JBF Winter2010-CPFR Issue

SPEC
J o u r n a l
C P F ARL
o f
I S S
U E
Business Forecasting
2 0 1 0 2 0 1 1
w i n t e r
V o l u m e
2 9
i s s u e
4 INTEGRATED BUSINESS
PLANNING:
A Roadmap to Linking
S&OP and CPFR
Larry Smith | Joseph C. Andraski | Stanley E. Fawcett
14
Delivering the Plan:

The CPFR and S&OP
Continuum
Nikhil Sagar
24
The Shelf-Connected
Supply Chain: Strategically
Linking CPFR with S&OP at
the Executive Level
32
CPFR:
Fact, Fiction, or Fantasy?
Ron Burnette
Fred Baumann
Journal of Business Forecasting | Winter 2010-2011
supply chain Forecasting & Planning conference

February 27 March 1, 2011 | Villas of Grand Cypress Golf Resort | Orlando, Florida USA
KEYNOTE
PRESENTATION:
harmonizing Demand Planning Best Practices

and Articulating the Vision of the Function
Michael Wachtel
Vice President Demand Planning
LOreal
rlando
http://www.ibf.org/1102.cfm
00
PARTIAL LIST OF SPEAKERS
Presentation
Speaker
Companies
Adam Coy
Project Lead
Marco Flores
Lead Consultant
Morrisons Supermarkets PLC/ Wipro
Kenton Burki
Manager Inventory and Forecasting
Jockey International, Inc.
Material Replenishment:
Making Material Flow from the
Supplier to the Factory Floor
Jeremy hendrix
Lean Operations Project Leader
Ken Koenemann
Managing Director
Franklin Electric Company/ TBM Consulting
Driving Continuous Improvements

in Statistical Forecasting
Jason Dols
Senior Manager, Demand Planning
Capability Lead
Pepsico
how Novartis Consumer health Canada

Improved the Quality of Their Consensus
Meeting and KPI Metrics With a Customer
Centric Demand Planning Approach
Jorge Stanbury
Forecasting Manager
Novartis
how to Add Value to the Overall

Organization through Better S&OP
Sara Park
Director, S&OP
Evergreen Packaging Inc.
Utilizing Econometric Data in Demand

Planning and Forecasting
Jason Gustafson
Marketing Demand Planning Manager
Ingersoll Rand Industrial TechnologieAmericas
Barbara Bennett
Sr. Analyst
Institute for Trend Research (ITR)
Forecasting Engagement:
From Baseline to Frontline
Practical Forecasting in a Volatile

Marketplace
SSI_apics_3d3.qxd:Layout 1
2/6/09
1:27 PM
Page 1
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Copyright 2009, Smart Software, Inc. All rights reserved. SmartForecasts is a registered trademark of Smart Software, Inc.
J o u r n a l
o f
20102011 | winter
Chaman L. Jain
Editor-in-Chief
Evangelos O. Simos
Editor, International Economic Affairs
Volume 29 | Issue 4
Integrated Business Planning:

A Roadmap to Linking S&OP and CPFR
14

The CPFR And S&OP Continuum
U. Rani
By Larry Smith, Joseph C. Andraski, and Stanley E. Fawcett
Business Manager
Constance Korol
Advertising Manager
Judy Chan
Graphic Designer
Manuscripts Invited
Submit manuscript to:
Dr. Chaman L. Jain

Tobin College of Business
St. Johns University, Jamaica, N.Y. 11439
[email protected]
Subscription Information
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for subscription, and other
correspondence should be
addressed to:
Journal of Business Forecasting
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ID No: 11-263-2688
Copyright 2011
by The Journal of Business Forecasting
ISSN 1930-126X
Editorial Review Board

George C. Wang
Consultant
New York, NY
Jack Malehorn
Georgia Military College

Milledgeville, GA
Suren Singhvi
Singhvi & Associates

Dayton, OH
21
By Nikhil Sagar
The Shelf-Connected Supply Chain:

Strategically Linking CPFR with S&OP at
the Executive Level
By Fred Baumann
29
32
36
42
A History of CPFR
By Larry Lapide
CPFR: Fact, Fiction, or Fantasy?

By Ron Burnette
Fiscal Policy Exhaustion and Sovereign

Risk Slowing Down the Global Recovery
By Evangelos Otto Simos
The Economic Outlook for 2011

By Jack Malehorn
Mark J. Lawless
Consultant
Braintree, MA
Paul Sheldon Foote
Cal. State UniversityFullerton

Fullerton, CA
Mitchel F. Bloom, Pres.

Bloom Forecasting, Inc.
Kelowna, BC, Canada
etter
from
ver the last three decades, market dynamics have

significantly changed and so have the business
processes. The market is now driven by demandnot
supply. Gone are the days when manufacturers produced
what they thought they could sell. If something was left
over, marketing made it go away. If there was a shortage of
something, consumers would wait. Now consumers have
neither the patience nor the loyalty. If you dont have what
they want and at the price they want, someone else will. All
this has resulted from the increasing competition fueled by
the proliferation of products and channels of distribution,
the shorter product life cycles, and the increasing
globalization. To meet this challenge both suppliers and
retailers responded by taking their forecasting process to
a next level.
What was needed was the ability to predict more accurately
and quickly the changes in the marketplace, develop good
actionable plans, and then execute them without delay.
To achieve this, the forecasting process evolved from
Silo Forecasting to Consensus Forecasting to Sales and
Operations Planning (S&OP) and now to Collaborative
Planning, Forecasting and Replenishment (CPFR). Forecasts
could not improve in a silo set-up because each function
prepared them just for its own use, and thus were not
accountable. As such, the input of other functions was
neither solicited nor incorporated into forecasts. This led
to the development of Consensus Forecasting, where one
function prepared statistical forecasts, and then presented
them at monthly consensus meetings attended by all the
functions. At the meeting, they collectively reviewed the
the
ditor
forecasts and, where necessary, overlaid judgment on

them. This improved the forecasts, but the functions did
not have the authority to act on them. By the time a person
with authority got around to it, it was often too late. This led
to the development of S&OP, where people with authority
participated not only in reviewing forecasts and action
plans but also in executing whatever was decided.
What matters most to manufacturers is not how much their
customers would order but how much their end-consumers
would buy. For that they needed a close collaboration with
their customers, which is the theme of this issue. Larry Lapide
gives the history of CPFR. Ron Burnette shows how CPFR
has evolved over time and how the spirit of collaboration
has spread in other areas both within and outside the
enterprise. The article by Larry Smith, Joseph Andraski, and
Stanley Fawcett shows how we can further improve CPFR
by linking it with S&OP; in addition, it outlines key success
factors in the implementation of CPFR. Fred Baumann, in his
article, shows how manufacturers with CPFR can benefit by
forecasting at the shelf level instead of at the shipment or
order level. From that they can capture best the variations
in demand resulting not only from the consumer demand
but also from a change in the customers order policy. Nikhil
Sagar shares his experience in implementing and running a
CPFR process both from the perspective of a manufacturer
and a customer, and lessons learned.
Collaboration is the wave of the future for running a
successful business. I hope this special issue on CPFR
will show you how and why, as well as the best way to
execute it.
Happy Forecasting!
Chaman L. Jain, Editor
St. Johns University | [email protected]
INTEGRATED
BUSINESS PLANNING:
A Roadmap to Linking
S&OP and CPFR
By Larry Smith, Joseph C. Andraski, and Stanley E. Fawcett
E X E C U T I V E S U M M A R Y | Uncertainty and poor information reduce decision-making effectiveness, increase

costs, and lower customer service. Yet, much of the information we need to make decisions is known by someone else in our firm
or supply chain. This article shows that when two programsSales and Operations Planning (S&OP) and Collaborative Planning,
Forecasting and Replenishment (CPFR)are integrated, they provide the information we need for decision making. Key success
factors and performance outcomes are also discussed.
L AR RY S M I T h | Mr. Smith is Senior Vice President of Merchandise Planning and Replenishment at West
Marine. For the past 10 years, he has directed the Planning and Merchandising Operations functions at West
Marine creating a cutting-edge and scalable supplier collaboration (CPFR) program. He is a frequent speaker at
major industry conferences. He is a member of the Board of Directors of the Voluntary Interindustry Commerce
Solutions Association (VICS) and Co-Chair of the VICS CPFR Committee, which is responsible for leading one
of the most successful interindustry supply chain collaboration initiatives. He is also a member of the Editorial
Advisory Board of Supply Chain Management Review.
J OS E Ph C . AN D R A S K I | Mr. Andraski is the President and CEO of VICS (Voluntary Interindustry Commerce
Solutions Association), which provides a forum for parties to develop supply chain processes and technology.
Prior to joining VICS, he held several positions with Nabisco Foods, Inc., including Vice President of Supply Chain
Management, Vice President of Customer Marketing, and Vice President of National Sales. He has been active with
Grocery Manufacturers Association, where he serves as the Chair for the Logistics Committee, and was a member
of the Efficient Consumer Response Operating Committee. He recently created and launched the VICS CPFR
Certification Program.
S TAN LE Y E . FAWCE T T | Dr. Fawcett is a visiting distinguished professor of logistics and supply chain
management at Georgia Southern University. His current teaching and research interests focus on collaborative
business model design and global supply chain strategy. He has published over 100 articles and six books on
topics related to supply chain, such as supply chain design, information technology as a collaboration enabler,
leading a change through learning, performance measurement, and trust. He is the co-editor-in-chief of the
Journal of Business Logistics. He has taught executive development programs in Asia, Europe, and North and
South America.
4
ompanies succeed when they

