As more and more products become available in the market, customer loyalty to one brand has decreased. Similarly, competition, production, supply, and consumption dynamics keep shifting; therefore business firms have to linearly program their procedures not only to match demand characteristics, but also to cut costs in warehousing of non-moving inventory and lost business opportunities. Forecasting has therefore become a crucial and complex venture especially considering that sales are harder to predict and sales and distribution channels have continued to flourish. The Voluntary Inter-industry Commerce Solutions (VICS), through its Collaborative Planning, Forecasting and Replenishment (CPFR) Committee has come up with principles which aim “to develop business guidelines and roadmaps for various collaborative scenarios, which include upstream suppliers, suppliers of finished goods and retailers, which integrate demand and supply planning and execution” (VICS, 2010) In this essay, the author aims to demonstrate how Coca Cola’s experience with inventory forecasting supports the principles set forth by CPFR.
The CPFR Committee formulates principles and processes that business entities that fall within a supply chain can employ so that they can partner with their trading partners in a number of functions so that the efficiency of the manufacturing and supply chain can be increased (Sheffi, 2002). Business organizations can manage a single shared forecast of product demand and commit to this forecast so that risks can be shared as a result of the removal of constraints in the supply process (Sheffi, 2002). The Coca Cola Bottling Company Consolidated (CCBCC) had a monumental challenge in strategically managing its supply chain. At its beginning, the company only had one product. Its operations then were easy and replenishing inventory was a simple undertaking.
Upon its growth, more products were introduced in different packages. Franchises came up and so did large retail customers who could frequently run promotions and massive discounting campaigns with little and at times no notice to the company (CCBCC) (Murphy, 2002). These processes had the potential to dramatically swing the volumes of particular products. Despite the company’s efficiency in production, it could find itself in a position where it did not know which product to produce. It could not react quickly enough to dynamism in the consumer environment. Often, it would find itself having plenty of products in its warehouses by virtue of not knowing which product was having the highest demand at a given time. That was before it implemented a collaborative demand planning and forecasting system.
The collaborative demand planning and forecasting system at Coca Cola was aimed at ensuring that fresher products were available at all times by reducing by a half the finished goods inventory (Murphy, 2002). Through this strategy, it would reduce the probability of being out of stock in particular products while still having too many products lying around in warehouses. The company wanted to have the right product at the right place and at the right time so that it could reduce capital investments in warehousing. This vision matches the principles fronted by the CPFR Committee.
To accomplish the above mentioned goals, CCBCC needed to have accurate forecasts of the actual demand and be more flexible in production (Murphy, 2002). The project radically transformed the way in which Coca Cola managed its business processes. Forecasting and production had previously been decentralized at each plant without visibility between plants and distribution centers, but the new system centralized planning in an interactive atmosphere allowing cross-functional and cross-plant activity. With this arrangement in place, the company could re-run forecasts within an hour and has managed to be proactive rather than reacting to market demand (Murphy, 2002). Clearly, this supports the principles set by CPFR; just that it occurs between branches of an organization as opposed to separate collaborating business entities.
Murphy, J. (2002). Enabling its Field Sales Managers to Collaborate on Forecasts Allowed Coca-Cola Bottling Co. Consolidated to Slash Inventories in Half While Absorbing 150 New Products. Retrieved July 7, 2010, from http://www.supplychainbrain.com/content/technology-solutions/forecasting-demand-planning/single-article-page/article/special-issue-collaborative-commerce-forecasting-tool-lowers-coke-bottlers-inventory/?adcode=5
Sheffi, Y. (2002). The Value of CPFR. Retrieved July 7, 2010, from http://web.mit.edu/sheffi/www/selectedMedia/genMedia.theValueOfCPFR.pdf
Voluntary Industrial Commerce Solutions. (2010). Collaborative Planning, Forecasting & Replenishment (CPFR®) Committee. Retrieved July 7, 2010, from http://www.vics.org/committees/cpfr/#f1