How Walmart Enhances Supply Chain Management With CPFR

Initiatives:
an extension research to the previous journal entitled
How RFID Technology Boosts Walmarts Supply Chain Management by the same Author.

Alexander Harsono
STMIK Pontianak
Sponsored by IT Consulting firm PT. Metadata IT BizSolutions and CV. Omah IT Yogyakarta Indonesia
alex189@ymail.com;metadata89@gmail.com

Abstract The role of collaborative planning, forecasting,
and replenishment (CPFR) in supply chain management
have gained significant interest in researchers and
academics in recent years. Yet, very few studies conducted
on how CPFR software could boost supply chain
management (SCM). So this study was to scrutinize how
Walmart harnessed CPFR to enhance supply chain
management. Exploratory research approach was adopted
to obtain an in-depth understanding of CPFR and supply
chains through related textbooks, journals and literatures.
Then the research was conducted in the form of case
studies on CPFR and SCM, and the benefits Walmart and
P&G could gain from CPFR and SCM practices. In general,
the research is more descriptive and interpretive in nature.
Findings showed that CPFR played an important role in
SCM to better control inventory, reduce stockouts, bullwhip
effect, reduction in manual orders resulting in a reduction
of excess inventory, and improved service levels. The
paper is original that provides empirical support to CPFR
and SCM implementation, and creates value for retail stores
and their suppliers on managing inventory.
KeywordsCPFR, EDI, RFID, VMI
----------
This research paper is an extension research to the previous journal
research on RFID role in SCM entitled How RFID Technology Boosts
Walmart SCM by a single author discussing further on how integrated
IT-enabler powerfull tools such as RFID, VMI, EDI, etc. enhanced SCM.
I. INTRODUCTION
The complexity of todays supply chain requires
manufacturers and distributors to search for new methods
to reduce costs, increase efficiencies, reinvent channel
models, engineer collaborative relationships, and span
functional, cultural, and personal boundaries. The most
common solution to supply chain uncertainties is to build
inventories, or safety stock, as insurance. High levels of
safety stock increase the costs of holding inventory. High
inventories at multiple points in the supply chain can result
in the bullwhip effect. Low inventory levels increase the
risk of stockouts or insufficient supply and lost revenues
when demand is high or delivery is slow. In either event,
the total costincluding the cost of holding inventories,
the cost of lost sales opportunities, and bad reputation
can be very high. While advance planning and scheduling
(APS) and SCM applications provide for the optimization
of the supply chain, CPFR seeks to act as a key enabler
for the realization of synchronized supply chain
forecasting and replenishment. CPFR is the latest
generation in a train of channel management
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philosophies focused on supply chain synchronization.
As illustrated in Fig. 1 to 6, CPFR is the maturation of
efforts such as quick response, vendor managed
inventory (VMI), and efficient customer response and can
be thought of as the perfect joining of ERP and CRM in
an Internet-driven supply chain environment dedicated to
the integration and synchronization of the entirety of
channel demand while reducing total network inventories
and costs.
CPFR is a set of data-driven business processes
designed to improve the ability to predict and coordinate
with supply chain partners. CPFR is considered superior
to the earlier electronic data interchange (EDI)-based
SCM practices since it is based on much broader
cooperative arrangement where retailers and suppliers
jointly develop forecast by sharing point-of-sales (POS),
inventory, promotions, strategy and production
information. With CPFR, suppliers and retailers
collaborate in planning and demand forecasting in order
to ensure that members of the supply chain will have the
right amount of raw materials and finished goods when
they need them.
In VMI situation, Procter & Gambler (P&G) manages
the inventory of its customers, eliminating the need for
customers to send purchase orders.The advantage to the
vendor is having more advanced notice of product
demand.The advantage to the retailer or distributor is
minimizing inventory costs. Having the correct item in
stock when the end customer needs it benefits all
partners.
One of P&Gs first collaborations was with Walmart.
P&G continuously replenished Pampers baby diapers at
Walmart stores. Continuous replenishment is a supply
chain relationship in which P&G continuously monitors the
inventory of Walmart or distributor and automatically
replenishes its inventory when levels hit the reorder point.
Walmart knows that continued market dominance will
go to those who know how to harness the evolutionary
process taking place within their supply chains. Therefore,
the topic How Walmart harnesses SCM with CPFR
initiatives becomes an interesting issue to discuss.
For further an in-depth exploration of collaboration
between Walmart store and its one of suppliers P&G, this
case study focused on firstly, understanding the concept
of CPFR, How it works, secondly, identifying the major
elements of Walmarts CPFR success, and analyze the
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benefits of the CPFR implementation for both Walmart
and P&G.
II. LITERATURE SURVEY
The keystone of SCM is the willingness of supply
network partners to engage in and constantly enhance
collaborative relationships with each other. Unified
channel collaboration makes it easier to ensure
connectivity of all channel nodes, availability of the proper
technology tools for information visibility and real-time
transfer, acceptance of common performance metrics
and benefits, and access to demand patterns and
expectations as they stream across the supply chain.
Collaboration is one of the key foundations of SCM and
is recognized as a high-corporate priority, the path to
successful collaboration is blocked by many barriers.
Despite that fact that such numbers indicate that truly
cohesive and collaborative supply chain teams are the
exception and not the rule, todays advanced supply chain
leaders P&G and Wal-Mart are winning and outdistancing
the competition because they understand their success
rests on seeing themselves as the drivers of value chain
collaboration [1].
