seems to be the trade-off for cheap foreign products for consumers.

And what are these cheap products giving us? In the last two years, U.S. consumers have seen recall after recall of automotive tires, children's toys, pet food, computer batteries, not to mention the food and drug recalls. While the consumer has to deal with the product hazards, currency conditions that are strongly related to consumer demand for cheap foreign goods are, with other forces, causing the dollar to decline. …

The U.S. business community is striving for globalization at the expense of its workers, its economy, and its sovereignty. Under the Security and Prosperity Partnership, the leaders of the NAFTA countries are working to harmonize some laws of the three countries to provide business with easy access to labor and resources, much like the European Union.

While trade between nations can be good, permanent political alliances disguised as free-trade agreements should be avoided because such alliances are hurting workers, consumers, and ultimately the economy. Thomas Jefferson and George Washington both spoke of steering clear of permanent alliances while promoting commerce with all nations. The John Birch Society recommends following their advice.

No doubt some readers of Supply Chain Quarterly are directly benefiting from NAFTA or conduct business with companies that do. Is that a crime? Absolutely not. It is becoming clear, however, that many of the people and organizations that have promoted the development of free-trade areas are also promoting political unions for these areas. Since freedom, security, and prosperity in the United States are secured by the U.S. Constitution, citizens need to begin repealing and dismantling major threats to the constitution, such as NAFTA and the Security and Prosperity Partnership.

U.S.-based supply chain decision makers can help by specifying products from U.S. companies and manufacturers. This may not always be feasible, but ? what price do we place on our freedoms? And how ethical is it to do business with foreign companies at the expense of the American worker, especially when free trade has done little to strengthen economies on either side of our borders?

Bill Hahn
Public Relations Manager
The John Birch Society