Brian Kilcourse, founding Partner of Retail Systems Research recently published an interview with Andre regarding retailers and manufacturers and their ability to cooperate. Here's how it went:

According to André, there are three enemies to true cooperation and collaboration in the retail value chain.

First, “There is a deep misunderstanding about what truly drives the retail supply chain. Companies must address this first; otherwise they will continue to seek solutions that don’t apply. When people don’t understand a problem, they seek complicated solutions,” he says. “Once they understand the problem, they realize that the solution is really straightforward.” Martin points to the fact that even after decades and billions of dollars spent on complicated technologies, the retail ecosystem is still clogged with huge inventory levels and a persistently slow turn rate. According to the author, this fact alone should encourage decision makers to think differently.

The second enemy of true collaboration is unwillingness on the part of retailers to share information with their partners. “The pendulum swings between retailers who will only ‘sell it’ and those that empower manufacturers with infrastructure,” according to Martin. “Those retailers that put the infrastructure into place so that manufacturers can co-manage the supply chain with the retailer are winning.”

André cites unwillingness to work as a team as the third enemy.

Enemy #1 is the fundamental problem. Martin simply states, “The real driver of the supply chain is the consumer, plain and simple. But if we conducted a study asking retailers, wholesalers, and manufacturers what drives the supply chain, we’d get all sorts of different answers. Ultimately, it boils down to whether or not the consumer buys the product.” Although this might seem obvious, Martin discussed two recent examples where a manufacturer his company is working with lost millions on a new product promotion that didn’t go as planned. “The manufacturer spent a lot of money to create the demand, manufacture the product, and get it into position to be sold. Then they spent more money taking back the unsold inventory – all as a result of poor assumptions in the plan.”

So where does it go wrong? According to Martin, the answer is twofold: the wrong information is often used in forecasting demand in the first place, and there was not enough visibility into the entire chain to take quick corrective action when it was needed. By “the wrong information,” André means “aggregations,” and specifically, aggregations of demand data one or more levels up from where consumer demand is serviced- in the selling environment. “Aggregating hides inaccuracies, and it takes away your ability to look,” he says. Even for very well run retail companies, Factory2Shelf has been able to measure differences between DC-level demand forecasts and per-store forecasts of up to 15%. It is typically aggregated forecasts that are being shared with manufacturers, and the result is almost invariably an over-inventoried supply chain – to avoid the even more damaging problem of out-of-stocks.

Martin offers a different approach. The author advises, “Don’t forecast what you can calculate,” (perhaps borrowing the phrase from his years of involvement in DRP practices). Here’s how he explains it: a retailer typically generates both store-level and DC-level forecasts; the manufacturing partner will produce a forecast for its distribution network and another for its manufacturing plants. All four of these forecasts are performed independently of each other, using different units of measure (eaches, case pack, pallet, etc.) and often different time frames. At every step of the way, a different result is generated, and those differences create “friction” (inaccuracies that should be - but often aren’t - resolved). Martin suggests that if the retailer shared true demand data at the transactional level, that data could be used to calculate appropriate quantities at each point upstream in the supply chain. The result would be both better order quality and improved service levels, while reducing inventory in the pipeline. And to the extent that the data is made available daily, all the partners co-managing the chain can react to changing conditions at the store level.

If this sounds familiar, it’s because the problem is not new, as every retailer knows. I asked Martin how Factory2Shelf’s approach differs from or augments the VICS CPFR (“Collaborative Planning, Forecasting, and Replenishment”) process. Martin sees the “Flowcasting” process as taking CPFR to the next level by refining the current collaborative planning concept. He explains: “With CPFR, retailers share information about what they think they will sell with their manufacturing partners. The information is aggregated for all the stores supported by a retail DC. Manufacturers take on the responsibility to replenish the retail DC’s after the partners agree on service level and inventory turn objectives and on what each DC will require. This is an excellent start but, by aggregating to the DC level, the partners miss a key ingredient – what is happening on a store-by-store basis. Flowcasting uses unaggregated store-level demand data.”