Definition of CPFR Current challenges Benefits Implementation Case study Summary

1. CPFR - the new edge in logistics -

2. Definition of CPFR • Current challenges • Benefits • Implementation • Case study • Summary Agenda 26 May 2003

3. CPFR is… "Collaborative Planning, Forecasting and Replenishment" • Collaboration among suppliers, distributors and retailers • Forecast sharing • Developing one common forecast • EDI/Internet-based tool Definition of CPFR 26 May 2003

4. Definition of CPFR • Current challenges • Benefits • Implementation • Case study • Summary Agenda 26 May 2003

5. Different planning data among retailers and manufacturers • Non-integrated processes and systems • Excessive response times, costs and inventory due to forecast inaccuracy • Retailer: stock-outs, material shortages, inventory costs impacting margins, lost sales, poor customer service • Manufacturer: inventory costs, obsolescence Current challenges 26 May 2003

6. Definition of CPFR • Current challenges • Benefits • Implementation • Case study • Summary Agenda 26 May 2003

7. CPFR can… • Increase sales (10-100%) • Reduce inventory and out-of-stocks (at least 10%) • Reduce merchandise returns (5-20%) • Improve forecast accuracy (at least 20%) • Enhance cash flow and profitability • Contribute to consumer satisfaction Benefits 26 May 2003

8. Definition of CPFR • Current challenges • Benefits • Implementation • Case study • Summary Agenda 26 May 2003

9. Front-end agreement Steps of implementation Joint business plan Implementation Sales forecast collaboration Order forecast collaboration Order generation/delivery execution 26 May 2003

10. Step 1: Front-end agreement • Establishing the guidelines and rules for the collaborative relationship • Agreeing to confidentiality and dispute resolution processes • Establishing financial incentives or penalties • Commitment to collaboration and aligning of all parties around common goals • Reviewing on an annual basis Implementation 26 May 2003

11. Step 2: Joint business plan • Creation of a joint plan for each product category for going to market: • promotions • inventory policy changes • store openings/closings • product changes etc. • Controlling of the day-to-day activities of manufacturing, delivering and selling products • Revision quarterly or semi-annually Implementation 26 May 2003

12. Step 3: Sales forecast collaboration • Creation of sales forecast by sharing promotion calendars plus analysis of POS data and causal data • Identifying exceptions by determining causal factors • Resolving exceptions by collaborative negotiations • Forecast revisions on a regular - usually weekly - basis Implementation 26 May 2003

13. Step 4: Order forecast collaboration • Combination of POS data, causal information, and inventory strategies • Harmonizing capacity constraints for manufacturing, shipping, receiving, etc. • Creating an interactive feedback loop • Resolving exceptions by collaborative negotiations • Reduction of uncertainty by real-time collaboration • Consolidation of supply-chain inventories Implementation 26 May 2003

14. Definition of exceptions Implementation Source: Syncra Systems Inc. 26 May 2003

15. Step 5: Order generation/delivery execution • Transformation of the order forecast into a committed order • Generated by either the manufacturer or retailer • Frozen near-term orders (e.g. two weeks), only usage of longer-term information for planning • Execution of the delivery to retailer Implementation 26 May 2003

16. Requirements • CPFR technology fits in existing applications • fully open, interoperable, vendor-neutral Implementation Source: Syncra Systems Inc. 26 May 2003

17. Definition of CPFR • Current challenges • Benefits • Implementation • Case study • Summary Agenda 26 May 2003

18. Metro and P&G – One way to start Problems • "Bad" communication in the planning area • Business processes insufficiently defined • Responsibilities not clearly defined • Too few, too inexact, too old data Objectives • Increase sales by reducing out-of-stocks • Decrease costs along the supply chain – also by reducing inventory, including inventory at promotion end • Learn, test, develop further Case study 26 May 2003

19. Elements of CPM (= Collaborative Promotion Management) • Promotion planning • Forecasting of promotion volumes • Checking orders and inventories of outlets • Monitoring promotion sales • Evaluation after promotion • Supported by a workflow-tool Case study 26 May 2003

20. ForecastMetro 0 0 20000 45000 45000 18000 19000 20000 CPM example 1: Forecast and volumes Case study Forecasts: a) METRO b) P&G In case of exception: Red Light and Email 26 May 2003

21. Orders from outlets too low Red Light! • Forecast per product • Actual inventory plus orders • Deviation > 5%: Email • Link to detailed information • Product CPM example 2: Check order and inventories of outlets Case study 26 May 2003

22. CPM example 3: Monitoring promotion sales Case study • Screen shows per product and day: • Forecast Metro und P&G • Quantity receiving • Quantity sold • Accumulated quantity sold • Inventory • Backlog of deliveries • Zero sales 26 May 2003

23. Conclusion • Cooperating with partner also enhances own performance • Better promotion process • Possibility to increase sales and decrease inventories • Start small and keep it simple, "stick to it" and develop it • CPFR begins with single steps Case study 26 May 2003

24. Definition of CPFR • Current challenges • Benefits • Implementation • Case study • Summary Agenda 26 May 2003

25. CPFR changes the supply chain dramatically! • CPFR is rapidly becoming mainstream • Low barriers to participation • Demonstrated benefits • Instead of the traditional trade-off: Now simultaneous improving of inventory and reducing of out-of-stocks possible • Win/win situations where customer satisfaction, costs and revenues improve simultaneously • More and more companies successfully launched pilots, e.g. Kimberly-Clark, Procter & Gamble, Metro, Wal-Mart Summary 26 May 2003