According to the Voluntary Inter-industry Commerce
Standards (VICS) Association [2], CPFR is a set of
business processes that entities in a supply chain can use
for collaboration on a number of retailer/manufacturer
functions towards overall efficiency in the supply chain.
CPFR is a registered trademark of the VICS Association.
The Council of Supply Chain Management Professionals
(CSCMP) describes CPFR as: a concept that aims to
enhance supply chain integration by supporting and
assisting joint practices. CPFR seeks cooperative
management of inventory through joint visibility and
replenishment of products throughout the supply chain.
Information shared between suppliers and retailers aids
in planning and satisfying customer demands through a
supportive system of shared information. This allows for
continuous updating of inventory and upcoming
requirements, essentially making the end-to-end supply
chain process more efficient. Efficiency is also created
through the decreased expenditures for merchandising,
inventory, logistics, and transportation across all trading
partners [3].
The objective of CPFR is to optimize the supply chain
by improving demand forecast accuracy, delivering the
right product at the right time to the right location, reducing
inventories across the supply chain, avoiding out-of-
stocks and improving customer service. This can be
achieved only if the trading partners are working closely
together and willing to share information and risk through
a common set of processes.
The real value of CPFR comes from an exchange of
forecasting information rather than from more
sophisticated forecasting algorithms to improve
forecasting accuracy. The fact is that forecasts developed
solely by the firm tend to be inaccurate. When both the
buyer and seller collaborate to develop a single forecast,
incorporating knowledge of base sales, promotions, store
openings or closings and new product introductions, it is
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possible to synchronize buyer needs with supplier
production plans, thus ensuring efficient replenishment.
The jointly managed forecasts can be adjusted in the
event that demand or promotions have changed, thus
avoiding costly corrections after the fact.
On the surface, when decisions are made with
incomplete, one-sided information, it may appear that
companies have optimized their internal processes
when, in reality, inventory has merely shifted along the
supply chain. Without supply chain trading partners
collaborating and exchanging information, the supply
chain will always be suboptimal, resulting in less-than-
maximum supply chain profits.
Using CPFR, companies are working together to
develop mutually agreeable plans and are taking
responsibility for their actions. The collaborative effort
leads to benefits that are greater than if each partner were
to go at it independently. According to VICS, the CPFR
concept is consumer driven without losing focus on best
practices within the supply chain. Setting common goals
for organizations pulls individual efforts together into a
cohesive plan, supports better execution of the plan and
invites improved planning in the next business planning
exercise. The improved planning drives sales gains
through to the consumer and lowers costs throughout the
supply chain [4]. Besides P&G and Walmart, other
companies using CPFR initiatives include Eastman
Kodak, Federated Department Stores, Hewlett-Packard,
JC Penney, Kimberly Clark, Kmart, Nabisco, Procter &
Gamble, Target, Walmart and Warner-Lambert. The
industries that are most involved with CPFR are
consumer products and food & beverage.
A. EDI and Supply Chain Management
SCM needs technology-based drivers to make it
working. Technology is the driver of SCM, and technology
tools enable companies to automate supply chain
functions to remove redundancies and cost, generate
information and assists supply chain activities. The
earliest technology is electronic data processing (EDI)
where companies can exchange simple and similar
information within and across-organizations.
EDI is computer-to-computer exchange of routine
business documents, using an approved, standard
format, without human intervention. These documents
include things like purchase orders, shipment updates,
invoices and others [5]. The process of data exchange is
straightforward, beginning with a trading partners
business system, traveling through the internet, and
arriving securely to your system. EDI has the capacity to
transmit data in the exact way it was received. Because
of its accuracy, errors occurring while re-keying are no
longer a concern. As a direct result, costs involved with
mailing and postage are virtually eliminated, lead times
and inventory carrying costs are drastically reduced, and
customer service and loyalty are significantly improved.
EDI uses a common language that is shared amongst
businesses, allowing for companies with dissimilar
computer-based systems to communicate with each
other. Although the language must initially be translated,
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once it has been completed, no further encoding must be B. Evolution of SCM or E-SCM Systems
done. Many companies have used EDI to send business Today supply managers expect powerful solutions to
information to suppliers and customers as illustrated in their business problems. However, organizations did not
Fig. 1 and Fig. 2 illustrated exchange of information always have sophisticated systems at their disposal.
through CPFR in SCM. TABLE 1 traces the evolution of e-SCM systems [8]. Early
uses of information systems were in the accounting and
Exchange of information in SCM through EDI & CPFR financial areas. However, beginning in the 1970s more IT
resources and software solutions were allocated to
purchasing, operations, and distribution. Organizations
installed systems such as material requirements planning
(MRP) and distribution requirements planning (DRP).
These systems were used to improve the planning and
Fig. 1. Information flows via EDI
control of inventory in manufacturing (MRP) and
distribution (DRP).
Because MRP and DRP systems were primarily
internal, an electronic linkage to suppliers and customers
was needed. Led by efforts of the railroad and retail
sectors, electronic data interchange was developed as a
solution to transfer customer and supplier information in
Fig. 2. Information flows via CPFR
the 1980s.