identify customer needs, develop a
customer-appropriate value proposition,
and build world-class processes to
deliver to promise. Success emerges as
companies position the right product at
the right place at the right time, and at
the lowest cost possible. Managing the
materials flow effectively and efficiently
is absolutely vital. Specifically, superb
demand management supported by
accurate forecasting, excellent inventory
management, agile production, and
responsive supply management underlie
a companys ability to efficiently create
high levels of customer value. The
implication is clear: Now, more than ever,
the various functions within a firm as well
as the diverse companies within a supply
chain must work in concert to create the
value customers demand. Unfortunately,
translating need and desire into a
coordinated action is far easier said than
done. Most companies still operate with
limited coordination and collaboration.
Internal functions are disconnected, trust
in one another is limited, and different
operating groups use their own forecasts to
manage their operations. The time horizon
for business execution visibility is short
term so that day-to-day operations are
not connected to strategic goals. Looking
upstream, suppliers have only a limited
view of future demand requirements.
Customers can provide information that
suppliers would otherwise have to forecast.
Likewise, focusing downstream, the
retailer lacks category or market insights
that could be provided by key suppliers.
Indeed, world-class suppliers work with
a variety of customerstypically across
multiple industries. As a result, they are
exposed to a number of market-sensing
opportunities and may possess unique
industry and macro-economic insight.
Each trading partner forecasts its needs
independently and marches to its own
beat. Past supply chain outages drive

both suppliers and buyers to build buffer

stocks to avoid risk, and without a shared
view of consumer purchases, the planning
systems of both buyer and supplier tend
to build inventories based upon historical
shipment variability that is not related to
consumer buying patterns. As a result,
the buyer-seller relationship is often
adversarial.
What is needed is a mechanism to
orchestrate the value-added activities of
the firm and the supply chain. Fortunately,
two well-established process management
models exist to help companies begin to
sing from the same sheet of music. Sales
and Operations Planning (S&OP) is a proven
process model designed to knock down

the walls that impede communication
and coordination among decision makers
within a firm. Collaborative Planning,
Forecasting and Replenishment (CPFR)
is a time-tested approach to bridging
the gaps that limit collaboration across
organizational boundaries. By linking
S&OP and CPFR practices, it is possible to
establish synchronized operations across
an entire supply chain. The following
sections briefly introduce S&OP and
CPFR, describe core goals, discuss key
implementation steps, and define essential
execution requirements. A case study that
demonstrates the viability of bringing
S&OP and CPFR together is then shared.
SALES AND OPERATIONS PLANNING

S&OP emerged in the 1980s as a production-planning tool. The goal was to create the
visibility necessary to balance supply with demand. The key was to set up a process
that would bring the customer-facing and supply-facing sides of the organization
together on a frequent and regular basis. In essence, by increasing communication,
all of the essential value-added activities of the firm could agree on and work off a
single set of numbers. This one-forecast planning leads to greater responsiveness,
less waste, and less finger pointing.
Over time, S&OP has become more
strategic, involving higher-level executives
and incorporating a greater understanding
of the external environment into the
planning process. Although the goal
remains to establish a consensus oneforecast plan, more emphasis is placed on
understanding the business environment,
supporting the corporate strategy, and
synchronizing the value-added activities of
the firm. In essence, S&OP seeks to shape,
not just forecast, demand. By marshaling
the entire organizations resources to meet
customer needs, competitive advantage is
sought. Palmatier and Crum (2010) define
S&OP as follows:
Sales & Operations Planning is a process
led by senior management that evaluates

and revises time-phased projections for
demand, supply, product and portfolio
changes, strategic projects, and the
resulting financial plans. This is done on a
monthly basis, typically over a 24-month
rolling planning horizon. It is a decisionmaking process that realigns the tactical
plans for all business functions in all
geographies to support the companys
business goals and targets. A primary
objective of S&OP is to reach consensus
on a single operating plan, to which
executives of the management team hold
themselves accountable and allocate the
critical resources of people, equipment,
inventory, materials, time, and money
to most effectively satisfy customers in a
Figure 1 | The S&OP Process
action plans to address gaps in annual

and strategic business objectives.
Competitive Strategy
3. Supply Review | Ensures supply capabilityincluding manufacturing capacity,

supply chain inventory, transportation,
and logistics/DC capacity and resources
can meet the demand plan, customer
service, quality, and cost objectives.
The Supply Review makes certain that
contingency plans are identified to
address additional demand risks and
opportunities identified by the Demand
Review.
Capability
Assessment
Figure 1
The S&OP Process
Strategic
Direction
Fig
Demand Strategy
Supply Strategy
Strategic Planning:
Strategic Planning:
Strategic Planning:
Operating Review:
Operating Review:
Product Strategy
New Product Introduction
Product Re-positioning
Discontinuance
Product Profitability
Volume
Penetration
Portfolio Value Effect
Portfolio Management
Pricing Strategy
Brand Management
Make vs. Buy

Manufacturing Capacity
Supplier Development
Operating Review:
Demand Planning
Forecast Review
Economic Analysis
Promotion Planning
Consensus Forecast
Production Scheduling
Order Management
Inventory Planning
Logistics Planning
Expediting
Aligned Business Planning

Strategic Reconciliation
Operating Reconciliation
profitable way.
Figure 1 exemplifies the basic S&OP
planning process. An ongoing scanningand-planning process develops a
corporate strategy to leverage core
organizational capabilities to achieve
a competitive advantage. The defined
strategy then directs the continued
development of product, demand, and
supply strategies and operations. Within
this context, five monthly review meetings
take place to make sure that everyone is
working in a coordinated way to support
overall corporate goals and create an
integrated operating plan that effectively
aligns supply and demand.
1. Product Management Review |
Ensures that the product plan, including
new products and assortment plans as
well as other strategic growth activities

of the company, is on track for time, cost,
demand, supply, and resources, and that
all of these plans are in alignment with
strategic goals. The Product Management
Review assures the health of the firms
innovation pipeline and informs demand
and supply planning.
2. Demand Review |
Achieves
consensus on a valid, unbiased demand
plan that will become the request for
product from the end-to-end Supply
Chain as well as integrated financials
and gap management activities within
and across trading partners. The output
of the Demand Review is an unbiased
demand plan over a rolling 18-to-24month horizon with assumptions, risks,
and opportunities identified as well as
Table 1 | Performance Improvements Attributable to S&OP
Table
Benefits
Increased Forecast Accuracy

Increased Sales Revenue
Improved On-Time Delivery
Reduced Inventory
Reduced Safety Stock
Increased Productivity
Range of Percent Improvement
18-25%
10-15%
10-50%
18-46%
11-45%
30-45%
Source: Palmatier, George and Colleen Crum. Transitioning from S&OP to Integrated Business Planning.
Oliver Wright White Paper Series, 2010.
4. Integrated Reconciliation | Identifies

and resolves key imbalances identified
in the Product, Demand, or Supply
Reviews. Additionally, this step utilizes
the Demand and Supply plans to develop
the integrated financial plan including
revenue, margin, and other P&L, balance
sheet, and cash flow effects.
5. Management Business Review |
Approves the consolidated operational
and financial plan from the prior
steps and makes decisions regarding
imbalances that were identified, but not
resolved during the monthly cycle. The
Management Business Review aligns
plans and decisions with the defined
business strategies.
To summarize, S&OP is an alignment
process that gets all the different
functions of an organization to
pull in the same direction. S&OP
helps an organization move from a
traditional annual planning process
to a continuous re-planning process.
Importantly,
improved
decision
making leads to impressive operating
improvements (see Table 1), as well as
more trust and better relationships in
the leadership team. Over time, working
together to solve problems and build
capabilities becomes easier and yields
new competitive opportunities.
COLLABORATIVE PLANNING,
FORECASTING AND REPLENISHMENT
CPFR recognizes that planning and execution can be improved further when trading
partners work together. Just as S&OP strives to get all of the functional areas within
a firm to pull together to achieve the companys strategic goals, CPFR argues that
sharing information across organizational lines can help align supply chain efforts to
improve value creation. For example, in S&OP, a central goal is to develop a consensus,
that is, a one-number forecast of demand to estimate as accurately as possible what
the company can expect to sell to customers over a specified time period. CPFR argues
that someone already knows, with much greater certainty, what a companys sales
will be. That someone is the customer. If customers are willing to share their purchase
plans, including promotion schedules and other drivers of variation, suppliers can
dramatically improve their forecasts and operating efficiencies.
The CPFR process, which is depicted
in Figure 2, focuses on combining the
collaborative intelligence of multiple
trading partners in the planning and
fulfillment of customer demand. CPFR
links sales and marketing best practices,
such as category management, to
supply chain planning and execution
processes to increase availability while
reducing inventory, transportation, and
logistics costs.
products on retail shelves, record sales

transactions, and make payments.
4. Analysis | Monitor planning and
execution activities for exception
conditions caused by unforeseen
environmental or market risk events,
supply chain disruptions, or a

