Forecasting collaboration in the European grocery

FORECASTINGCOLLABORATIONINTHEEUROPEANGROCERYSECTOR:OBSERVATIONSANDHYPOTHESESJohannaSmårosHelsinkiUniversityofTechnologyAddress:DepartmentofIndustrialEngineeringandManagementHelsinkiUniversityofTechnologyP.O.Box5500FIN-02015TKKFinlandE-mail:[e-mail]:[phone]Fax:[phone]WorkingpaperDepartmentofIndustrialEngineeringandManagement,HelsinkiUniversityofTechnologyJohannaSmåros,20041FORECASTINGCOLLABORATIONINTHEEUROPEANGROCERYSECTOR:OBSERVATIONSANDHYPOTHESESAbstractInrecentyears,theCollaborativePlanning,ForecastingandReplenishment(CPFR)initiativehasmadeforecastingcollaborationbetweenretailersandsupplierssubjecttomuchattention.However,despitesuccessfulpilotimplementations,theadoptionrateofcollaborativepracticeshasbeenslowerthanexpected.Thisraisesanimportantquestion:Ifforecastingcollaborationisasvaluableassuggested,whyisitnotmorecommon?ThisarticlepresentstheresultsofacasestudyexaminingfourcollaborationprojectsinvolvingatotaloffoursuppliersandoneretaileroperatingintheEuropeangrocerysector.Factorslikelytohaveanimportantimpactonthefeasibilityandattractivenessofforecastingcollaborationareidentifiedandpresentedintheformoftestablehypotheses.ThemainfindingisthatmostcollaborationmodelsandtheCPFRinitiativeseemtobuildoninvalidassumptionsconcerningretailers’forecastingneeds,resources,andprocesses,aswellassuppliers’capabilitiestobenefitfromthemoreaccuratedemandandforecastinformationmadeavailablethroughcollaboration.Keywords:Forecasting;Logistics/distribution;Supplychainmanagement(SCM);Informationsharing;Casestudy.1IntroductionSuccessstoriesfromtheindustryaswellasmountingevidencefromacademicresearchindicatealinkbetweensupplychainintegrationandincreasedefficiency,productivity,andserviceperformance(Ellingeretal.,1997;FrohlichandWestbrook,2001;Larson,1994;Stanketal.,1999a).Recently,asaresultoftheintroductionoftheCollaborativePlanning,ForecastingandReplenishment(CPFR)initiative,oneareaofsupplychainintegration-collaborativeforecasting-hasreceivedmuchattention(Aviv,2001;McCarthyandGolicic,2002).Developingforecastsinacollaborativefashionandoperatingaccordingtoasingle,sharedforecastissuggestedtobringsignificantbenefitstosupplychainmembersintheformofincreasedforecastquality,improvedcommunicationand,throughthis,improvedproductavailability,increasedsales,andreducedinventory(Aviv,2001;Helmsetal.,2000;Sherman,1998;McCarthyandGolicic2002).Yet,despitethesuggestedbenefitsofcollaborativeforecasting,theadoptionrateofCPFRhasbeenslowerthanexpected(KJRConsulting,2002;Lewis,2000).Lately,theenthusiasminitiallysparkedbyoutstandingresultsfrompilotimplementationsbywell-knowncompanies,suchasWal-MartandProcter&Gamble,seemstohavebeenreplacedbyincreasingskepticism(Corsten,2003;Sliwa,2002).Thisdevelopmentraisesanimportantquestion:Ifforecastingcollaborationingeneral,andCPFRinparticular,isasvaluableassuggested,whyisitnotmorecommon?IstheCPFRprocessmodelflawed,havecompaniesfailedtoimplementitcorrectly,orarethereperhapssomemorefundamentalproblemsrelatedtocollaborativeforecasting?WorkingpaperDepartmentofIndustrialEngineeringandManagement,HelsinkiUniversityofTechnologyJohannaSmåros,20042Inthispaper,wepresenttheresultsofacasestudyconductedwiththeaimofbetterunderstandingtheopportunitiesandchallengesfacedbycompaniestryingtocollaborate.FourcollaborationprojectsinvolvingatotaloffoursuppliersandoneretaileroperatingintheEuropeangrocerysectorareincludedintheresearch.Byexaminingthepositiveandnegativeexperiencesofthecompanies,factorslikelytohaveanimpactonthefeasibilityandvalueofforecastingcollaborationareidentifiedandpresentedintheformoftestablehypotheses.Thepaperisorganizedasfollows:Itstartswithabriefreviewofthesupplychainintegrationliterature,focusingoninter-companyforecastingcollaboration.Subsequently,theresearchmethodologyispresented.Afterthis,thefourcasesarepresentedandanalyzed.Theanalysisleadsintofourhypothesesconcerningtheroleofinformationtechnology(IT)intheadoptionofcollaborativepractices,Europeangroceryretailers’currentforecastingprocesses,resources,andincentives,aswellassuppliers’capabilitiestobenefitfromthemoreaccuratedemandorforecastinformationmadeavailablethroughcollaboration.Finally,themanagerialandresearchimplicationsofthefindingsaswellasthelimitationsofthestudyarediscussed.Somesuggestionsforfurtherresearcharealsopresented.2LiteraturereviewTheconceptofsupplychainintegrationisnotnew.Ashiftfromoptimizingfunctionstomanagingprocessesstartedinthe1970’s(ChandraandKumar,2000;Lambertetal.,1978).The1980’ssawtheemergenceofinitiativessuchasJust-in-TimeandQuickResponsethatemphasizedinformationsharing,partnerships,andnewtechnologiesaswaysofimprovinglogisticalperformance(LummusandVokurka,1999;VokurkaandDavis,1996).Inthe1990’s,thedevelopmenttowardsmoretightlyintegratedsupplychainscontinuedintheformofinitiativessuchasEfficientConsumerResponse(ECR)andtheadoptionoftheconceptofsupplychainmanagement(KurtSalmonAssociates,1993;LarsonandRogers,1998).Today,bothinternalandexternalsupplychainintegrationareconsideredimportantconceptsinimprovingtheperformanceofent