In most cases, this information was limited to orders, Although these early efforts provided efficiencies in the
quotations, invoices, and similar documents. In supply supply chain, intense competition in the final two decades
chain cooperation, information exchanged between the of the 20th century forced firms to re-engineer their
partners, or granted access to, is much more detailed and business processes to become even leaner. During this
often rather sensitive. It includes sales plans and period, almost every major Fortune 500 company went
forecasts, inventory levels, resource utilization, status of through some form of restructuring, as thousands of
orders, shipments, and more. Obviously, companies are workers and managers were shed in an effort to increase
concerned about this information. Disclosing it to other productivity and reduce costs. In conjunction with this
companies, be they partners in supply chain management change, organizations further increased their information
or not, is a sensitive matter. What if the partner uses systems to perform tasks previously done by these
internal information to the companys disadvantage? For workers. Thus enterprise resource planning (ERP)
example, if the customer sees that the suppliers inventory systems became the rage of the 1990s and they continue
level is too high, they might use this information to today. The goal of ERP systems is to integrate all
negotiate a price reduction that the supplier otherwise business function planning and processing, and to avoid
would not have given. Despite the risk of making internal data interruption in order to make better business
information available, an increasing number of companies decisions and run the business more effectively and
perceive the advantages they derive from exchanging efficiently. Ideally, all the different functions in the
information with their supply chain partners. They realize organization have access to and are working with the
that the benefits they receive from effective supply chains same data. Supply managers were at the center of this
outweigh the potential disadvantages from disclosing trend and were challenged to develop accurate databases
information. Two prominent approaches that unleash the to improve their decision making.
benefits of information exchange between two partners
are vendor-managed inventory (VMI) and CPFR [6] TABLE 1. THE EVOLUTION OF E-SCM SYSTEMS
SCM is defined as the integrated, process-oriented
design, planning and control of goods, information, and Solution Time Focus Primary Use of System
Period
cash flows along the entire value chain from customer to Internal/ Inventory planning,
the raw-material supplier with the aims of improving MRP-DRP 1970s managin inventory control, and
customer orientation, synchronizing supply with demand, g distribution efficiencies
making the production more flexible and responsive to the inventory
Electronic transmission of
demand, and downsizing of the inventory along the value EDI 1980s External purchase orders
chain [7]. The better the supply chain member
collaborates, the better the supply chain works. And the Integration of all business
better the supply chain works, the stronger the partners ERP 1990s Internal functions for processing
and reporting
competitive position on the market. SCM seeks to develop Managing and controlling
the collaborative aspects of integrative information SRM &SCM 2000s External the interface between
technologies to better manage networked customers and buyers, suppliers, and
inventories. customers
CPFR systems permit
Collaboration 2001s External constant communication
-internal within the supply chain

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 via RFID and point of sale
systems
Advanced 2010 & External- Sourcing analytics and
Sourcing Beyond internal computerized
Analytics negotiations
C. Collaboration
Collaboration can be defined as an activity pursued
jointly by two or more entities to achieve a common
objective. It can mean anything from exchanging raw data
by the most basic means, to the periodic sharing of
information through technology-based tools, to the
structuring of real-time architectures capable of
leveraging highly interdependent infrastructures in the
pursuit of complex, tightly integrated functions ensuring
planning, execution, and information synchronization [9]
as shown in Fig 3.
The intensity of the collaborative content can vary as
depicted in Fig. 3 to 5. It can be internally driven and
focused on the achievement of local objectives. It could
seek to use technology to deepen inter-channel
operations linkages, drive shared processes and co-
development, and even foster a common competitive
vision for the whole channel. The value of collaboration is
gauged by how effectively firms are leveraging the
competencies of the distributed knowledge of the channel
base, reducing redundant functions and wastes, sharing
a common vision of the supply chain, and constructing the
technical and social architectures, thereby enabling whole
channel networks to achieve marketplace leadership
Fig. 3. Span of collaboration [9]
B. What is CPFR?
Two prominent approaches that unleash the benefits
of information exchange between two partners are
vendor-managed inventory (VMI) and CPFR. VMI is an
approach for close cooperation between a supplier and a
vendor based on trust. The concepts of continuous
replenishment, VMI, and collaboration evolved into the
more comprehensive model known as CPFR. CPFR is a
set of data-driven business processes designed to
improve the ability to predict and coordinate with supply
chain partners. With CPFR, suppliers and retailers
collaborate in planning and demand forecasting in order
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to ensure that members of the supply chain will have the
right amount of raw materials and finished goods when
they need them. CPFR streamlines product flow from
manufacturing plants all the way to customers homes.
The Voluntary Interindustry Commerce Solutions
(VICS) Association (vics.org) describes the structure of
CPFR activities and guidelines for implementing them.
Since 1986, VICS Association has worked to improve the
efficiency and effectiveness of supply chains. CPFR
comprises four main collaboration activities (see Fig. 4):
1. Strategy&planning: Setting the ground rules for the
collaborative relationship and specifying the product mix
2. Demand&supply management: Forecasting consumer
demand and order and shipment requirements over the
planning horizon
3. Execution:Performing activities, such as placing orders,
shipping and delivery, receiving, stocking, tracking
sales transactions, and making payments
4. Analysis: Monitoring outcomes of planning and
execution, assessing results and key performance
metrics, sharing insights with partners, and adjusting
plans to improve results.
1
4
3 2
Fig. 4. CPFR Model with Retails and Manufacturer Tasks Aligned
with Their Corresponding Collaboration Tasks [10]
CPFR is an approach for the collaboration of
manufacturers and retailers that starts with sales
planning. Instead of planning separately, both sides
exchange their forecasts in the planning phase and
discuss diverging estimates in order to come to a single
forecast. Later, when the sales processes are running,
both sides actively work together, allowing them to quickly
recognize and correct planning mistakes [11].