performance breakdown. Aggregate
results and calculate key performance
metrics. Share insights and adjust plans
for continuously improved results.
While these collaboration activities
are presented in logical order, most
companies are involved in all of them
at any moment in time. There is no
predefined sequence of steps. For
example, execution issues can impact
strategy, and analysis can lead to
adjustments in forecasts.
Like S&OP programs, CPFR programs
have clear calendars of weekly, monthly,
quarterly, and annual activities that
govern the collaborative planning and
execution cycle. These planning meetings
involve managers at all levels of the
trading partner organizations. Specific
responsibilities are described below.
Executive Level | Semi-annual or
Figure 2 | The CPFR Process
Fig
In the retail industry variant of the model

shown above, the manufacturer as the
seller and retailer as the buyer engage in
four collaborative activities to improve
their performance. The model also applies
to upstream buyer and seller relationships.
1. Strategy & Planning | Establish the
ground rules for the collaborative
relationship. Determine product mix and
placement, and develop event plans for
the period.
2. Demand & Supply Management
| Project consumer (point-of-sale)
demand, as well as order and shipment
requirements over the planning horizon.
3. Execution | Place orders, prepare and
deliver shipments, receive and stock
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annual meetings of the trading partners

senior management team define and
redefine strategies, align organizational
goals, allocate resources, and establish
appropriate high-level measures to
document progress. Similarly, executives
are tasked with evaluating continuous
improvement opportunities and seeking
renewal opportunities.
Tactical Level | Quarterly planning
meetings involve process owners and
focus on defining/updating specific
tactics and deliverables for the
collaborative initiative. More frequent,
routine communications (i.e., weekly
or monthly collaborative meetings or
conference calls) review the results
of initiatives and manage exceptions.
These meetings can be relatively brief or
extended, depending on the nature of the
initiative being discussed as well as the
importance of the specific trading partner
relationship. Suggested agenda items
include 1) reviewing current metrics, 2)
managing team initiatives, 3) resolving
supply constraints, and 4) reviewing
changes to the demand forecast caused
by promotional planning, assortment
planning, or any other changes to the
demand plan.
To summarize, CPFR is an alignment
process that promotes information
sharing among trading partners to
enhance collaborative planning. CPFR
helps trading partners move from
reactive management to proactive
planning and execution. Importantly,
improved collaboration leads to
impressive operating improvements
(see Table 2) as well as more trust and
better relationships among trading
partners. Over time, working together
to solve problems and build capabilities
enables partners to expand their efforts
beyond seeking improved efficiencies to
unlocking value through collaborative
innovation.
Table 2 | Performance Improvements Attributable to CPFR
Table
Benefits
Range of Percent Improvement
Improved Forecast Accuracy

Increased Sales
Increased Margin Rate
Improved On-Time Delivery
Increased In-Stocks
Decreased Inventory
Decreased Operating and Logistics Costs
20-30%
10-30%
2-6%
5-10%
2-7%
10-30%
10-28%
Source: VICS CPFR Case Studies and Collaborative Commerce Award Winners.
LINKING S&OP AND CPFR:

A CASE STUDY
Because resources are scarce, developing a large-scale CPFR program dictates
distinct levels of relationship intensity. Although a CPFR lead partner may catalyze
change among many of its trading partners, only a limited number of intense
collaborations with key trading partners can be pursued. Among these strategic
alliance partnerships, the opportunity exists to link S&OP and CPFR to create a
collaborative, synchronized end-to-end supply chain.
Both S&OP and CPFR are best practice
collaboration processes. S&OP is a
strategic management process that
aligns centers of functional excellence
in a coordinated internal collaborative
process. CPFR is a strategic management
process that aligns the complementary
capabilities of trading partners in a
coordinated
external
collaborative
process. By linking S&OP and CPFR, a
two-stage, integrated business planning
process emerges. Stage I involves the
creation of go-to-market strategies that
are informed by customer insight. Stage
II focuses on executing the operational
plan to create the promised value. This
combinationknowing exactly what
value to create as well as being able to
actually manage core processes to create
itis the source of a winning competitive
strategy. The Lowes Home Improvement
engagement with Whirlpool reveals how
such an integrated business plan can be
developed.
Until recently, most of the communication

between Lowes and Whirlpool was
through their Merchandising and Sales
organizations. The relationship was
often strained. Each firm made decisions
that adversely affected the other
the adverse affect often came from a
lack of communication rather than an
inherent conflict. For example, Whirlpool
introduced a new line of white goods. As
Whirlpool team leaders described the new
product line and its launch, both Lowes
and Whirlpool were excited to get the line
into the store as quickly as possible. When
the launch date was set, the team leader
from Lowes asked, When did you know
you were going to bring this line to the
market? The answer was, Weve known
for months. If Whirlpool had shared this
information, the two companies could
have avoided the need to negotiate the
split for tens of thousands of dollars of
liquidation costs required to sell out the
existing line. A little trust and shared
Figure 3
Lowes/Whirlpool
Stage
I:Traditional
Demand/Supply Planning
Figure 3 | Lowes/Whirlpool Stage I: Traditional Demand/Supply Planning
(2007-2008)
(2007-2008)
Fig
Lowes S&OP
Whirlpool S&OP
Business
Planning
Goals /
Objectives
Goals /
Objectives
Business
Planning
Sales
Planning
Sales
Planning
Inconsistent
inter-company
connection
Inconsistent
inter-company
connection
Demand
Planning
Operations Planning (CPFR)
Demand
Planning
Planning Horizon 0-3 Months
Execution Zone
Store Execution
Logistics Planning
Execution Zone
Manufacturing Planning
Logistics Planning
information would have saved both

companies aggravation and money.
Thus, three years ago, the two firms
embarked on a multi-phase collaborative
journey. Today, Lowes and Whirlpool
are in the early stages of running an
Integrated Business Planning process.
with very little enrichment applied to

the forecast. Limited visibility to each
companys go-to-market plan created
disconnects in objectives. The two
companies basically had independent
business plans driving their individual
sales and operational plans.
Stage I began with a focus on collaborative demand planning, concentrating

primarily on order forecasting, with
limited discussion of sell-through or
inventory. Figure 3 shows the linkage
between Lowes and Whirlpool at
the operational level. Collaborative
discussions were focused on the nearterm horizon, typically less than three
months, with very little consistent midrange or long-term planning. Demand
planning activities were more heavily
dependent upon statistical forecasting,
After stabilizing the collaborative demand planning process, Lowes and

Whirlpool moved more towards supply
planning. Lowes initial focus was
on recognizing the capabilities and
limitations of Whirlpools manufacturing
divisions. Both companies worked to
develop an understanding of each others
required target inventory levels and the
importance of product transition planning relative to inventory. Their
supply chain organizations became
actively involved with the sales
10
Figure 4 | Visibilitys Influence
Fig
and
merchandising
organizations.
Importantly, collaboration at this stage
typically existed at the operational level
of the organizations and was focused
on demand and supply planning at
the item level, with forecasts reviewed
between forecast teams. Because
higher-level collaboration was sporadic
and inconsistent, sales plans seldom
accounted for future advertising, promotion, and product-transition initiatives.
Operational planning in each organization was therefore based on inaccurate
demand forecasts. Without visibility,
performance targets were easily
missed and the costs of resolution
were high. For example, Lowes used
the process as shown in Figure 4
to emphasize the importance of
increasing forward visibility. Consider
progressing through a season from
left to right, going from the most
for ward-looking plans to a more
tactical execution. The far right was
the point in time where the product
was moving and was close to landing
at the stores to be sold. When moving
through the year, changes occurred,
causing disruptions. But as forward
visibility increases, more options are
available and the costs of those options
are lower. Higher-level CPFR linkages
improve visibility and relationship
Figure 6
Figure 5 | Lowes/Whirlpool Stage II: Integrated

Figure 6 |Lowe
Lowes/Whirlpool
StageIII:
III:Integrated
IntegratedBusiness
Business Planning
s/Whirlpool Stage
Figure 5 Sales &
(2010)
Operations
Planning
Lowe
s/Whirlpool
Stage(2008-2009)
II: Integrated Sales & Operations PlanningPlanning (2010)
(2008-2009)
Fig
Whirlpool S&OP
Business
Planning
Business
Planning
Merchandising & Operations

Planning (M&OP)
Lowes S&OP
Whirlpool S&OP
Strategic Account Planning
Business
Planning
Merchandising & Operations
Execution Zone
Store Execution
Logistics Planning
Demand Review / Supply Review
performance.
Stage II, which is depicted in Figure
5, began in late 2008 as Lowes and
Whirlpool made the decision to merge
their collaboration effort with Whirlpools
S&OP process to provide the infrastructure
necessary to extend the planning
horizon beyond three months. Lowes
and Whirlpool established collaboration
linkages at the sales and marketing midmanagement levels. By turning their
attention to sales and marketing planning,
the two companies started to change the
game. Structured demand and supply
reviews drove business planning towards
a single set of aligned forecasts and sales
plans. Through strengthened product
management review, they were able
to focus collaboration on promotions,
product-launches, and special-event
planning. An integrated promotional
Planning (M&OP)
Sales /
Marketing
Planning
Action items from

CPFR serve as inputs
into monthly S&OP
Business Reviews
Sales /
Marketing
Planning
Strengthened
Inter-company
Connection
Inconsistent
inter-company
connection
Demand
Planning
Sales /
Marketing
Planning
Strengthened
Inter-company
Connection
Strengthened Collaboration with common

