How can companies sure Sales & Operations Planning (S&OP) to achieve superior business performance.

1. IBM Global Business Services
Executive brief
Consumer electronics
and office equipment
Enabling CPFR with SOA:
a flexible, scalable solution
for collaborative supply chains.

2. 2 Realizing the promise of VMI and CPFR Realizing the promise of VMI and CPFR
3 The collaboration challenge Consumer electronics and office equipment companies
4 The need for flexibility and scalability must react quickly to volatile supply and demand conditions.
4 SOA-enabled CPFR Rapid changes in technology compress product lifecycles.
6 Improving alignment of supply and demand Many products last less than a year, with production cycles
8 The IBM Global Business Services advantage of only three months. Consumers have their pick of a large
variety of new and existing products that are being aggres-
sively marketed. It’s difficult to predict what they will choose
to buy. Frequent retailer and manufacturer promotions disrupt
buying patterns and put downward pressure on prices. Poor
forecast accuracy can lead to excess inventory or write-offs.
Or it can lead to stock-outs, resulting in lost sales and poor
customer service. Adding to the uncertainty is accelerating
growth in the Asia-Pacific region. This growth extends and
strains supply chains, which can affect delivery reliability
and increase risks.
To achieve success in this kind of environment, all members of
the supply chain need visibility into current and future events,
along with the means to work together to solve problems and
deal with delivery constraints as they arise. Therefore, it’s not
surprising that retailers and original equipment manufacturers
(OEMs) have been cooperating for years on programs such as
vendor-managed inventory (VMI) and Collaborative Planning,
Forecasting and Replenishment (CPFR).

3. Since the publication of the Voluntary Interindustry Commerce The collaboration challenge
Standards (VICS) Association guidelines for CPFR in 1998, Real-time collaboration is critical to the sales and operations
hundreds of companies have implemented the process to some planning (SOP) process in consumer electronics. Planning
extent. In CPFR initiatives, retailers and manufacturers combine time has shrunk from quarterly and monthly cycles to weekly
their intelligence to predict demand and align supply by: updates based on daily monitoring of operations that can
span three continents.
• Sharing retail point-of-sale forecasts and information about
product introductions, promotions, inventories, supply chain OEM
headquarters
capabilities and planned replenishment Customer
headquarters
Suppliers
• Identifying exception conditions that require collaboration — Customer DCs
Contract
situations in which predefined supply chain tolerances and manufacturers
thresholds are exceeded
Japan
Contract factory
suppliers
• Agreeing on plan adjustments to resolve exceptions
• Evaluating key performance metrics. Logistics Mexico
Consumers
companies factory
There’s little doubt about CPFR program benefits. Numer-
Other service
ous case studies of CPFR projects show in-stock percentage providers Ireland OEM DCs
Retailers
factory
improvements for products in stores, accompanied by signifi-
cant channel inventory reductions.
Figure 1: When rapid response is critical, collaboration among organizational
facilities and with supplier, partner and customer systems must be automatic
Despite the success of CPFR initiatives, the reality is that
and event driven.
CPFR adoption rates have been slower than expected. Aside
from the obvious reluctance to share data, technological SOP requires rapid coordination between every part of the
barriers have delayed CPFR rollout for many companies. A business as well as with the retailer, component suppliers,
major hurdle to using CPFR on a larger scale has been find- contract manufacturers, logistics and other service companies.
ing an easy and cost-effective way to pass agreed-on data Information across systems must flow just as quickly as it does
automatically and securely between disparate systems and across organizational boundaries.
to enable collaboration within and among organizations. This
Yet many current VMI and CPFR programs lack the fully auto-
brief describes the technology issues and highlights how IBM
mated, event-driven processes that enable timely collaboration
can help OEMs overcome these challenges with a service-
on forecasts, demand plans and supply chain events. Even
oriented architecture (SOA) and Web services approach to
inside the four walls of the enterprise, disparate technologies
Internet-based VMI and CPFR.