CPFR was initiated in 1995 in a pilot project by
Walmart, the worlds largest chain of department stores,
and one of their suppliers. In this project, the partners
realized that further benefits from industry-trade
collaboration would require a standardization of business
processes. For this reason, Walmart initiated the CPFR
Committee of VICS. VICS is an inter-industry association,
focusing on the improvement of the efficiency and
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effectiveness of the entire supply chain and the processes based on the timely communication of
development of cross industry standards. Members of the forecasts and inventory replenishment data to support the
CPFR committee are well-known manufacturers and synchronization of activities necessary to effectively
retailers of consumer goods. respond to total supply chain demand. CPFR begins with
The mission of the CPFR committee is ...to develop the development of an agreement between trading
business guidelines and roadmaps for various partners to develop a consensus forecast that begins at
collaborative scenarios, which include upstream the retail level and makes it way all the way back to the
suppliers, suppliers of finished goods and retailers, which manufacturer. This plan of supply chain demand and
integrate demand and supply planning and execution replenishment describes what will be sold and when, how
[12]. By integrating processes on the sides of supply and it will be merchandized and promoted, in what
demand, CPFR aims to improve the efficiency, increase marketplaces, and during what time period. CPFR
revenue, lower tied-up capital, and reduce inventory interoperable technology permits this data to be freely
levels throughout the entire supply chain. transmitted up and down the supply channel so that
In order to achieve these goals, a reference model is planners at any node in the network can see demand and
provided, as shown in Fig. 4. This model defines eight adjust the plan within certain limits based on possible
major activities where the parties involved should exception conditions, such as promotions, store
cooperate. It includes important steps such as creating a openings, or capacity constraints that could impact
common sales forecast and how to handle exceptional delivery or sales performance anywhere in the channel.
situations, namely: Sales forecasting; Order Trading partners would then collaborate to resolve any
planning/forecasting; Order generation; Order fulfillment; potential bottlenecks, adjust demand and replenishment
Exception management; Performance assessment; plans, and then execute alternative courses of action. The
Collaboration arrangement; Joint business plan final step in the process, channel replenishment, occurs
During the execution phase, the forecasted after consensus on the final forecast.
requirements are automatically translated into delivery
orders, provided that no exceptions apply. If, however, a
situation is exceptional, the responsible employees on
both the retailers and manufacturers sides have to be
informed and work together to find a solution.
Today, software vendors offer solutions and support
for VMI and CPFR, although CPFR does not depend on
specific software. However, since CPFR partners
normally exchange information in electronic form, they
should employ common standards (e.g., XML-based
standards such as EAN.UCC or EDIFACT [13].
Large manufacturers of consumer goods, such P&G
has superb supply chains resulting from their use of
CPFR. As part of a pilot project, P&G shared strategic
plans, performance data, and market insights with
Walmart.The company realized that it could benefit from
Walmarts market knowledge, just as Walmart could
benefit from P&Gs product knowledge as illustrated in
Fig. 5 [14]
Fig. 6. Evolution of supply chain planning techniques

Walmart P&G
In the past, supply chain partners sought to utilize
channel inventory management tools such as CRP and
VMI to remove excess assets from the supply network
and smooth out demand irregularities. While effective,
these toolsets, however, lacked the ability to solve the
twin problems at the core of channel replenishment
management: forecast inaccuracies and the capability
to utilize exception messaging to notify network partners
of impending bumps in supply and demand. CPFR
provides answers to these two issues by providing for the
real-time sharing of sales promotions, point-of-sale (POS)
transactions, and total channel inventory positioning that
Fig. 5. Model of CPFR [13] postpones inventory replenishment by linking each level
in the supply network with the pull of actual demand. In
The mission of CPFR is for all partners in a supply addition, by systematizing the communication of critical
channel network to develop collaborative planning demand and supply data among trading partners, CPFR

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makes visible all plans and planning variances, thereby
assisting companies to improve their forecasting and
replenishment decisions to yield the best results.
C. Vendor-Managed Inventory (VMI) and CPFR
In traditional inventory management, the customer
places an order with the supplier when demand for the
goods is noticed. The order time and quantity are under
the control of the customer because the customer
monitors the inventory levels. It is worth noting the fact
that the suppliers total control of inventory management
does not change the ownership of the goods. The
customer still has to purchase the goods from the supplier
to become the owner, or if the goods have only been
commissioned, they remain the property of the supplier.
VMI has advantages for both partners: Important demand
and sales information is available to both the retailer and
the supplier, transmission errors are reduced, stockouts
are avoided, the service level is improved, etc. [15]
VMI is a process through which the supplier rather than
the customer manages the flow of product into the
customers operations. This flow is driven by frequent
exchanges of information about the actual off-take or
usage of the product by the customer. With this
information the supplier is able to take account of current
inventories at each level in the chain, as well as goods in
transit, when determining what quantity to ship and when
to ship it. The supplier is in effect managing the
customers inventory on the customers behalf. In a VMI
environment there are no customer orders; instead the
supplier makes decisions on shipping quantities based
upon the information it receives direct from the point-of-
use or the point-of-sale, or more usually from off-take data
at the customers distribution center. The supplier can use
this information to forecast future requirements and hence
to utilize their own production and logistics capacity
better. This is what Walmart and P&G collaborate in
managing their supply chain and inventory control. CPFR
is the name given to a partnership-based approach to
managing the buyer-supplier interfaces across the supply
chain. The idea is a development of VMI [16].