Business Planning Tools that co-exist
between Lowes and Whirlpool
Inconsistent
inter-company
connection
Sales /
Marketing
Planning
Business
Planning
Goals /
Objectives
Goals /
Objectives
Goals /
Objectives
Lowes S&OP
Goals /
Objectives
Fig
Demand
Planning
Execution Zone
Manufacturing Planning
Logistics Planning

Demand
Planning
Demand
Planning
Demand Review / Supply Review
calendar for each product category

emerged. Greater forward visibility allowed the two companies to extend their
planning horizon to three to six months.
including directly connecting the Operations Planning process with the Merchandising and Operations Planning process
to create a closed-loop planning process.
Lowes and Whirlpool both realized

another benefit from implementing
a joint sales and marketing planning
process. Their own internal collaboration
efforts improved substantially due to the
discipline required to run a joint sales and
marketing planning process. Yet, despite
the improvements, several challenges
remained. The planning horizon was still
too short and senior management was
not routinely involved, which limited
their ability to achieve their goal of an
Integrated Business Planning process.
Stage III, shown in Figure 6, was initiated
to address these shortfalls. New CPFR
linkages were created to extend their
planning horizon to 6 to 12 months
Notice that information flows from the

top down. Driven by monthly leadership
reviews with senior management, both
companies achieved a more developed
joint strategic planning process built
around joint business objectives. These
joint objectives were driven through each
of their internal sales and operational
planning processes. Such integrated,
objective planning is providing valueadded direction for existing CPFR
processes across the operations. In
the event that Lowes and Whirlpool
need to adjust their joint plans due
to changing business conditions, this
model of longer planning horizon will
provide the necessary forward visibility
11
to adjust their plans with optimal

impact on sales and profitability.
Importantly, the journey to integrated
business planning has helped Lowes
and Whirlpool to realize improvements
in several key metrics. Unit sales growth
over the last three years is up 12%

while overall inventory costs are down
5%. On-time shipments have improved
by three points. M oreover, both
companies are driving faster, more
efficient decision making, which
improves flexibility and business

predictability. Lowes and Whirlpool
believe that a primar y driver of
these business improvements was
the creation and evolution of their
collaborative model.
REQUIREMENTS FOR INTEGRATED BUSINESS PLANNING

To better understand the essential elements of a successful integrated business planning initiative, we evaluated nomination
forms for the VICS Collaboration Innovation Award for the years 2005-2010.
We focused on the 16 award finalists/
winners. These companies represent
leading-edge collaborative practice.
Figure 7 identifies the ten most
frequently emphasized keys to success.
Not surprisingly, linked information
technology was the most frequently
cited requirement (88%). Both CPFR
and S&OP are data intensive. Success
requires that accurate, relevant, and
timely data be available to decision
makers at both partner companies.

Linked systems reduce data-entry error
and assure timely sharing. Somewhat
more surprising was the equal emphasis
placed on a cultural predisposition to
share relevant information (88%). If
managers insist on hoarding sensitive
information to maintain power or avoid
vulnerability, linked systems will not
enable better decision making. Process
redesign was also emphasized by 88
Figure 7 | Requirements for a Successful Journey to Integrated Business Planning
Fig
Periodic Review
Change Management
Trust
Early Results
Align Goals
Inter-organizational Teams
Executive Commitment
Share Data
Process Redesign
Linked IT
Percent of Companies
12
percent of the nominating managers.

Clearly, a core goal of both CPFR and
S&OP is to build a better decisionmaking process, which will require a new
approach to doing business. Managers
who are not willing to change the way
they work will not be able to implement
CPFR or S&OP. The integrated business
planning and its benefits will always
remain out of reach.
As the Lowes/Whirlpool case demonstrated, executive commitment and
involvement (81%) as well as strong
inter-organizational teams (81%) are
a prerequisite to success. Only when
senior executives are involved and
committed to the process, only then
needed resources will be dedicated to
the implementation initiative. Likewise,
only senior managers have the clout
to remove the physical and cultural
constraints that impede balancing
supply and demand. Effective teams
are the mechanism for working
across organizational boundaries and
ultimately getting the work done.
Both the executive leadership and
the inter-organizational teams are
responsible for identifying appropriate
initiative objectives, aligning their own
organizational goals to these team
goals, and then putting in place the
measures needed to communicate and
promote the desired behavior. When

goal alignment (63%) is overlooked,
early successes seldom endure beyond
the first disruption.
The remaining four requirements focus
on the change management process
(56%). Early results (63%) are needed to
generate broader organizational buyin. As early wins are turned into success
stories and disseminated throughout the
organization, momentum for collaborative
planning builds. People like to be

associated with a winning team. Similarly,
trust (63%) is needed for managers to be
willing to share sensitive information,
experiment with new working styles, and
accept the risks associated with both of
these behaviors. Ultimately, although
significant investments in information
technology are needed to support
integrated business planning, behavioral
issues will determine an initiatives success.
Finally, management needs to establish a

periodic review process (56%) to identify,
evaluate, and resolve problems that arise
throughout the transformation process.
An appropriate scorecard is invaluable
to this process. The bottom line: Moving
towards integrated business planning is
a journey that requires frequent checks
against milestones as well as rapid course
corrections. Periodic reviews are the
signposts that guide the journey.
LEVERAGING THE BENEFITS FOR COMPETITIVE SUCCESS

Both CPFR and S&OP offer impressive market and operating benefits. When the two initiatives are linked, a new, collaborative
approach to designing and operating the business can emerge. Indeed, the process of implementing and validating CPFR and
S&OP programs yields many intangible benefits that promote a new way of working together to create customer value.
Figure 8 summarizes some of
the intangible benefits that were
documented by the VICS Collaboration
Innovation nominees. Specifically, we
compare the intangible benefits achieved
by award winners to those achieved
by the finalist companies. Both groups

achieve impressive benefits in the areas
of better communication and improved
working relationships. However, the
award winners achieved substantially
better serendipitous benefits in the areas
Figure 8 | Intangible Benefits Associated with the Journey to Integrated

Business Planning
Fig
Winners
Quicker Implementation
of New Ideas
Winners
Accountability
Stepping Stone to New
Opportunities
More Trust
of improved customer satisfaction, more

time for strategic planning, and greater
trust. Finally, about half of all the nominees
reported that their CPFR initiatives had
opened doors to new collaborative
opportunities that extend beyond the
operating realm of information sharing,
forecasting, and inventory management.
Such benefits are vital to keeping senior
executives engaged in the process. As
companies work together to solve the
problems encountered in the CPFR and/
or S&OP implementation processes, they
build the skills and the relationships
to pursue collaborative innovation.
Unlocking this potential will lead to
new venues for sustainable competitive
advantage.
[email protected]
More Time
Strategic Planning
REFERENCES
Improved Customer
Satisfication
1. P
almatier , G eorge and
Colleen C rum | Transitioning from
S&OP to Integrated Business Planning. Oliver
Wright White Paper Series, 2010.
Better Working
Relationship
Better
Communication
Percent of Companies
2. V
I C S | Linking CPFR and S&OP: A
Roadmap to Integrated Business Planning.
VICS Voluntary Interindustry Commerce
Solutions. Lawrenceville, New Jersey, 2010.
13

The CPFR and S&OP
Continuum
By Nikhil Sagar
E X E C U T I V E S U M M A R Y | The integration and synthesis of multiple stakeholder insights is the most powerful enabler
to improving retail demand forecasts today. A great deal of progress has been made in the retail and manufacturing industry around
the development of internal and external collaboration processes using the S&OP and CPFR frameworks. The opportunity now is to
effectively link these processes together to make the whole greater than the sum of its parts which is the main objective of this article.
N I K h I L SAG AR | Nikhil Sagar is Vice President, Retail Inventory Management for OfficeMax Incorporated. In his
five and a half years in this role, he has been responsible for the development of multiple CPFR relationships across
key suppliers in the Office Supplies industry. He has also been instrumental in laying the foundation for a multitiered internal collaboration process to manage inventory risks using the S&OP framework of consensus forecasting
and supply-demand matching. His previous career experience includes five years at Whirlpool Corporation where,
as Senior Project Manager of Supply Chain Strategy, he played a central role in the design and implementation of
the CPFR processes with their top five retail trade partners. In this role, he was also responsible for the development
and implementation of a formal S&OP process. He holds an MBA from Michigan State University and an engineering
undergraduate degree from Marine Engineering and Research Institute, Calcutta, India.
he key priority or shall we say the

Holy Grail of supply chain is moving
product to the right place at the right
time. Eventually this means getting it to
the end customer when he or she wants
it. However, there could be multiple steps
prior to this point that rely on the same
prioritygetting product to the right
place at the right time;. from a vendors
factory to their regional distribution
center (DC),.from their DC to a retailers
DC, and from a retailers DC to their stores.
14
The key imperative to achieving this

priority of right place at the right time is
having a good forecast.
Possible Disconnects
in a Non-Collaborative
Space: A Retail Example
And so, while the priority of right place
at the right time ultimately ends with
the end customer, the key imperative
of forecasting naturally begins with this

same end customer! It then propagates
upstream through all the same layers. The
translation of this end customer demand
into distribution center demand forecasts
and eventually a factory demand plan
is driven by the inventory policy of the
individual layer being forecasted. Consider
for a moment how many different possible
breaking points there are in achieving this
priority. Lets talk a little bit about these
multiple forecast points.
Cost of Disconnects
Figure 1 | Closing the Gap
Chart 1: Closing the Gap
C P F R
S & O P
Vendor Insight into

