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Liquor Control Board of Ontario
Collaborative Planning, Forecasting and Replenishment
A Worldwide Collaborative System Builds Success for LCBO and Suppliers
Challenge
Inventory control can be an obstacle to success for an organization that depends on suppliers from all over the world - especially a busy retailer like the Liquor Control Board of Ontario (LCBO). Founded in 1927, it has more than 600 stores across the province selling wine, spirits and beer. In fiscal 2006-2007, it generated $3.895 billion in net sales and delivered a $1.275-billion dividend, not including taxes, to its owner, the Ontario government.
Profitability for many years was hindered because, with its suppliers located in more than 70 countries, the LCBO's inventory-management processes were undermined by long lead times and uncertain delivery. This made accurate promotional demand forecasts and replenishment planning difficult and asset use inefficient.
Problems spread across the organization. Stores too often were out of stock of products that customers wanted. Warehouse inventory turns and order fill rates were too low, as was the return on inventory investment.
The remedy for all these ailments was a business process and technology that would somehow enable the corporation to match product demand with its suppliers' ability to produce and ship the right products at the right time
Solution
Starting in 2003 and working with a growing number of suppliers, the LCBO developed business processes and technology to share information efficiently with its suppliers and so develop accurate sales forecasts and product-replenishment plans. It calls this innovative solution CPFR (Collaborative Planning, Forecasting and Replenishment).
Linking various LCBO departments and large suppliers, it enables data-sharing in real time and is designed for easy access by anyone with a computer. Participants use simple tools within Microsoft Office such as e-mails and spreadsheets to generate sales forecasts and purchasing plans. CPFR can be used simultaneously by many people.
Managers at LCBO generate spreadsheets and send them by e-mail to the suppliers - referred to as CPFR partners - who respond with updated spreadsheets that are imported back into the CPFR database, eliminating data transcription and errors.
All information, including a users' manual, is accessed via the LCBO's business-to-business portal, Trade Resources On-Line. Data is stored on an SQL server and the system is scalable to accommodate more partners in future.
Today there are 50 CPFR partners, supplying 35 per cent of the products the LCBO sells.
CPFR operates in a continuous four-stage cycle:
- " Through collaborative planning, LCBO develops an 18-month promotion plan and calendar outlining themes, activities, dates and sales volumes for the period.
- " A consensus sales forecast is developed from LCBO and supplier data.
- " A replenishment plan is automatically created from the consensus forecast, to ensure that sales and inventory levels will be consistent with each supplier's ability to deliver products.
- " A joint performance scorecard is created.
The scorecard gives the LCBO's senior management a concise evaluation of forecast accuracy and inventory positions. At a higher level, CPFR also details how supplier performance contributes to the board's profitability and provides benchmarks for continuous improvement.
Results
The fiscal 2006-2007 dividend of $1.275 billion was the 12th straight record profit that the LCBO has delivered to the province. CPFR is a key accelerator of this uninterrupted success.
After CPFR was implemented, gross margin return on inventory investment more than doubled.
Inventory turns increased to 18 a year from 8.5; order fill rates jumped to 94 per cent from 88 per cent and on-time delivery climbed to 75 per cent from 61. Retail in-stock positions rose to 98 per cent from 91 per cent, which meant that customers were finding the products they wanted more often, so sales increased. Surveys have found that, after CPFR was implemented, customer satisfaction rose to 77 per cent from 73.
By 2006-2007, the average retail inventory cost was $18 million lower than in 2001. Net inventory investment in 2007 was $12 million, compared with $112 million in 1997.
With more efficient raw material purchases and production schedules to meet promotional target demands, suppliers are now serving the LCBO more effectively. As a result, suppliers and suppliers' agents have seen their profits increase, too.
Innovative Use of Technology
The LCBO was not interested in bells and whistles. CPFR was designed in-house, and the stipulation that it must be accessible to anyone with a computer enabled the LCBO team of people from IT, Supply Chain, Sales and Marketing and Finance to work closely with their opposite numbers in the initial group of six suppliers. Together they designed, tested and improved all the templates required to meet everyone's business needs.
A 2007 CIPA Winner!
For exceptional application of information technology to transform processes and bring benefits to its stakeholders, the Liquor Control Board of Ontario has been awarded a 2007 CIPA Gold Award of Excellence in the Collaboration, For Profit category.
Technology partners
Microsoft Canada Co.
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