VMI is an approach for close cooperation between a
supplier and a vendor, based on trust. The supplier takes
on the responsibility for the customers inventory, making
a commitment to act in the interest of the customer. In the
VMI approach, the supplier monitors and maintains the
customers inventory at an appropriate level [17]. This
requires the customer to allow the supplier to access their
inventory data and provide the supplier with up-to-date
point-of-sales data. The customer also entrusts the
supplier with creating the purchase orders. This means
that the supplier is in control of the customers stock
quantities, the replenishment time, and delivery of the
goods to the customer.
Coordination tools focus on supply event management
and performance management whereas collaboration
tools focus on sharing information to achieve supply goals
through CPFR, support for VMI, and support for Supplier
Managed Inventory (SMI).
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The next era in electronic commerce broadcast
different applications on the World Wide Web. Similar to
the events that occurred 20 years earlier, ERP systems
were primarily internal and lacked the linkage to suppliers
and customers. The Internet provided the bridge; because
of its low cost, lead software providers developed systems
that could link customers and suppliers into the ERP
system. These systems are popularly termed supplier
relationship management (SRM) and customer
relationship management (CRM) systems.
D. RFID Enhances VMI and Affects CPFR
Continuous replenishment is a supply chain
relationship in which a vendor continuously monitors the
inventory of a retailer and distributor and automatically
replenishes their inventory when levels hit the re-order
point. In Walmarts case, P&G manages the inventory of
its Walmart and eliminates the need for customers to send
purchase orders [18]
Continuous replenishment is a supply chain
relationship in which a vendor continuously monitors the
inventory of a retailer or distributor and automatically
replenishes their inventory when levels hit the re-order
point. In this vendor managed inventory (VMI) situation,
P&G manages the inventory of its Walmart eliminating the
need for customers to send purchase orders. The
advantage to the vendor is having more advanced notice
of product demand. The advantage to the retailer or
distributor is minimizing inventory costs. Having the
correct item in stock when the end-customer needs it
benefits all partners. A good example of logistics
partnership is the growing use of VMI. The underlying
principle of VMI is that the supplier rather than the
customer assumes responsibility for the flow of product
into the customers operations [19].
The concepts of continuous replenishment and
collaboration evolved into the more comprehensive model
known as collaborative planning, forecasting, and
replenishment (CPFR). CPFR is a set of data-driven
business processes designed to improve the ability to
predict and coordinate with supply chain partners. With
CPFR, suppliers and retailers collaborate in planning and
demand forecasting in order to ensure that members of
the supply chain will have the right amount of raw
materials and finished goods when they need them.
Supply chain monitoring and control is implemented using
smart labels (such as passive RFID for tracking and active
RFID for cold chains) and VMI [20]
E. CPFR Reduces Bullwhip Effect
Bullwhip effect occurs as orders are placed from
retailers, to wholesalers, to manufacturers, with
fluctuations increasing at each step in the sequence. The
bullwhip fluctuations in the supply chain increase the
costs associated with inventory, transportation, shipping,
and receiving while decreasing customer service and
profitability. Bullwhip effect is the increasing in orders that
often occurs as orders move through the supply chain [21].
P&G found that although the use of pampers diapers was
steady and the retail-store orders had little fluctuation, as
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orders moved through the supply chain, fluctuation
increased. By the time orders were initiated for raw
materials, the variability was substantial. Walmart
succeeded in adopting CPFR together with RFID to boost
its supply chain has caused reducing the bullwhip effect
and improving opportunities in the supply chain.
III. RESEARCH METHODOLOGY
Exploratory research was conducted to explore the
CPFR technology and the supply chain through related
case studies; literatures and textbooks survey related to
CPFR, VMI, EDI and supply chain management. The
literatures and books used in this paper were based on a
wide range of online industry sources including P&G and
Walmarts official Web sites, and whitepaper and press
releases. The online sources were complemented by
hardcopy documentation including academic papers such
articles and research journals. The relevant material was
gathered, categorized and sorted into like themes which
formed the basis for analyzing how CPFR and related
technology boosts and enhances supply chain
management. Second, descriptive research was
conducted to describe characteristics of CPFR
technology and supply chain management that have been
implemented in Walmart giant store. Lastly, the aim of this
research is to delve deeply into how the CPFR boosts and
enhances Walmarts supply chain management, and
analyze the objective.
As the previous research journal How RFID boosts
Walmarts SCM suggested that this survey covered
potential benefits of RFID technologies in supply chains;
cost reduction and value creation, particularly related to
inventory inaccuracy and the bullwhip effect which RFID
technologies can provide several advantages in supply
chain management through better traceability and
improved visibility of products and processes all along the
chains. Increase of efficiency and speed of processes,
improvement on information accuracy, reduction of
inventory losses are some of these advantages. There
have been important implementations conducted by
pioneer companies such as Wal-Mart and Procter &
Gamble. However, real applications of RFID technologies
are still limited because the costs of RFID are still often
much larger than the costs of current identification
technologies.
The primary method of data collection in this case
study were based on secondary data sources such as
articles, journals, etc. related to the research purpose.