Forecast
CPFR Forecast
Unconstrained
Demand Picture
Review Forecast
Accuracy determine
root cause of key errors
and document learnings
C L O S E D
L O O P
The KBU (Key Business Units) forecast

is built at the business unit level. It
is typically based on executive goals
and shareholder expectations. It
incorporates market share targets and
industry level forecasts. It includes
the impact of channel expansion or
contraction, new business ventures,
etc.
Merchant forecasts, built at the product
category level, are based on category
goals, and incorporate market share
goals and industry forecast. However,
these forecasts now start to layer in
the specific impacts of promotional
plans, new product introduction plans,
marketing strategies, etc.
Store Sales Forecasts are built at
the SKU/Week/Location level and are
typically referred to as bottom-up
forecasts. These are the most objective
reflection of the impact of currently
planned activity. They are statistically
developed reflecting seasonality,
trend, and the projected impact of
promotional activity based on pastobserved lifts.
The retailers order forecast is the
projection of planned purchases from
a manufacturer. They are developed
at the SKU/Week/DC level and are
naturally limited to only the SKUs the

Constrained
Demand
Reaction Plans to close

sales and inventory gaps
between plan and
projection
P L A N N I N G
retailer carries for that vendor. This

forecast is based on the store sales
forecast after netting against current
inventory levels and open orders. The
need is based on pre-determined
inventory parameters, which in turn
are designed to support a targeted
service level against assumed levels
of demand variability over a known
supply lead time and must also
account for a projected degree of
supply variability at each node being
planned.
The multiple retail forecasting nodes
just described work in similar sequence
within the manufacturing framework.
The retail planned orders serve as a key
input into the manufacturers bottom- up
demand forecast when aggregated with
the demand of all other customers the
manufacturer may have. This aggregated
demand forecast must be netted against
the existing available products to commit
inventory to determine a production
plan. This production plan in turn must
be passed on to the manufacturers
suppliers. In addition to this bottom-up
demand forecast, the manufacturer has
a KBU and Merchant Forecast. Now that
weve discussed the various nodes in some
detail, consider again the importance of
aligning these various nodes across the
supply chain.
There is a significant cost associated with

each of the possible disconnects weve
talked about. The costs primarily fall
into two areas: Net Income and Working
Capital. When the mismatch results in an
out of stock, there is usually a lost sale. With
destination retailers where customers
often know what they want before they
enter the store, product availability
becomes an even higher priority. Here
there is a risk of losing not only the present
sale but also of losing the customer for
good. Other hits to net income may
come from transportation inefficiencies
through multiple shipments/expedited
shipments of partially filled orders. On
the flip side, when forecasts are missed,
overstocks result in a negative impact to
working capital. Further, ongoing issues
with forecast performance may cause
safety stock levels to be raised to maintain
customer service, further eroding working
capital productivity.
Collaboration
Framework
So, there is clearly a high cost associated
with a non-collaborative planning
environment. Figure 1 outlines a recommended integration loop between the
various stages of collaboration within
and between organizations. The key
elements of the sequence are as follows:
Develop a statistical forecast, enrich it
with qualitative insights from trading
partners through the CPFR process,
then reconcile it against the top-down
merchant/financial forecast and adjust it
to incorporate macro insights from those
functions. The next step would be to
constrain the forecast to reflect any supply
issues that might limit sales. After that, this
realistic forecast should be compared to
the financial plan for the period/quarter
to identify gaps/shortcomings. Action
15
plans should then be developed to close

these gaps based on a firm understanding
of their causes. For instance, if the root
cause is a loss of market share due to lack
of competitiveness on price, the decision
might be to adjust prices or introduce
promotions to drive up demand. Last but
by no means least, it is very important
to close the loop on this process. This
means comparing the sales forecast to
actual performance and understanding
the reasons for any significant errors so
that they may be fixed and the learning
incorporated into the next planning cycle.
As the CPFR and S&OP processes
represent
external
and
internal
collaborative planning, respectively, the
line between these two processes have
grown greyer over the years. In fact, this
has been a favorable change. Ideally the
relationship between the two processes
has evolved into a sort of continuum
where one process effectively merges
into the other. This level of integration
significantly shortens the reactive/action
planning phase of the cycle.
Quantitative Forecasting:
Building the Baseline
There are clearly many components to
forecasting. The foundation, however, is
most often based on a statistical process.
The key inputs to the statistical forecast are
historical demand units that are usually
expressed in weekly or daily buckets and
causal factors such as promotional data,
pricing, etc. Many forecasting tools allow
for the automatic selection of the best
algorithm based on an ex-post test on
their relative accuracy. One other factor
to consider in improving the accuracy
of the statistical forecast is the selection
of the optimal history horizon. In retail,
this may vary based on the level within
the retail hierarchy being forecasted; for
instance, it might be better to go with a
16
shorter history horizon at the store level

so you can react to localized events such
as competitive store closings/openings
quickly while maintaining a longer
history horizon at the national level in
order to pick up broader product-based
characteristics such as seasonality/macro
trend and the like. Additionally the store
level statistical forecast for key seasonal
events such as Back to School may have to
accommodate complexities arising from
significant variations in school opening
dates across the various states and even
across districts within a state. Overall,
a key rule for statistical forecasting is
Garbage In Garbage Out. Historical data
as well as data on causal factors such as
promotional events, seasonal events, etc.,
must be cleaned of noise. For example,
one time bulk purchases at the store
level must be systemically identified and
smoothed using outlier logic. Another
example would be to adjust historical
sales data for weeks when the product
was out of stock.
changes planned, promotional events,

marketing strategies, etc. They can also
predict end of life cycle impacts to sales
and plan-o-gram changes that might
drive sales due to a change in the location
of product in stores. One example of this
would be the impact of off-shelf locations
on highly seasonal merchandise during
a key season, such as Back to School. The
merchant may also be able to predict
cannibalization of sales from other SKUs
as a result of such plan-o-gram changes.
Forecasting: Qualitative
Enrichments
Top-Down/Bottom-Up
Forecast Reconciliation
Once the statistical forecast has been

developed, it is time to enrich this
quantitative forecast with qualitative
insights. These insights can come from
several areas within an organization
merchandising, marketing, and finance
being a few of the critical areas. Further
insights can be gathered from trading
partners through a CPFR process. Lets
discuss in more detail the key unique
qualitative insights that each of these
parties must bring to the collaborative
forecasting process. Lets start with
Merchandising. Merchants are the experts
on the product axis. On the retailers side
the merchant has insight into the key
trends in their product category across all
key manufacturers of the product. They
can therefore predict the impact of pricing
The key steps to achieving this

objective are as follows: Category level
alignmentcomparing the two forecasts
at a category leveland identification of
the weeks that are off by more than an
acceptable tolerance level. The next step
would be to reconcile these differences
in the appropriate weeks across the right
SKUs. Additionally as part of the forecast
reconciliation, a review of any new items,
end of life cycle items, promotional items,
and seasonal merchandise must be done
to validate forecasts.
S&OP Agenda
The merchant must also participate
with the demand planner in an S&OP
process. The two key objectives of this
process are as follows. First, reconcile the
merchants top-down driven forecast
with the demand planners bottom-up
forecast. Second, reconcile any supplydemand mismatches and develop action
plans to mitigate risks arising out of such
mismatches.
This reconciliation process can be

extremely hard and frustrating to
accomplish. Often there are egos
involved and some feelings of territorial
expertise that may come in the way of
Table1 | S&OP Forecasting Example
objective of the S&OP, a longer-term view

of supplier metrics must be prepared
to identify consistently low performers
and determine the appropriate forums
to initiate collaborative improvement
actions to review with these vendors.
the overall objective of this step. The

key skill required here is listening. Each
party must recognize the unique insight
that the other possesses, and enter this
step with an open mind to listen and
absorb that insight. At the same time
one must be able to openly challenge
any assumptions that appear unrealistic.
It is very important that there is a high
level of trust and respect between the
two partiesenough to withstand the
temporary unpleasantness and stress
that a forecast reconciliation debate can
bring. Additionally, the success of this
step is often times aided by common
performance measures for the two parties
such as sales, gross margin, inventory
turnover, and product availability. At
the end of the day, while this step is
the hardest, it is also at the heart of the
success of supply chains and is the most
critical key to the making the numbers
objective!
S&OP Forecasting Example

The example shown in the Table 1
simply illustrates the following points.
First, that top-down and bottom-up
reconciliation process must be exception
based to highlight the specific weeks
that the category level forecasts are off.
Second, the reconciliation discussion
must happen at the SKU level. Based on
a consensus of the impacted items an
appropriate rebalancing of the gap must
be performed across only those items.

