How Walmart and P&G Can Enhance Supply Chain Management with
CPFR Initiatives
Alexander Harsono
STMIK Pontianak, 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.
Keywords—CPFR, EDI, RFID, VMI
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This research paper is an extension research to the previous journal entitled
“How RFID Technology Boosts Walmart’s SCM” by a single author which
is discussing further on how integrated IT-enabler powerful tools such as
RFID, VMI, EDI, etc. can enhance SCM.
I. INTRODUCTION
The complexity of today’s 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 cost—including 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 philosophies focused on
supply chain synchronization. As illustrated in Fig. 1 to 5,
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
enterprise resource planning (ERP) and CRM in an Internet-
1
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&G’s 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
Walmart’s CPFR success, and analyze the 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, today’s 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].
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 [2]. 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 stockouts 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.
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
2
purchase orders, shipment updates, invoices and others [5].
The process of data exchange is straightforward, beginning
with a trading partner’s 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. 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, once it has been
completed, no further encoding must be done. Many
companies have used EDI to send business information to
suppliers and customers as illustrated in Fig. 1 and Fig. 2
illustrated exchange of information through CPFR in SCM.
Exchange of information in SCM through EDI & CPFR
Fig. 1. Information flows via EDI
Fig. 2. Information flows via CPFR
In most cases, this information was limited to orders,
quotations, invoices, and similar documents. In supply chain
cooperation, information exchanged between the partners, or
granted access to, is much more detailed and often rather
sensitive. It includes sales plans and forecasts, inventory levels,
resource utilization, status of orders, shipments, and more. For
example, if the customer sees that the supplier’s inventory level
is too high, they might use this information to negotiate a price
reduction that the supplier otherwise would not have given.
Two prominent approaches that unleash the benefits of
information exchange between two partners are VMI and
CPFR [6]
SCM is defined as the integrated, process-oriented design,
planning and control of goods, information, and cash flows
along the entire value chain from customer to the raw-material
supplier with the aims of improving customer orientation,
synchronizing supply with demand, making the production
more flexible and responsive to the demand, and downsizing
of the inventory along the value chain [7]. The better the supply
chain member collaborates, the better the supply chain works.
And the better the supply chain works, the stronger the
partners’ competitive position on the market. SCM seeks to
develop the collaborative aspects of integrative information
technologies to better manage networked customers and
inventories.
B. Evolution of SCM or E-SCM Systems
Today supply managers expect powerful solutions to their
business problems. However, organizations did not always have
sophisticated systems at their disposal. Table 1 traces the
evolution of e-SCM systems [8]. Early uses of information
systems were in the accounting and financial areas. However,
beginning in the 1970s more IT resources and software
solutions were allocated to purchasing, operations, and sharing a common vision of the supply chain, and constructing
distribution. Organizations installed systems such as material the technical and social architectures, thereby enabling whole
requirements planning (MRP) and distribution requirements channel networks to achieve marketplace leadership.
planning (DRP). These systems were used to improve the
planning and 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.
ERP systems became the rage of the 1990s and they
continue today. The goal of ERP systems is to integrate all
business function planning and processing, and to avoid data
interruption in order to make better business decisions and run
the business more effectively and efficiently. Ideally, all the
different functions in the organization have access to and are
working with the same data. Supply managers were at the
center of this trend and were challenged to develop accurate
databases to improve their decision making.

Table 1. The Evolution of e-SCM Systems

Solution Period Focus Primary Use of System Fig. 3. Span of collaboration [9]

Internal/managin Inventory planning, D. What is CPFR?

MRP-DRP 1970s g inventory inventory control, and The concepts of continuous replenishment, VMI, and
distribution efficiencies collaboration evolved into the more comprehensive model
Electronic transmission of known as CPFR. CPFR is a set of data-driven business
EDI 1980s External purchase orders processes designed to improve the ability to predict and
coordinate with supply chain partners. With CPFR, suppliers
Integration of all business
functions for processing
and retailers collaborate in planning and demand forecasting in
ERP 1990s Internal
and reporting order to ensure that members of the supply chain will have the
Managing and controlling right amount of raw materials and finished goods when they
SRM &SCM 2000s External the interface between need them. CPFR streamlines product flow from manufacturing
buyers, suppliers, and plants all the way to customers’ homes.
customers CPFR comprises four main collaboration activities (Fig. 4):
CPFR systems permit
Collaboration 2001s External constant communication 1. Strategy & planning: Setting the ground rules for the
-internal within the supply chain
via RFID and point of sale
collaborative relationship and specifying the product mix 2.
systems 2. Demand & supply management: Forecasting consumer
Advanced 2010 & External-internal Sourcing analytics and demand and order and shipment requirements over the
Sourcing Beyond computerized planning horizon
Analytics negotiations 3. Execution :Performing activities, such as placing orders,
shipping and delivery, receiving, stocking, tracking sales
C. Collaboration transactions, and making payments
Collaboration can be defined as an activity pursued jointly 4. Analysis: Monitoring outcomes of planning and execution,
by two or more entities to achieve a common objective. It can assessing results and key performance metrics, sharing
mean anything from exchanging raw data by the most basic insights with partners, and adjusting plans to improve
means, to the periodic sharing of information through results.
technology-based tools, to the structuring of real-time
architectures capable of leveraging highly interdependent
infrastructures in the pursuit of complex, tightly integrated 4 1
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
3 2
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 Fig. 4. CPFR Model with Retails & Manufacturer Tasks Aligned with Their
the channel base, reducing redundant functions and wastes, Corresponding Collaboration Tasks [10]