Most of the data required through internet and Web
browsing (www.walmart.com). Walmart Stores, Inc.,
based in Bentonville, Arkansas founded by Sam Walton
in 1962. Walmart was the worlds largest retailer with
more than 6,500 stores worldwide, including stores in all
50 states. Its sales volume reached $ 312, 4 billion in
2006. One of Walmarts major suppliers in this CPFR is
P&G. With Walmart selling over $245 billion worth of
goods in fiscal year 2003, a 1% improvement in stockouts
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issue could generate nearly $2.5 billion in very profitable
sales.
IV. RESULTS AND ANALYSIS
Walmart and P&G had initiated its plan to employ
CPFR technology in its supply chain in 1995.
Subsequently Walmart reinforced its plans and actively
asserted on defining the CPFR standards it would be
implementing.
By means of CFPR, P&G logistics executives could
easily examine the order patterns for one of their best-
selling products pampers diapers at any minute at
Walmart shelves to real-time inventory monitoring. At
retail stores, Pampers sales were fluctuating, but the
variability was not excessive. However, as they examined
orders of distributors, the executives were surprised by
the higher degree of variability. When they looked at
P&Gs orders of materialsthe manufacturing levelto
its suppliers such as 3M, they discovered that the
variability in the size of orders were even greater.
Economists call it a bullwhip because even small
increases in demand can cause a big increase in the need
for parts and materials further down the supply chain. The
bullwhip has broad implications as companies rush to fill
orders while also restocking warehouse shelves.
CPFR has transformed the way Walmart ran its
retail store. The movement of goods along the supply chain
was reflected by corresponding movements of information
sent by RFID reader, and then proceeded to P&G for
managing the inventory. Walmart's collaboration with P&G
meant that P&G would assume more responsibility for
inventory management, something retailers had
traditionally done on their own. When P&G's products ran
low at the distribution centers, the system sent an
automatic alert to P&G to ship more products. In some
cases, the system went all the way to the individual
Walmart store. It let P&G monitor the shelves through real-
time satellite link-ups that sent messages to the factory
whenever a P&G item swooped past a scanner at the
counter and register. With this kind of minute-to-minute
information, P&G knew when to make, ship and display
more products at the Walmart stores. It did not need to
keep products piled up in warehouses awaiting Walmart's
call. Invoicing and payments happened automatically too.
The system saved P&G so much in time, reduced
inventory and lowered order processing costs that it could
afford to give Walmart "low, everyday prices" without
putting itself out of business.
P&G used EDI and CPFR for keeping Walmarts
shelves stocked. Its supply chains worked smoothly when
sales were ready, but often broke down when confronted
by a sudden surged in demand, especially when Walmart
campaigned a special promotion that caused its shoppers
snapped up all the promotional items. The RFID tags that
supported CPFR could change that by providing real-time
information about what was happening on store shelves.
7
Heres in Fig. 7 below shows as an example how the
system works for P&Gs pampers:
2 3
1
5 CPFR where is an approach that addresses the
4 requirements for good demand management. Walmart
Fig. 7. P&G uses CPFR &RFID to manage inventory
In Fig.7. Box 1: When P&G's products run low at the
distribution centers, the system sends an automatic alert
to P&G to ship more products. In some cases, the system
goes all the way to the individual Walmart store. It lets
P&G monitor the shelves through real-time satellite link-
ups that send messages to the factory whenever a P&G
item swoops past a scanner at the register. For instant,
each box of Pampers has an RFID tags. Shelf-mounted
scanners alert the stockroom of urgent need for restock.
In Fig. 7 Box 2: This shows how vendor-managed
inventory (VMI) works. Continuous replenishment is a
supply chain relationship in which a vendor continuously
monitors the inventory of Wal-Mart or P&G and
automatically replenishes their inventory when levels hit
the re-order point. In this vendor managed inventory (VMI)
situation, P&G manages the inventory of its customers
eliminating the need for customers to send purchase
orders. The advantage P&G is having more advanced
notice of product demand. The advantage to Wal-Mart or
distributor is minimizing inventory costs. Having the
correct item in stock when the end-customer needs it
benefits all partners. Wal-Marts inventory management
system tracks and links its in-store stock and its
warehouse stock, prompting quicker replenishment and
providing accurate real-time data. Here, three main
problems of supply chain management that can be
improved through RFID; inventory inaccuracy, the
bullwhip effect and replenishment policies.
In Fig. 7 Box 3: RFID has transformed the way Wal-
Mart runs its retail store. The movement of goods along
the supply chain is reflected by corresponding
movements of information sent by RFID reader. This
information is captured via a bar code reader and can
then be read immediately anywhere in the distribution
chain. Wal-Mart systems are linked to the P&G supply
chain management system. Demand spikes reported by
RFID tags are immediately visible throughout the supply
chain.
In Fig. 7 Box 4: After the deployment of RFID
technologies, Procter & Gamble and Wal-Mart
simultaneously reduced inventory levels by 70%,
improved service levels from 96% to 99%. They also
reduced administration costs by re-engineering their
supply chains. P&Gs logistics software tracks its trucks
with GPS locators, and tracks their contents with RFID tag
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readers. Regional managers can reroute trucks to fill
urgent needs.
In Fig. 7 Box 5: P&G logistics executives examined
the order patterns for one of their best-selling products,
Pampers diapers. P&Gs suppliers also use RFID tags
and readers on their raw materials, giving P&G visibility
several tiers down the supply chain, and giving the
suppliers the ability to accurately forecast demand and
production.