Supply-Demand Reconciliation: Now
lets talk about the key steps to achieving
the second objective of the S&OP
supply-demand reconciliation. Based
on a projection of planned purchases
across the forecast horizon, a netted
view of inventory at various locations
within the supply chain may be obtained.
This netted view can be used to flag
exceptions where an out of stock may
be experienced due to forecasts going
out of sync with supply pipelines. The
flip side of this would be an exception
where the current pipeline of orders
indicates the risk of overstocking stores/
distribution centers. The participants
of the S&OP must take the appropriate
actions to adjust the production plan if
sufficient time is available prior to the
exception week. However, if it is too late
to make this adjustment, then a different
set of actions may need to be taken. In
the case of the out of stock risk, substitute
items/alternate suppliers transferring
product from an alternate channel within
the retailers business are examples of
possible solutions identified to support
customer demand on the original item,
especially if it is on a promotion. In the
case of an overstock risk, pricing changes
or a change in product location in the
store may need to be initiated to stimulate
sales. Alternate channels of demand may
need to be explored. Additionally, as part
of the supply demand reconciliation
Customer Priorities: Another aspect

of collaboration/demand shaping
activity between the merchant/demand
planners is the establishment of customer
priorities. This activity occurs at every
level of the supply chain when product
is constrained and a determination on
rationing needs to be made. To avoid
redundancy, many planning systems
allow for the automation of fair sharing
based on these agreed upon priorities.
However, depending on the relevance of
the constrained SKUs within the impacted
customer chains, these generic customer
level priorities (priorities agreed on by the
sales teams) may need to be revisited as
part of the S&OP process.
Vendor Input: Now, lets discuss the
insights that the manufacturer brings to
the forecasting process, typically through
a CPFR type process. Manufacturers have
industry insight on their product category
across all their retail outlets. They can
therefore more accurately project the
impact of a promotional event at any
one retailer by putting it into perspective
against other promotional events taking
place at other chains. Without explicitly
sharing the specifics of other retailers
promotions, they can still embed this
knowledge into a revised estimate of
sales for the promo being forecasted.
They can further project the impact of
marketing strategies being implemented
by their marketing/brand teams. They
can provide an accurate supply picture
and identify constraints in their pipeline.
They can also provide additional insight
on product transition plans and SKU
cannibalization impacts.
17
CPFR
Voluntary Interindustry Commerce
Standards Association (VICS) outlines
a 9-step process that consists of
4-high level sectionsStrategy/Planning,
Demand/Supply Management, Execution
and Analysis. The first step of this process,
is to develop a front end agreement.
This agreement outlines each partys
expectations and lays out a commitment
of actions/resources. Step 2 is to develop
a joint business plan. Here, both parties
lay out their shared, measurable targets
for individual categories, strategic objectives, and tactics to achieve these targets. Details such as item management profiles for lead times, order
minimums, order intervals etc., are also
established within this step. Steps 3, 4,
and 5 focus on the forecast of sales to
the end customer at retail, otherwise
referred to as the POS Forecast. Step
3 is the development of this forecast,
Step 4 is the identification of exceptions
between the POS forecast developed by
each party, and Step 5 is the resolution/
consensus step that drives both parties to
share insights supporting their individual
numbers and eventually landing on a
number that will likely be more accurate
than their individual starting points. Steps
6, 7, and 8 focus on the retailers forecast
of purchases from the manufacturer.
They are similar in sequence to the POS
process and eventually result in a more
accurate forecast of orders that suitably
meets any guidelines defined within the
joint business planning documents. The
final step is the execution of the order to
ensure a timely delivery of product to the
retailerright location/right time.
Closing the Loop

An important piece of the planning cycle
is the measurement and course correction
stage. Often referred to as closing
the loop, this step enables a critical
18
continuous improvement cadence

within the collaborative planning process.
It consists of three critical phases. The first
phase is measurement, i.e., quantifying
the degree of planning error. The second
is learning, which means investigating
and establishing the root cause of the
error. The third and final phase is course
correction, which in this case refers to the
direct application of the lessons learned
in the current forecasting cycle to future
forecasting cycles.
moving average of a group of previously

observed values. This comparison of the
observed forecast error to that of a nave
forecast essentially measures the value
added of the forecasting process and is
called forecast value added. (Reference
Michael Gilliland, Fundamental Issues in
Business Forecasting, Journal of Business
Forecasting, Summer 2003). It can be
measured at any level of the collaborative
planning process to measure the value
added of each step.
Measurement: A standard measure

of forecast error is the weighted mean
absolute percent error. Ideally this is
measured at the lowest level of granularity,
for example, SKU, location, and week
level; The measure represents the sum
of the absolute forecast errors divided
by the sum of the actual disbursements
being forecasted. The value of this
measure clearly lies in the fact that it does
not allow positive and negative values of
forecast error to offset each other as the
calculation is rolled up. However, what
gets lost in this calculation of error is any
insight into directional bias. To provide
this additional view, a forecast bias metric
is essential to the closed loop process.
This measure is similar to the MAPE in its
roll-up, however it simply replaces the
absolute variance with the true value of
the variance, allowing for negatives and
positives to be reflected as such.
Learning: Once the degree of error has

been measured, it is crucial to understand
the root cause of the error. To make
this process of learning manageable
across a large number of SKU/location
combinations, it is first necessary to
establish reasonable tolerance levels.
These tolerance levels should then be
used to flag exceptions and only those
exceptions should then be researched
and understood. As time goes on and the
forecast performance improves, the team
can come back and tighten the tolerance
levels to reflect the raising of the bar
within the process.
Lastly, whenever you have a measure,

there is always the question of a
benchmark against which the measure
may be compared. While such
benchmarks do exist and are worthwhile
to look at, there is also a school of thought
that contends the key benchmark is your
own history. According to this theory, the
forecast error should be compared to
that of a nave forecast. A nave forecast
is one based on simply using the last
observed value as the forecast for the
next period. It could also be a simple
The root cause of forecast error may

generally be found to reside in one or
both of two likely areasquantitative
forecasting
errors
or
qualitative
forecasting errors. Quantitative errors
could be due to improper settings for
parameters; for example, an overly high
degree of sensitivity to seasonal factors
or an extremely low sensitivity to recent
history. Quantitative forecasting errors
may also arise from errors in the historical
data, such as one-time bulk sales arising
from special orders or extended periods
of zero sales due to out of stock situations.
Qualitative forecasting errors could arise
from missing a communication of a key
promotional event or other causal factors
such as the school opening dates within a
particular school district. They could also
arise from poor judgmental estimates of
Chart 2: Weekly Business
Figure 2 | Weekly Business Rhythm Rhythm
what the event might do to sales.

Course Correction: Any time spent on
understanding the root cause of the error
will pay richly for itself in the future if the
learning is used to correct the forecast
going forward as appropriate. If the
error arose from improper parameter
settings, those parameters must be
corrected immediately. If it was due to
improper communication of promotional
events, the necessary steps must be
taken to ensure the integrity of the
communication process is restored.
Furthermore, actions must be taken
within this step to immediately address
overstocks from missed forecasts or place
incremental orders where forecasts were
oversold, without having to wait for the
next forecast update in the system.
Figure 2 outlines a recommended weekly
business rhythm that integrates the
CPFR and S&OP process requirements.
Mon-Tue is spent on the development
of individual forecasts by merchant,
demand planner, and supplier. By
Wednesday these forecasts should be
pulled into an exception generation
report to highlight key points requiring
collaboration. Thursday the teams meet
to share their individual insights and
arrive at a consensus on exception items.
They should also discuss past forecast
performance in this review to agree upon
lessons learned and document for future
reference. Any supply constraints should
be discussed, along with demand shaping
opportunities. Revised forecasts based on
this discussion should be input back into
the planning systems.
A Note on Implementation
Challenges
I have the good fortune of having
experienced CPFR implementations both
as a supplier and retailer. Based on my
experience in both the manufacturing

THUR
TOP-DOWN PROCESS - SCM
COLLABORATIVE PROCESS SCM & DM
Update 26 Week Category Forecast
Align on key category level insights

from SCM Updated Category Forecast
blow down to right SKUs
Post Audit of Previous Weeks Ad

Forecast Performance if Applicable
Document Lessons Learned from Past

6 Weeks Top 5 Forecast Error SKUs
and All ad SKUs off by >15%
CONSENSUS TOOLSET
Consensus on All Items on Forecast
Error Exception Report
System Generates Exception Report

on Rolling 6 Week Forecast Error
System Generates Exception Report
between Current Consensus Forecast
and Updated DP Forecast
Reconcile exceptions between

previous weeks consensus and
updated DP forecast
Constrain Reconciled Forecast based
on known supply issues
BOTTOM-UP PROCESS - DP
Update 26 Week SKU Forecast using
CPFR vendor input and statistical
toolset
Consensus on actions for Overstocked