4. can make it difficult to communicate at the same pace that Accelerating the CPFR adoption process first requires CPFR
business information changes. Most OEMs rely on multiple interoperability — where during any peer-to-peer collaboration,
departmental systems and technologies. It’s enough of a one trading partner can use his or her CPFR application and
challenge to automate shared processes among the siloed the other trading partner can use another. These disparate
groups involved in the SOP process — sales and market- applications should be able to work on privately hosted net-
ing, procurement, manufacturing and logistics — let alone to works, public exchanges or the Internet.
extend collaborative processes to all involved players exter-
In addition, the OEM must be able to leverage its existing CPFR
nal to the organization.
applications to quickly implement new initiatives with additional
Without automation, cross-enterprise collaboration is ham- supply chain partners and also be able to adapt the applica-
pered by inaccurate and dated information. Lacking reliable tions as individual partner relationships evolve.
replenishment information, retailers pad sales forecasts to
increase allocation of constrained products. In the absence SOA-enabled CPFR
of a commitment process for suppliers, the order process is IBM Global Services offers an SOA-enabled solution that
not really collaborative. And, without good planning tools, it’s provides the interoperability, standardization, flexibility and
hard to use information from consensus forecasts effectively. scalability necessary to help you realize the full benefits of
VMI and CPFR. Software decisions to support CPFR no longer
The need for flexibility and scalability need to be dictated by internal systems and the technologies
With early CPFR initiatives, the partner requesting the pro- your trading partners have in place. And CPFR implementations
gram (most often the retailer) frequently specified the enabling needn’t be limited to one-on-one projects.
technology, usually a proprietary solution. It became clear
Essentially, the IBM solution provides four Web services built
that — if each new CPFR program involved implementation,
on an SOA platform:
integration and maintenance of incompatible systems — the
IT complexity and support costs for the OEM organization • Statistical forecasting service — to generate a baseline
would increase exponentially. forecast
To address this challenge, in June 2001 a VICS working • Forecast collaboration service — to generate a consensus
committee released an eXtensible Markup Language (XML) forecast
specification to serve as a basis for standardization. Although
• Inventory and replenishment analysis service — to generate
a promising first step, this move to standardization did not
a baseline replenishment plan
address CPFR program flexibility and scalability.
• Replenishment planning collaboration service — to generate
a consensus replenishment plan

5. Create joint VMI Plan supply and develop
business plan Plan demand replenishment plan
Retailer
POS/data
Retailers analysis
Sell-through
Develop Create collaboration Replenishment
master joint Gather call and plan
agreement business data generate collaboration
plan sell-through
consensus
forecast
Adjust sell-
Manufacturers through
Generate
forecast
replenishment
plan
Manufacturer Prepare for
POS/data sell-through Prepare for
analysis collaboration replenishment
collaboration
System Generate
statistical
sell-through
forecast (daily)
IBM Global Business Services CPFR/VMI solution scope
process management solutions
Figure 2: The IBM solution enables key capabilities in your SOP process to be packaged into SOA services and quickly implemented.
The IBM solution combines SOA and Web services for optimal The IBM solution enables key capabilities in your SOP process
benefit. Recently, there’s been some confusion in the business to be packaged into SOA services and quickly implemented —
world about these two elements. You can have one without the allowing rapid integration to multiple systems and business
other, but it’s best to have both. SOA offers flexibility through partners. You can combine and reuse prebuilt service compo-
componentization. But without common connections, you’re lim- nents to quickly develop and deploy collaborative applications
ited in how far you can extend components and the composite in response to marketplace conditions. Essentially, you elimi-
applications. Web services offer standardization and interoper- nate the need for duplicate CPFR systems. You’re able to:
ability to enable access to components and applications from
• Speed execution on CPFR agreements by building collab-
the widest range of user devices, but you first need to have
orative capabilities once and then leveraging them to speed
capabilities to extend. With SOA and Web services together,
execution on CPFR agreements with new trading partners
you have the optimal IT flexibility and responsiveness to support
your changing business. • Offer new services to your customers without having to
worry about the underlying IT infrastructure
• Improve alignment of the CPFR business process with
actual operations.