Walmart and P&G have successfully implemented
has harvested the benefits of CPFR include the following:
1. Strengthens partner relationships with its suppliers
P&G where a common forecast of customer demand
guides the activities of both partners
2. Collaboration is coordinated, from establishing a
common forecast to finding common solutions for
operative problems and provides analysis of sales and
order forecasts
3. Uses point-of-sale data, seasonal activity, promotions,
new product introductions and store openings or
closings to improve forecast accuracy
4. Manages the demand chain and proactively eliminates
problems before they appear, and allows collaboration
on future requirements and plans
5. Companies are enabled to operate proactively, with
respect to customer requests, as opposed to reacting to
problems when they occur
6. Integrates planning, forecasting and logistics activities
where P&G receive guaranteed orders from retailers,
while retailers can rely on guaranteed deliveries by the
manufacturers because both parties operate on the
basis of a common forecast.
7. Provides efficient category management and
understanding of consumer purchasing patterns
8. Provides analysis of key performance metrics (e.g.,
forecast accuracy, forecast exceptions, product lead
times, inventory turnover, percentage out-of-stocks) to
reduce supply chain inefficiencies, improve customer
service and increase revenues and profitability.
Walmart has grown to be the worlds largest retailer by
seeking every opportunity to streamline its supply chain
and cut costs in order to live up to its promise of everyday
low pricing. Getting there entails more than
merchandising, however. Walmart also is a leader in
pioneering technologies to achieve operational
efficiencies that ultimately bring savings for its customers.
V. CONCLUSION AND PERSPECTIVE
The inception of EDI, had made Walmart and P&G
using EDI-enabled to leverage existing technology
investments to quickly launch CPFR initiatives. By the end
of the 1990s, however, the high cost of EDI technologies
and the ubiquitous deployment of the Internet enabled
even the smallest retailer and manufacturer to leverage
8
the collaborative power of CPFR. In addition, Web-based
applications provided business partners to escape from
the one-way transmission of data in favor of an
interoperable toolset enabling open two-way conversation
in real-time supported by formal standards.
Nevertheless, VMI has failed to become widely
implemented. This is due to several reasons where on
one hand, no one can decide on appropriate inventory
levels as well as the customers themselves. And on the
other hand, disruptions in the information flow may occur.
It can happen that important information, such as losing a
major customer, is not transmitted to the supplier. In
addition, when the customers and suppliers information
systems are not well integrated, data may need to be
explicitly exported from one system and imported into the
next, requiring manual editing and conversion to fit the
format of the new system. Lastly, the effort needed to
implement this approach is relatively high, requiring high
revenues to make the venture worthwhile. This means
that VMI is better suited for large partners than for small.
It does not mean that by adopting CPFR, Walmart can
smoothly without challenges. The top three challenges for
CPFR implementation are difficulty of making internal
changes, cost and trust. As with any major
implementation, internal resistance to change must be
addressed by top management. Change is always difficult;
however, if top management is committed to the project,
then the project is much more likely to succeed.
Companies will need to educate their employees on the
benefits of the process changes and the disadvantages of
maintaining the status quo. There is also the question of
reducing the scale of CPFR and, therefore, the cost of
implementation for smaller trading partners. While cost is
an important factor, companies with no plans for adopting
CPFR should determine if they are at a competitive
disadvantage as more and more companies implement
CPFR. Trust, a major cultural issue, is considered a big
hurdle to widespread implementation of CPFR because
many retailers are reluctant to share the type of proprietary
information required by CPFR. While the suppliers of
Walmart, for instance, may be willing to share sensitive
data with Walmart, they do not want other suppliers to
obtain this information. However, other experts do not
believe that trust is the stumbling block for mass adoption
of CPFR. CPFR wont shift the power dynamics in a
retailer/buyer relationship. If people are hoping that this is
the case and refer to this as trust, then they are fooling
themselves. Lack of trust is more often related to the
unreliable data in systems and the lack of integration
internal to retailers and manufacturers.
Walmart is able to offer consumers an every-day-low-
price largely in part because it is able to control its costs.
The cost of its products, however, is not only a function of
its efficiency or lack of it but also the efficiency/inefficiency
of its suppliers. Because of the volume of products sold
by Walmart, it has a great influence over its suppliers and
often pressures its suppliers to find ways to lower costs.
Sharing benefits and costs in, instead of mandating the
use of technology implementations is an effective way for
Walmart to cultivate a mutually beneficial relationship with
P&G.
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The real challenge to widespread adoption of CPFR is
that it requires a fundamental change in the way buyers
and sellers work together. Companies must ensure that
their information technology systems, organizational
structures, business processes and internal data are
conducive to implementing CPFR. For instance, many
organizations are hampered by legacy systems that will
have to be replaced, lack of executive management
support and an unwillingness to share sensitive
information.
REFERENCES
[1] Ross, Frederick, David, Introduction to Supply Chain Management
Technologies, 2 nd edition, CRC Press, 2011: pp. 27-29
[2] The CPFR Model, Voluntary Industry Commerce Standards (VICS)
Association: www.vics.org/committees/cpfr/cpfr_model_faqs/
[3] Supply Chain Management Terms and GlossariesCouncil of
Supply Chain Management Professionals:
http://cscmp.org/digital/glossary/document.pdf.
