Apparel and garments industry is one of the toughest to survive in. The many challenges of the trade make it extremely difficult for manufacturers to compete and thrive in. The biggest task is to manage the supply chain and the inventory of products from the suppliers to the end consumers. Using supply chain tools like JIT (Just in Time) helps in streamlining activities like production planning, purchasing, operations, scheduling, and shipping.
Using an advanced and technologically forward model for apparel retail that integrates all the involved members of supply chain including retail and distribution activities can help in efficient functioning of the garment industry. Collaborative, Planning, Forecasting, and Replenishment (CPFR) is a concept that can help apparel retailers build a strong connection with their suppliers or vendors and hence creating a reliable bond for growth.
CPFR which initially began as a pilot test programme run by the retail giant Wal-Mart in 1996 which made use of internet communications with one of their suppliers in order to cut inventory cost, was later emulated by many retail companies in the U.S. after witnessing the success of the former. The model aids in eliminating 25 per cent of the inventory cost and eradicates the need of piling up excess stock of garments. The system uses Electronic Data Exchange (EDI) to share information among the apparel retailer and supplier.
According to Gene Fliedner, CPFR is a web based attempt to coordinate the various activities including productions and purchase planning, demand forecasting, and inventory replenishment between supply chain trading partners. The concept provides for a basic framework where in collaborative parties work together to satisfy the demands of the final consumer, who remains in the centre of the model.
The processes of setting up a CPFR in an apparel retail company and for a cohesive approach are as follows:
- Creating a front end partnership agreement by specifying the objectives to be achieved through the collaboration. Resources required for an appropriate collaboration for example hardware, software, and performance metrics also need to be specified. Expectation of confidentially and the prerequisite to share sensitive information about the company need to be mutually understood.
- Devising a joint business plan for handling and running different processes and constructing a common strategy for course of actions.
- Developing demands of garments and forecasts require apparel retailers to share information from the point-of-sale items for suppliers to identify the potential demand of a particular style, colour, or size.
Adapting a CPFR model can be extremely advantageous for apparel retailers and suppliers. It provides increased visibility and transparency between the suppliers and apparel retailers and benefits both the parties when they agree to use the model on a long term basis. There is a big improvement in forecasting accurately which in turn aids in making both the parties more agile in terms of their supply chains.
The CPFR concept also is extremely fruitful in areas of managing inventory and operational efficiencies between both the organizations. A collaboration of this nature can help reap initial financial benefits like reduction in variability of orders, unnecessary movement of orders, and combining orders to cut excess expenses. This can effectively reduce cost and produces incremental savings. A dynamic CPFR model in the apparel retail industry helps in solving stock issues related to order fulfilment and emphasizes on improving efficiency.
The apparel retailers can gain advantages like lower production inventories, faster order response time, increasing sales, and higher service levels. Since it is a win-win model for both garment retailers and suppliers, manufacturers can enjoy returns from quick cycle times, lower product inventories, decreased capacity needs, higher order fill rates, and increased sales.
Companies like Macy's, J.C.Penny, Zara, and Target are among the many apparel retailers who have adopted the CPFR model. The next generation CPFR integrates with Enterprise Resource Planning (ERP) of an organization. The evolution of CPFR will allow for an automatic and immediate transference of the supply chain demand forecast into supplier's manufacturing schedules like accounting, human resource planning, and warehousing and inventory management applications of ERP solutions.
However, there may be a lot of bottlenecks involved since the level of information exchange and collaboration required for productive use of a CPFR tool is high. Hence the Voluntary Interindustry Commerce Standards (VICS), an organization that has set standards along with Uniform Code Council (UCC), endorse CPFR for effective collaboration between both the parties. The absences of such intermediaries that help establish common interfaces between the apparel retailer and the suppliers can limit the degree of collaboration. This ensures the interests of the both the partners and acknowledge the efforts each participant is willing to invest.
The average retail industry is believed to have an out of stock rate of eight per cent, while those of promoted items can be as high as forty per cent, ultimately resulting into a loss of sales of five to ten per cent. By introducing a CPFR model into apparel retail the operative margins can be improved by five to seven per cent and the in-stock rates can be improved by two to eight per cent. CPFR model has proved to be a tried and tested practice in the retail industry to improve sales and cut inventory costs.