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Towards Standardising
Inventory Controls
The success of Collaborative Forecasting And Replenishment
(CFAR), a new inventory control system, may render MRP and JIT
obsolete
A survey conducted at Benchmarking Partners Inc.,
revealed the idle inventory of consumer goods amounted to $715
billion. The survey further revealed that it could be reduced
by 25%, if manufacturers and retailers coordinated their demand
forecasts.
Companies have realised that better inventory management systems
will bolster bottom lines. In their quest to do so, companies
are creating inventory systems that can leverage collaborations
with suppliers and customers. These processes are tipped to
become standards in various industries.
Despite many companies adhering to traditional inventory management
methods, a new concept in supply chain management and forecasting
may well become a benchmark in the near future. Termed as Collaborative
Forecasting and Replenishment (CFAR, pronounced 'see far'),
the first phase of the project has been implemented by Wal
Mart Inc and Warner Lambert Co. The basic
objective of the project is to enable retailers and manufacturers
to save billions of dollars by synchronising their demand forecasts.
Early results
The first phase of the project has shown promising results.
Both companies have been able to cut down the supply cycle time
of' 'Listerine' bottles from 12 weeks to 6 weeks. Prior to implementation
of the project, both companies were able to cater to only 87%
of the demand. Now, they are able to cater to 95% of the demand,
thereby increasing the revenue by $10 million.
Initial success of the project has prompted more than 250 companies
to join in a broader project. Wal Mart, one of
the pioneers of the concept, is banking on the ability of CFAR
to reduce cycle time and reduce costs by collaborating with
suppliers. However, this would be possible only if Wal Mart
shares wider information with the suppliers.
Essentials of CFAR
CFAR has brought a sea change in forecasting methodology. It
enables companies in an industry to determine the total amount
of production based on demand. Also it standardises data definitions
and encourages companies to use the same description for a particular
item.
CFAR provides a single forecast to all parties of the supply
chain to enhance the replenishment and reduce inventories. However,
its implementation requires accuracy in forecasts, and accountability
for these forecasts should be done on a joint ownership basis.
The implementation of the first phase has taught a crucial
lesson. Both companies realised that for successful implementation
of CFAR, apart from changes in technology they also need to
manage the changes brought about by collaboration.
Future of CFAR
An advanced version of CFAR is also in the offing. Named CFARther,
the scope of the system extends to such critical elements as
promotional planning and scheduling.
Despite its initial success, retailers are still not able to
generate enough revenues to manufacturers. In the long run,
it is essential for manufacturers to generate revenues that
justify investment in such technologies. The second drawback
of the system is its dependence on the Internet. Many small
retailers are still not convinced about making investments in
such technologies.
Hence, it is imperative for manufacturers to collaborate with
suppliers in all activities of the supply chain and not restrict
its scope to demand forecasting alone.
Related reading:
"Benchmarking Inventory Control": I McLemore
"First, You Need a Definition": R T Christensen
"Options in a Down Economy": R T Christensen
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