Uncertainty: A Thing Of The Past?

By Bruce Caldwell, Tom Stein, and Marianne Kolbasuk McGee

Wal-Mart has been working for more than a year with supplier Warner-Lambert Co. and several technology firms to improve the accuracy of sales forecasts through better collaboration over the Internet. The effort, known as CFAR (Collaborative Forecasting and Replenishment), could produce $179 billion in retail industry savings by reducing idle inventory.

But much as CFAR promises, retailers could realize even greater savings by integrating their retail planning systems with those of their suppliers and their suppliers' suppliers. "We now have the CFAR framework," says Wal-Mart CIO Randy Mott, "but the bigger framework is collaboration on all business functions between retailer and supplier."

CFAR's goal is to improve accuracy of sales forecasts and reduce inventory. Add to that integrated planning among stores, distribution centers, and suppliers and more accurate inventory systems, and the retail industry "could eliminate uncertainty and eliminate inventory," says Andre Martin, a principal of Retail Pipeline Integration Inc., a consultancy in Essex Junction, Vt. "CFAR," he says, "is just the tip of the iceberg."

How much inventory is out there? According to Benchmarking Consultants Inc., the Cambridge, Mass., firm that developed the CFAR standard with Wal-Mart, Warner-Lambert, IBM, SAP, and Manugistics, the total value of the consumer goods inventory is $715 billion. Taking aim at that figure is a Wal-Mart-sized task.

Wal-Mart recently completed a fax-based pilot of sales-forecast collaboration with Warner-Lambert for its Listerine mouthwash. Next spring, a broader pilot will get under way as Home Depot, Proctor & Gamble, Revco, Rite-Aid, Target Stores, Black & Decker, and other retailers and suppliers join the effort.

But American Software Inc. may have stolen a march on them all. The Atlanta software company has completed its first installation of CFAR-based software at Heineken USA. "There used to be a lag of eight weeks for delivery after beer distributors told Heineken how much they needed," says Ellen Valentine, VP of marketing at American Software. "Now it will take four weeks, and beer is thus four weeks fresher."

Under the Wal-Mart-Warner-Lambert pilot, the companies cut product supply cycle times for Listerine to six weeks from 12 weeks. Forecasts factor in geographic and seasonal market trends, and predicted store demands, says James Uchneat, a senior analyst at Benchmarking Partners.

Software vendors SAP and Manugistics don't expect to have products out until next year. Part of the reason for their lag behind American Software is their interest in working with an industry standard adopted by the Voluntary Industry Commerce Standards committee, the retail industry group that helped set EDI standards for retailers and suppliers.

CFAR could be the next step beyond QuickResponse, the 10-year-old retail EDI standard. Ten years is a long time between steps, but given Wal-Mart's weight behind CFAR, it looks like the effort is moving forward. "They are masters of distribution," says Martin. "People have to take them seriously."