[4] Http:// www.vics.org accessed on October 20, 2014
[5] [Process Pro: www. ProcessProERP.com: p. 2]
[6] Kurbel, E., Karl, Enterprise Resource Planning and Supply Chain
Management: Functions, Business Processes and Software for
Manufacturing Companies, 1st edition, 2013, Springer: pp. 229-230
[7] Kurbel, E., Karl, Enterprise Resource Planning and Supply Chain
Management: Functions, Business Processes and Software for
Manufacturing Companies, 1st edition, 2013, Springer: p. 223
[8] Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James
L. Patterson, Purchasing and SCM, 4e, 2009, Cengage: pp. 668-669
[9] Ross, Frederick, David, Introduction to Supply Chain Management
Technologies, 2 nd edition, CRC Press, 2011: p. 28
[10] VICS, 2004, p. 9
[11] Karl E. Kurbel, Enterprise Resource Planning and Supply Chain
Management: Functions, Business Processes and Software for
Manufacturing Companies, 2013: pp. 231-232
[12] http://www.vics.org/committees/cpfr/
[13] VICS, 2004, p. 21
[14] Turban, E., and Volonino, L., Information Technology for
Management 8th edition, 2012, John Wiley & sons Inc: pp.313-383
[15] Kurbel, E., Karl, Enterprise Resource Planning and Supply Chain
Management: Functions, Business Processes and Software for
Manufacturing Companies, 1st edition, 2013, Springer: pp. 230-231
[16] Christopher, Martin, Logistics & Supply Chain Management, 4th
edition, Pearson, 2010: p. 94
[17] (Baily et al.2008, pp. 180182).
[18] Alexander, Harsono, How RFID Technology Boosts Walmats
Supply Chain Management, April 6, 2014: p. 6 can be accessed at
www.academia.edu/AlexanderHarso
[19] Waters, Donald, GLOBAL LOGISTICS: New Directions in Supply
Chain Management, 6st edition, KoganPage, 2010: p:121
[20] Weiser, Philippe, Francis-Luc Perret, Francis, L, Jaffeux, Corynne,
Essentials of Logistics and Management: The Global Supply
Chain, 3rd edition, EPFL Press, Swiss, 2013; p. 314
[21] Heizer, Jay, and Render Barry, Flexible Edition, Operations
Management, 9 edition, 2009, Pearson: pp. 451-455
ADDITIONAL READINGS
Chopra, S. and Meindl, P., Supply Chain Management: Strategy,
Planning, and Operation, 5th edition, 2013, Pearson; pp. 5-15
Wisner, Joel, T., Tan, Keah, Choon, and Leong G., Keong, Principles of
Supply Chain Management: A Balanced Approach, 3rd edition, 2012,
Cengage; pp. 10-25
Andreas, Meier and Stormer, Hendrik, e-Business and e-Commerce:
Managing the Digital Value Chain, 1st edition, 2009, Springer
Adolfo, Crespo, Mrquez, Dynamic Modelling for Supply Chain
Management Dealing with Front-end, Back-end and Integration Issues,
1st edition, 2010, Springer
9
Brown, V., Carol, DeHayes, W., Daniel, Hoffer, A., Jeffrey, Martin,
Wainright E., and Perkins, C., William, Managing Information
Technology, 7th edition, 2012, Pearson
Blanchard, David. Supply Chain Management: Best Practices, 2nd
edition, 2010, John Wiley & Sons
----------------, Logistics and Supply Chain Management: Creating Value-
Adding Networks, 3rd edition, 2005, Pearson
Cousins, Paul, Lamming, Richard, Lawson, Benn, Squire, Brian,
Strategic Supply Management: Principles, Theories and Practice, 2nd,
2008, Pearson Inc,
Ross, Frederick, David, Introduction to e-Supply Chain Management:
Engaging Technology to Build Market-Winning Business Partnerships,
2003, St. Lucie Press
--------------------, The Intimate With Supply Chain: Leveraging the Supply
Chain to Manage the Customer Experience, 2008, St. Lucie Press
--------------------, Distribution Planning and Control: Managing In The Era
Of Supply Chain Management, 2nd edition, 2004, Kluwer Academic
Publishers
David Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith,
Managing the Supply Chain: The Definitive Guide for the Business
Professional, 2004, Mcgraw-Hill
o Manuscripts that are found to be plagiarized from a manuscript by other authors, whether published or unpublished, will incur plagiarism penalty
Harrison, Alan, and Van, Hoek, Remko, Logistics Management and
Strategy: Competing through the supply chain, 3rd edition, 2008,
Pearson Inc.
John, T. Yee, and Seog-Chan Oh, Technology Integration to Business:
Focusing on RFID, Interoperability, and Sustainability for Manufacturing,
Logistics, and Supply Chain Management, 3rd edition, 2013, Springer-
Verlag London
Myerson, M., Judith, RFID in the Supply Chain: A Guide to Selection and
Implementation, 2007, Taylor & Francis Group
Meier, Andreas and Stormer, Hendrik, eBusiness & eCommerce:
Managing the Digital Value Chain, 2009, Springer
Monczka, Robert, M., Handfield, Robert, B., Giunipero, Larry, C.,
Patterson, James L., Purchasing and Supply Chain Management, 4th
edition, 2009, South-Western
Palmatier, George E., and Crum Colleen, Enterprise Sales and
Operations Planning: Synchronizing Demand, Supply, and Resource
For Peak Performance, 2003, J. Ross Publishing, Inc.
10