Collaborating with partners across the extended supply chain, on demand forecasting and real time demand sensing, helps stock outs in volatile market cycles

Aftermarket services are a high-margin business, and they account for a large portion of profits, especially in heavy equipment manufacturing. The biggest problem in the present-day world is the high competition and volatility of market fluctuations, causing downturns and upturns. No matter what the causes are, the effect is either going to have high backorders from customers or end with huge unsold inventory lying on the shelf. There is not a one-size-fits-all answer to solve this problem.

Problem Statement

In recent years, many large heavy equipment OEMs experienced excess inventory levels in a downturn and stock outs in an upturn. To carry the right inventory at the right time, in the right regions, for the right customers has always been a challenge, especially during volatile market situations. Recently, one of CGNs clients had gone through a severe downturn, and as a result launched initiatives, reducing material costs and inventory, across the organization. Even before the recovery was seen, the company experienced a sudden growth in demand, which resulted in back orders.

CGN’s extended collaborative supply chain management solution, which encompasses concepts of collaboration planning, forecasting and replenishment (CPFR), as well as CGN's digital strategies have helped clients understand customer behavior, provided correct upstream forecasting signals, established end-to-end supply chain connectivity and reduced back orders, while improving service levels.

Overview of CPFR Approach

(CPFR) Collaborative planning, forecasting, and, replenishment extends vendor managed inventory principles and is the latest stage in the evolution of supply chain collaboration. Older supply chain initiatives have gaps in their practices. As in many operations, financial plans take precedence over forecasting, resulting in high inventory levels, lower order fill rates, and increased expedited activities. CPFR is a set of business processes that help eliminate supply and demand uncertainty through improved communication and collaboration between supply chain trading partners.

It also facilitates the reengineering of replenishment between trading partners. An important promise of CPFR is that accuracy of the forecast (demand, order, sales) can improve by having the customer, dealers and suppliers participate in the forecast. In general terms, buyers and sellers work together to satisfy the demands of an end customer, who is at the center of the model. Figure 1. (below) illustrates this model, which is applicable to many industries. If a discrepancy occurs, the trading partners can get together and decide on the replenishment quantity to rectify the problem. This type of collaboration offers great potential for drastically improving supply chain performance

Fig 1. Components of CPFR Model 

CGN Solution

Below are the steps taken to set a stable CPFR platform

1. Develop front end agreement with trading partners
2. Create joint business plan
3. Create sales forecast
4. Identify exceptions for sales forecast
5. Resolve/collaborate on exception and critical items
6. Create order forecast
7. Identify exceptions for order forecast
8. Resolve/collaborate on exception items
9. Order generation

CPFR is not considered a technical standard. The CPFR process does not fundamentally depend upon technology. CGN’s extended solution combines process with use of technology. It advocates using common tools and processes to improve supply chain planning through accurate and timely information flow. Powering up the CPFR process with technology can make the process more scalable. The following are examples that have been developed to facilitate the process:

• Sharing of historical data and forecasts
• Automating the collaboration process and joint business plan
• Enabling revisions
• Evaluating exception situations

CPFR is not considered a technical standard. The CPFR process does not fundamentally depend upon technology. CGN’s extended solution combines process with use of technology. It advocates using common tools and processes to improve supply chain planning through accurate and timely information flow. Powering up the CPFR process with technology can make the process more scalable. The following are examples that have been developed to facilitate the process:

• Sharing of historical data and forecasts
• Automating the collaboration process and joint business plan
• Enabling revisions
• Evaluating exception situations

Collaboration is the crux of CGN’s supply chain management. Ongoing and long-term collaboration and partnership between manufacturers and dealers delivers value to customers and profitability to all collaborating partners.

Some of the critical success factors that could influence adoption of this process are:

1. Top management involvement
2. Trust between collaborating partners
3. Continuous measurement of performance
4. Innovative IT strategy
5. Up-to-date cost accounting methods
6. Emphasis on customer satisfaction
7. Flexible organizational structure
8. Proper staff training

Our experience suggests that, for the CPRF model to be successful, it is more important to align supply chain goals with digital strategies. CGN has years of experience delivering these unique solutions, helping clients achieve high performance results. At CGN Global, we transform businesses globally, by delivering the unexpected. It is through years of service and outstanding transformative solutions provided, that we believe adopting a highly automated digital operating model can establish end-to-end processes, data connectivity and improved visibility, across the board.

CGN. Good thinking. Globally.