In the early 1980s, two of the world’s leading companies, Procter & Gamble and Wal-Mart, realized the necessity for improving their supply chain so that the customer’s demands could be satisfied faster and more efficiently. Theretofore, the traditional inventory practices involved an intermediary storeroom between the bulk storage place and the ultimate customer, which sufficiently retarded and marked up the delivery procedure. In order to terminate the supply chain inefficiencies connected with “the high inventory and transportation costs and the variability in shipments”, the two companies agreed on eliminating the intermediary chain and introducing a revolutionary information channel that allowed them to coordinate their activities without resorting to the retailers’ services (Koch 2002). Their continuous replenishment system files orders directly to the suppliers immediately after the consumers check out the goods at cash register. There was no longer any necessity for negotiation and invoices, since computers at Wal-Mart headquarters receive purchase transactions directly from the point-of-sale terminals; moreover, the Wal-Mart customer and sales information is also accessible to suppliers via Web resources which makes the whole process transparent. (Laudon & Laudon, 2009)
The revolutionary character of the continuous replenishment system required a serious reconsideration of the business principles in order for the new system to work efficiently. For one thing, in view of such openness and accessibility of information, the companies involved in continuous replenishment cannot do without a complete and unreserved trust to their partner. For another thing, since the bulk of the inventory was dramatically reduced, transportation started to play a key role in the retailing process. Therefore, the customers had to acquire a new approach to receiving delivery trailers at a much higher speed; and they had to be taught that new approach. Moreover, the major changes introduced into the organization itself gave rise to conflicts within the working teams who were competing in their support of various activities, strategies or even personnel policies.
To solve the abovementioned issues, the following guidelines should be observed. In order to build mutual trust with their partners, Wal-Mart uses continuous replenishment as a demonstration of how vital and mutually beneficial it is to share sales information, which in the end benefits both the companies and the customers. The more successful the collaboration is, the more trust and sharing develops. Additionally, the company staff should be redirected and retrained forming cross-functional teams able to act more efficiently under the new rules of the game. To relieve the tension within the company, it is vital to enlist senior management’s support and commitment and to develop a CPFR approach to running the business.
The success of the proposed solution becomes apparent firstly, in the improved service levels of the companies: the operation costs within the supply chain are incredibly reduced (see Laudon & Laudon, 2009); secondly, promoting continuous replenishment leads to increasing the efficiency of customer response system due to the ability to react directly to customer behavior: as a result, the company’s success skyrockets, which also reflects on its staff satisfaction. Last but not least, retraining the personnel introduces new skills into the organization and modernizes it according to the ever-changing market demands.
References
Koch, C. (2002). Interview with Ralph Drayer on CPFR, Business Process Automation and P&G’s Deal with Wal-Mart. Web.
Laudon, K. C., & Laudon, J. P. (2009). Management Information Systems: Managing the Digital Firm (11th ed.). Upper Saddle River, NJ: Prentice-Hall International.