3
 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 world’s
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.
The mission of the CPFR committee is “...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 [12].” By integrating processes
on the sides of supply and demand, CPFR aims to improve the
efficiency, increase revenue, lower tied-up capital, and reduce
inventory levels throughout the entire supply chain.
In order to achieve these goals, a reference model is
provided, as shown in Fig. 4. This model defines eight major
activities where the parties involved should cooperate. It
includes important steps such as creating a common sales
forecast and how to handle exceptional situations, namely:
Sales forecasting; Order planning/forecasting; Order
generation; Order fulfillment; Exception management;
Performance assessment; Collaboration arrangement; Joint
business plan.
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 Walmart’s market knowledge, just as
Walmart could benefit from P&G’s product knowledge as
illustrated in Fig. 5 [14]
Walmart P&G
Fig. 5. Model of CPFR [13]
The mission of CPFR is for all partners in a supply channel
network to develop collaborative planning processes based on
the timely communication of forecasts and inventory
replenishment data to support the synchronization of activities
necessary to effectively respond to total supply chain demand.
CPFR begins with the development of an agreement between
4
trading partners to develop a consensus forecast that begins at
the retail level and makes it way all the way back to the
manufacturer. This plan of supply chain demand and
replenishment describes what will be sold and when, how it
will be merchandized and promoted, in what marketplaces, and
during what time period.
E. Vendor-Managed Inventory (VMI) and CPFR
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 customer’s 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 customer’s
inventory on the customer’s 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 customer’s 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 customer’s inventory, making a
commitment to act in the interest of the customer. In the VMI
approach, the supplier monitors and maintains the customer’s
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 customer’s 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).
F. 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 Walmart’s 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 customer’s operations [19].
The concepts of continuous replenishment 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 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].
G. 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 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 Walmart’s 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 Walmart’s supply chain
management, and analyze the objective.
5
As the previous research journal “How RFID boosts
Walmart’s 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 world’s 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 Walmart’s 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 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 bestselling 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&G’s orders
of materials—the manufacturing level—to 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 Walmart’s 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.
Here’s in Fig. 6 below shows as an example how the system
works for P&G’s pampers:
2 3
1
5 1. Strengthens partner relationships with its suppliers P&G
4
Fig. 6. P&G uses CPFR &RFID to manage inventory
In Fig.6. 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 linkups 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. 6 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-Mart’s 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.
6
In Fig. 6 Box 3: RFID has transformed the way Walmart
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. 6 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&G’s logistics software
tracks its trucks with GPS locators, and tracks their contents
with RFID tag readers. Regional managers can reroute trucks
to fill urgent needs.
In Fig. 6 Box 5: P&G logistics executives examined the
order patterns for one of their best-selling products, Pampers
diapers. P&G’s 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 CPFR
where is an approach that addresses the requirements for good
demand management. Walmart has harvested the benefits of
CPFR include the following:
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 world’s 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 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 customer’s and supplier’s
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 won’t 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
7
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.
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, 2nd 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 Glossaries—Council 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
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L. Patterson, Purchasing and SCM, 4e, 2009, Cengage: pp. 668-669
[9] Ross, Frederick, David, Introduction to Supply Chain Management
Technologies, 2nd 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
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Manufacturing Companies, 1st edition, 2013, Springer: pp. 230-231
[16] Christopher, Martin, Logistics & Supply Chain Management, 4 th
edition, Pearson, 2010: p. 94
[17] (Baily et al.2008, pp. 180–182).
[18] Alexander, Harsono, How RFID Technology Boosts Walmat’s
Supply Chain Management, April 6, 2014: p. 6 can be accessed at
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[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, 3 rd
edition, EPFL Press, Swiss, 2013; p. 314
[21] Heizer, Jay, and Render Barry, Flexible Edition, Operations
Management, 9 edition, 2009, Pearson: pp. 451-455
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