6. The IBM collaboration platform is role based with security- integrates proprietary IBM Research analytics engines with
enhanced sign-on. Your partners and customers can only see collaboration and exception management services to offer
their own information, helping to foster trust-based relationships. end-to-end CPFR and VMI capabilities. The solution was
developed using Java™ technology and is exposed as a Web
And because of the modular design, you have maximum
service for integration with business processes. The collabo-
flexibility to determine the scope of the solution. You’re able
ration platform is event driven for improved coordination with
to pick and choose the components you want to implement.
suppliers, partners and retailers. You’re able to detect market-
You can even outsource selected services to IBM Global
place changes more rapidly, create synchronized plans and
Business Services.
effectively execute those plans.
For example, one IBM client in the electronics industry did
Consensus-based forecasting
not want to do advanced statistical forecasting. IBM man-
The IBM SOA-enabled CPFR process starts with retrieving the
ages that step by generating a statistical baseline forecast
POS data. You use the POS and master data in the forecast
as the starting point of this company’s weekly SOP pro-
analytics engine to establish a baseline forecast. Developed
cess. Using information from point-of-sale (POS) systems
by IBM Research, this analytics engine is among the best in
and promotion plans, IBM creates a forecast baseline that
the industry. It helps you to:
is used by the electronics company in its collaboration with
retail partners. Once the collaborative forecast is agreed • Deal with partially known demand by combining an infla-
upon, IBM generates the detailed replenishment plan. This tor algorithm and an autoregressive forecasting model with
arrangement has allowed the electronics company to focus partially known demand
on relationship management with its retailers. The average
• Correct for quarterly order skew, seasonality and repetitive
forecast accuracy for products four weeks out has risen from
order trends
50 percent to approximately 90 percent at the retail partner
distribution center (DC) level of measurement. • Estimate volumes accurately during product transitions by
analyzing short-term trends
Improving alignment of supply and demand
• Accommodate promotional events within the forecasting
The IBM solution is designed to provide consumer electron-
process
ics and office equipment companies with a proactive demand
management process using business levers such as pric- • Forecast demand at multiple levels in the product hierarchy.
ing, promotions, inventory targets and supply allocations. It

7. Once a baseline OEM forecast is generated, it is sent out to Developed at IBM Research in collaboration with the University
every player via the collaboration portal. An exception alert is of Michigan, the IBM inventory and replenishment analysis
generated if there is a mismatch between the OEM and retail engine helps you generate optimized safety stock recom-
partner forecasts. Alerts are based on predefined business mendations. Unlike other planning engines, the stochastic
rules. For example, if a retailer’s forecast falls ten percent dynamic IBM programming framework takes into account the
outside the baseline, then an exception notice can be sent risks of structured supply contracts when they involve price
via e-mail to those in each organization who are responsible protection. You reduce the risk of markdowns with the ability to
for addressing any discrepancies. The OEM scheduler and use parameters for the price protection horizon and price ero-
individual partner staff are then able to collaborate through an sion costs, together with such traditional criteria as inventory
enterprise portal to agree on a consensus forecast. carrying costs, customer service levels and replenishment
lead time, to generate optimal buy decisions.
OEM scheduler
and partner staff OEM scheduler
For example, an electronics OEM promises retailers that,
E-mail
Collaborate on Record consensus Consensus
notification
forecast forecast forecast should a price drop occur while they are holding inventory,
POS
data
it will provide a refund to cover the difference. To minimize
risk, the OEM is able to collaborate with retailers to effectively
balance service levels with inventory carrying costs and price
Retrieve Develop baseline Forecast
POS data forecast data Baseline Consensus erosion expenses. A 99 percent service level may be fine for
forecast forecast
OEM scheduler Forecast a new product in high demand, but as the product gets older,
analytics engine
retailers may be willing to accept a much lower service level
Figure 3: The IBM analytics engine solution for building consensus forecasts
can help organizations improve forecast accuracy, decreasing the incidence of
(say 90 percent) to minimize inventory carrying costs.
stock-outs for more flexible, responsive service.
OEM scheduler
and partner staff OEM scheduler
Synchronized replenishment Consensus
E-mail replenishment
Collaborate on Record consensus
When complete, the consensus forecast is used to calcu- notification replenishment plan replenishment plan
plan
late the baseline replenishment plan. The IBM inventory and
replenishment analytics engine calculates the reorder points
and buy recommendation. The OEM scheduler is automati- Calculate reorder
Consensus
points and buy Inventory/
cally notified if there is a mismatch between the OEM and forecast
recommendations Baseline replenish- Consensus
replenishment ment replenishment
partner replenishment plans and can pass the alert on to his Inventory
plan plan
analytics engine
or her counterpart in the supply partner organization via the
enterprise portal. Using the portal, the parties are able to col- Figure 4: The IBM analytic engine solution for exception-based, event-driven
inventory and replenishment planning can help organizations decrease the costs
laborate on changes to quickly resolve plan discrepancies. associated with price erosion, lower the level of channel inventory and improve
service levels.