Items
Update Key Supply Constraints at Item

Level
Consensus on all SKUs hitting life cycle

milestones, covering forecast and
segmentation changes
Update List of Overstocked Items
and retail sectors, I can comfortably say

that retailers are much better positioned
to initiate a CPFR program.
During my time on the manufacturing
side, we were the first in the appliance
industry to launch CPFR with our
customers. This was not an easy task. We
were initially met with some skepticism.
It was perceived as a great deal of
additional work, with no proven benefits.
Fortunately, what helped us was that the
project vision was driven from the top
down (VP Supply Chain support) and
there was alignment between our sales
and supply chain divisions on the vision.
The approach that we took to overcome
customer reluctance was to go through
the initiative in pilot mode with a high
degree of structurethere would be hard
metrics that we would track throughout
the pilot and make a final decision only
after the benefits were proven. We also
shared the results from successful CPFR
implementations by supply chain leaders
in other industries. The structured pilot
approach eased the concerns of our retail
customers senior management and we
got their buy in.
There was still some reluctance at the

demand planner level however, as they
had to spend some of their very valuable
time on learning the new process, a
new system, and getting used to a new
cadence, even if it was just a test. Our
approach to dealing with this reluctance
was to engage the demand planners
on both sides heavily in the design of
the process. We also made sure we had
of fun with the process, making use of
the workshop sessions as good team
building opportunities as well. The result
of the heavy up-front engagement in
process design resulted in a strong sense
of ownership within the team. The team
developed a sense of pride with the work
they had done and this helped motivate
them to make the outcome a success.
To top it off, the results were undeniably
strongWMAPE was reduced by 25
percentage points and co-efficient of
variation on week to week order volumes
dropped to a third of its original value.
Moving from a supplier role to a customer
role (retailer) within the supply chain was
definitely interesting. I had definitely seen
tremendous success with CPFR in the
19
appliance industry and was a firm believer

in its merits. The approach as a retailer
was, however, a little different. Given the
high sense of urgency to quickly recover
performance during what was then the
beginning of a full scale turnaround
situation at this retail chain, we could not
afford the luxury of easing into the next
level of process improvements. Therefore,
we took a big bang approach to the
situation. All key suppliers were invited as
a group to our headquarters. The scope
of the collaborative project was outlined
along with expectations, scorecards,
weekly business rhythms, etc. There was
some stratification in the intensity of the
program depending on the sales volume
of the supplier with us. After the general
overview for all, we had breakout sessions
with key suppliers to go a step deeper
into what the process would look like
specific to their categories with us. As
expected, there were varying degrees
of commitment on display during the
sessions. However, being the customer
certainly makes it easier to overcome
such issues. During the same event,

we launched a supplier performance
management program that brought us
to par with some of our competitors in
applying penalties for late orders. The
CPFR program was developed as our
initiative to help us help you perform and
avoid penalties. Suppliers were advised
that forecast error could no longer be
used as a crutch for poor on-time delivery
performance. Suppliers would now have
access to POS history, POS forecasts, onhand data, and order forecasts. They could
no longer be victims in this new world
of collaboration. We were going to hold
them accountable for forecast accuracy
as well. We assured them that if there was
any reluctance from our teams to listen
to their voice during the CPFR process,
it was to be escalated immediately. We
set up monthly meetings to review joint
scorecards. We have these meetings even
today. In the first year of implementing
this program, we saw a 30-percentage
point improvement in WMAPE. As of
today the WMAPE improvement gained is
at 50 percentage points.
To Receive Updates,
Register with the IBF Website
at www.ibf.org
Conclusion
In conclusion I would like to summarize
the key points weve discussed.
The number one priority of supply
chains is to ensure the availability of
product at the right place/right time.
There is a high cost of disconnects
between multiple planning nodes of
the supply chain across companies.
The integration of key internal and
external collaborative processes by
pulling together respective players can
significantly improve the integrity of
the forecast and significantly eliminate
disconnects in the planning nodes.
Measurement is key to improving
performance. Understanding the root
causes of error and course correcting
are critical parts of the planning
process. Most importantly, discipline
and regularity with this cycle is key.
A weekly business rhythm that is
strictly adhered to will go a long way
in ensuring the sustainability and
consistency of results.
[email protected]
Save the Date
June 16-17, 2011
Best of the Best

APICS IBF S&OP
APICS IBF Best of the Best Sales and
Operations Planning Conference
20
The Shelf-Connected
Supply Chain:
Strategically Linking
CPFR with S&OP at the
Executive Level
By Fred Baumann
E X E C U T I V E S U M M A R Y | Consumer goods manufacturers have made significant investments in cross-functional customer

teams with the hopes of gaining better insights into consumer demand to improve sales. Many built these teams to assist in driving
efficiencies back through their supply chains and formally link the customers perspective into their on-going corporate sales and
operations planning (S&OP) process. Yet it is still very common that the data and insights of these teams are lost in translation, and
corporate planning functions continue to build their future plans off of historical shipments out of their plants and distribution centers
(DCs) versus the demand signal from the shelf. This article highlights strategies for consideration for deploying a shelf-connected supply
chain that links collaborative customer execution with executive level planning.
FR E D BAU M AN N | Mr. Baumann is Vice President of Industry Strategy at JDA Software, where he has been
instrumental in driving JDAs collaborative trading community strategies and launching the companys CPFR and
S&OP offerings. Prior to that, he worked for IBM in an application training role and The Pillsbury Company as
a Value Chain Manager. At The Pillsbury Company, he was responsible for starting the collaborative inventory
program with Wal-Mart. He is on the Advisory Board of the Collaborative Planning, Forecasting and Replenishment
(CPFR) VICS industry subcommittee and is responsible for putting together industry guidelines including the
2010 guidelines.
hile globalization has resulted in

many bottom-line benefits, it
has simultaneously increased the level
of complexity and uncertainty by which
companies operate today, making the

sales and operations planning (S&OP)
process more critical to a companys
success than ever before. Companies
now face a host of new business

challenges, including increased service
level expectations from retailers, shorter
product life cycles, and heightened cost
21
Figure 1 | Linking Supply Chain Leaders with Customers
Fig
pressures from global competition. As

such, their position in the market is
being defined by how quickly they can
profitably respond to these challenges.
to the left of the brick wall highlight

some of the key supply chain corporate
processes in place today to support key
downstream customers, including these:
With this new level of variability,

companies must have the ability to
synchronize their demand and supply
plans to that of their largest customer
especially now when critical-mass retailers
have more influence than ever over
manufacturing supply chain planning.
To achieve this, companies must sense
demand signals further down the supply
chain and have a process in place to
synchronize the executive planning and
execution sides of S&OP.
Raw Material Planning
Its Easier Said

Than Done
For supply chain leaders, the goal of
formally linking customer collaborative
processes with corporate S&OP
cycles makes sense. However, many
companies have struggled to link these
processes effectively. Figure 1 highlights
a framework that has become all too
common for fast-moving consumer
goods manufacturers. In it, the boxes
22
Production Planning and Scheduling

Replenishment Planning
Demand Planning
The predominant demand signal
driving the above processes for many
manufacturers has been shipments out
of their distribution centers (DCs) and/or
plants or in some cases historical orders
on these supply nodes in the network.
Improved fill rates or perfect order
attainment were the primary metrics
for success. Manufacturers have created
pools of inventory as a buffer against
the bullwhip of demand to maintain
their key targets and have often been
caught short when dramatic demand
shifts have occurred at the shelf, thereby
creating excess inventory and lost sales.
To the right of the wall in Figure 1
are the same manufacturers crossfunctional teams that support the
sales and service of their products to
their critical mass customers. These
teams have added significant value

in executing Collaborative Planning,
activities and vendor managed inventory
(VMI) programs to improve sales and
coordination. Market consolidation
has created an environment where an
ever-increasing share of the business
is coming from a shrinking list of very
large retailers. Some of the key planning
processes of these teams include:
Sales Account Planning
Collaborative Retailer DC Forecasting
and Replenishment
Promotions Planning
Category Management
Sales Reporting
The cross functional retail teams working
with the supplier account teams are
closest to the consumer demand signal.
Determining a way to close the planning
and information exchange gaps between
these two groups represents a significant
opportunity to drive greater revenue at a
lower operational cost. Closing the gap
requires a fundamental shift in some of the
planning processes currently executed by
corporate planning departments.
Figure 2 | Shelf-Connected Supply Chain Model
Fig
S&OP
Supply &
Inventory
Plan
Forecast Signal
Demand, Supply &

Inventory Match for All the
Manufacturing Plants
Own DC to
Retailer DC
Deployment
Mfg to Own
DC
Deployment
Procurement
Management
Global Demand Forecasting
Manufacturing
Management
Demand
Mgmt
Top-Down
Adjustment
Net Forecast Against Inventory &

Generate Longer Term
Procurement Requirements
Retail
Stores
Changes to the Process
Enterprise-wide Finance,
Supply, Demand, and Inventory
Synchronization
Multi-echelon
Inventory
Optimization
Supplier Collaboration
Daily Production Plan
Multi-echelon Replenishment
from Manufacturing to DC and
Projected Replenishment from
DC to Store
Plant Level
MRP
Optimized Routes, Loads and

Delivery Schedules
POS &
Collaborated
Forecast
Supplier Generated
Store Level Forecasts
Collaborate on Forecast
& Replenish
Shelf-Connected
Supply Chain
Model
Ensure POG
Compliance
Figure 2 highlights the new process

paradigm for the shelf-connected supply
chain. The shaded boxes represent some
of the largest opportunities for change.
Starting at the bottom of Figure 2 with
Retail Stores we have the following:
proactive changes to inventory and

production strategies. Moving to a shelflevel forecast capability requires the
adoption of technology that can scale to
potentially hundreds of millions of SKU/
location combinations. This solution must
be driven by an exception management
framework model that enables a planning
staff to effectively capture insights
without reviewing every item/location
intersection.
Supplier Generated Store Level

Forecast: Manufacturers need to be able
to model and forecast demand at their
customers shelf level Manufacturers
withthe ability to forecast at the shelf
will capture changing trends faster
than their shipment-based forecasting
counterparts, enabling them to make
Collaboration on Forecasting and