8. The IBM Global Business Services advantage © Copyright IBM Corporation 2007
IBM Global Services
IBM is ideally equipped to help electronics companies implement state of the art
Route 100
CPFR and VMI processes and SOA. It provides a full spectrum of service options, Somers, NY 10589
U.S.A.
from business process transformation to CPFR solution design, implementation and
Produced in the United States of America
management. Optimum business value is obtained by proceeding through each
09-07
phase in a continuous process. All Rights Reserved
IBM and the IBM logo are trademarks or registered
Assessing the effectiveness of your VMI and CPFR process trademarks of International Business Machines
IBM Business Process Transformation Services helps you define the scope of your Corporation in the United States, other countries,
or both.
solution by identifying how business process transformation with SOA can help you
Java and all Java-based trademarks are trademarks
meet your supply chain collaboration objectives. It helps foster alignment of business of Sun Microsystems, Inc. in the United States, other
and IT; prevent costly missteps; and identify and simplify implementation of the sup- countries, or both.
porting technology. Other company, product or service names may be
trademarks or service marks of others.
Implementing the IBM SOA-enabled solution Use of the information herein is at the recipient’s own
risk. Information herein may be changed or updated
IBM Implementation Services for SOA-based Business Services can help you build
without notice. IBM may also make improvements
and deploy the SOA and associated Web forecasting and replenishment services on and/or changes in the products and/or the programs
described herein at any time without notice.
an enterprise service bus. Because all services are designed to work together and
References in this publication to IBM products or
integrate with your enterprise resource planning systems, you can pick and choose
services do not imply that IBM intends to make them
the components you want to include in the solution. You decide whether you want available in all countries in which IBM operates.
just the forecasting capability, the replenishment planning engine or the collaborative
platforms. Or you can use the whole thing. Whatever the scope of the solution, IBM
can help you get up and running quickly.
Managing your VMI and CPFR solution
You also have flexibility in how you manage the IBM solution. If you decide to outsource
any or all of the capabilities, IBM Management Services for SOA-based Business
Services can host your SOA services. IBM provides ongoing performance monitor-
ing and verifies that the SOA meets your specified business needs.
For more information
To learn more about how IBM can help you enhance your CPFR and VMI processes, visit:
ibm.com/industries/electronics/cpfr
About the authors
Paul Brody is a partner with IBM Global Business Services. He brings a decade of
consulting experience to the position as the global leader of the electronics industry
strategy practice.
Henry Dao is a senior managing consultant in the supply chain strategy practice in
IBM Global Business Services.
BCE-01565-USEN-00