Replenishment: Many manufacturers
have been caught off guard by a dramatic
increase in retail orders or a significant
drop off in order levels without an
apparent reason for the order shift. After
due diligence with the retailer, it often
becomes apparent that the root cause
Plant Level
Schedule
MRP From Plants
Supplier Developed
Store Planograms
Shelf Analytics
is a change in replenishment policy. For

instance, changes in service levels, safetystock settings, lead times, transportation
modes, and order parameters can
drive large swings in order patterns.
Manufacturers need visibility into retail
order strategy parameters to better predict
future time-phased orders coupled with
store-level forecast collaboration to move
to a shelf-connected supply chain model.
Supplier Developed Store Planograms:
There is a great opportunity to formally
bridge and integrate the shelf planning
and demand management function
within a manufacturer. Often the
category management teams and
demand forecasting teams operate in
a totally independent manner or are
very loosely coupled with informal
23
collaboration. It is common for category

management teams to allocate space on
the shelf by a historical demand average
and some corresponding rule of thumb
parameters such as case pack and a half.
As manufacturers transition to retailshelf driven forecasting, they can apply
these time-phased forecasts to the way
shelf space is allocated more effectively.
In addition, having visibility into a timephased demand plan can assist retailers
and manufacturers with the frequency
by which shelf resets should occur for a
category. For instance, highly seasonal
products and categories may be reset
more frequently to avoid stock-outs or
excess inventory situations. Measuring
demand variability at the shelf can also
drive more intelligent space-allocation
decisions. For example, items that have
the same average demand over time can
have very different demand distributions.
All other things being equal, products
that have stable and continuous demand
streams may require fewer facings than
items with the same average demand
that have highly variable erratic demand
patterns.
There has been a significant amount
of innovation in the area of shelf-space
automation, enabling manufacturers
and retailers to develop store-specific
planograms based on the unique demand
patterns and consumer demographic data
found at the store level. Many retailers and
manufacturers are moving away from a
one-size-fits-all or regionally based shelf
set to shelf plans and assortments that are
optimized by store cluster or individual
store. The execution and implementation
of a store-level reset can have a dramatic
impact on the corresponding timephased order plans that are executed
to the manufacturer. Next-generation
software providers have recognized this
link and have formally integrated storelevel forecasting and replenishment to
24
plan-o-gram management and execution.

This models the impact that shelf set
changes and promotional displays can
have on planned order flows.
Shelf Analytics: Many manufacturers
have invested in demand signal
repositories to leverage the point-of-sale
information obtained from their critical
mass trading partners. These repositories
have helped manufacturers measure
the impact of past promotions, monitor
distribution of new and existing items,
and identify pricing trends and historical
out-of-stock situations. Next-generation
solutions are moving from a historical
perspective of the retail shelf and moving
to a predictive future.
Capabilities now exist that enable
manufacturers and their retail trading
partners to leverage algorithms that focus
on the root cause to determine which
items are likely to be out of stock in the
future. This is a transformational change
from the history-based analysis that
identifies out of stocks after they have
occurred. Some of the most common
out-of-stock root cause identifiers include
the following:
Phantom/ghost inventory where
perpetual inventory found in the
retailers system is likely to be
inaccurate
Inappropriate ordering parameters
Inaccurate demand forecasts
Insufficient shelf-space allocation due
to promotions or seasonal demand
Shelf distribution driven by poor instore execution
Manufacturers that can identify these
out-of-stock situations and dynamically
adjust forecasting and replenishment
parameters via collaboration with their
retail partner will have a competitive
advantage over those that do not.
Multi-Echelon Inventory Optimization:

By leveraging multi-echelon inventory
optimization, companies can improve
the accuracy and performance of daily
replenishment and inventory planning
to drive higher levels of in-stocks with
lower inventory across the network.
Shelf-connected solutions incorporate
scenario management down to the
customer level, enabling companies to
make strategic, informed decisions that
further enhance their inventory control.
Multi-echelon solutions look at safetystock requirements beyond a single
node within the supply chain to consider
inventory, cash, budget, and service level
tradeoffs and how they fit into different
strategies that encompass the entire
network.
Companies that adopt multi-echelon
inventory optimization down to the retail
customer can:
Quickly adapt inventory policies
and stocking strategies to address
changing market conditions, business
objectives, supply chain constraints,
customer segmentation, and buying
behavior.
Eliminate excess inventory and reduce
obsolescence costs while maintaining
customer service levels.
Develop inventory strategies that
maximize the profitability and volume
of key materials, components, and
products.
Reduce stock-outs and excess
inventory through early warning and
performance analysis.
Multi-Echelon Replenishment: Many
manufacturers have become frustrated
with store-level CPFR programs because
they have not been able to integrate the
insights from the collaboration back into
their supply chain. For many, this was
because they did not have an effective
way to translate the store-level forecast
into a reliable time-phased order plan.

Large-scale retailers are now deploying
multi-echelon planning solutions that
incorporate the constraints of their network
in order to produce a reliable time-phased
order plan. These plans incorporate but are
not limited to the following:
Manufacturers can create these timephased plans independently or work with

their key trading partners to capture this
plan as a replacement to a less reliable
order forecast that is based exclusively
on historical shipments of a manufacturer
shipping DC location.
Time-phased demand forecasts from

the shelf
Global Demand Forecasting:

Manufacturers that adopt a shelfcentered point of view map key customer
demand forecasts directly into their
forecasting hierarchy and take into
account the customers view into their
consensus demand planning process.
Many manufacturers incorporate
customer demand hierarchies today, but
the statistical views are often built upon
shipment histories versus a shelf-driven
demand signal. The shelf-connected
model starts with the pull signal from
the shelf as the primary input to develop
accurate customer time-phased order
plans. A time-phased order plan that
Calculating minimums from shelf-set

plans
Shipping and receiving calendars of
their stores and DCs
Required lead times between each
of the nodes in their supply chain
networkfrom the suppliers order
point to the shelf
Item case pack and pallet rounding
rules
Transportation minimums and
rounding rules
Safety stock requirements
Order cycle targets
incorporates the customer-level demand

signal is a foundational building block to
synchronized enterprise-wide S&OP.
Synchronized Enterprise-Wide S&OP:
As shown in Figure 3, the brick wall
is removed as a company updates
its business processes to the shelfconnected model discussed earlier. A
synchronized S&OP process transforms
the traditional supply and demand
balancing exercise into an integrated
business planning process that aligns
a companys operational plans with
its long-term business strategies and
financial objectives. To achieve this level of
coordination, companies must establish
an integrated planning framework that
links S&OP with CPFR initiatives.
Starting at the bottom part of Figure 4,
companies have established collaborative
trading partner initiatives with their key
customers and suppliers to build joint
value by collaborating on forecasts, new
Figure 3 | Next Generation of S&OP
Fig
S
N E T W O R K ,
S O U R C I N G
&
A N D
I N V E N T O R Y
Supply Chain & Logistics Management

Raw
Material
Planning
Production
Planning &
Scheduling
ORD E R
Supplier
Procurement
Orders
Replenishment
Planning
Demand
Planning
P RO M I S I N G ,
Factory
Production
Orders
Shipments
Account Management
Account
Planning
I N V E N TO RY
Manufacturer
DC
O P T I M I Z A T I O N
Store/DC
Collaborative
Replenishment
Promotional
Planning
D E P LOYM E N T
Retail DC
Customer Orders
&
Category
Management
Shelf
Analytics
Store
Forecasting
LO G I S T I C S
Store
DC
Withdrawals
Assortments
POS Sales
25
Figure 4 | Integrated S&OP and CPFR Framework
Fig
Executive Management
Business Review
Supply Review
New Product/
Activities Review
FINANCIAL APPRAISAL
Demand Review
CONSENSUS DEMAND REPRESENTATION

FUNCTIONAL DEMAND REPRESENTATION
Sales
Product/Brand
Management
Marketing
Demand Planning
CUSTOMER DEMAND REPRESENTATION
Supplier
Team 1
Supplier
Team 2
Supplier
Team 3
Supplier
Team X + 1
Supplier
HQ Team
Customer
Team1
Customer
Team 2
Customer
Team 3
Customer
Team X + 1
All Other
products, and replenishment plans.

These external insights can improve
the collaborative demand planning
processes that are internally executed
across functions within a company as
shown in the second layer of Figure
4Collaborative Demand Management.
After a consensus demand plan is created
that incorporates the key insights from
customer and supplier relationships, it
becomes a key input into the long-range
integrated business planning process.
This allows a company to synchronize
its demand, supply, new product, and
financial plans over a time horizon that
links to corporate strategy. This time
horizon is typically 18 to 24 months or
more on a rolling basis (see the top layer
in Figure 4).
26
Recently, significant transformations

have occurred in the marketplace that
make the connection of S&OP and CPFR
more attainable and valuable, including
the deployment of time-phased order
planning capabilities by many criticalmass retailers. With this new capability,
retailers can now provide a view of what
they plan to order beyond a single lead
time in addition to providing critical-mass
demand data from the retailers shelf or
Web portal. This further improves the
companys planning process.
Additionally, businesses need the ability
to create and evaluate scenarios for
demand spikes, supply shortages, and
other strategic, operational, and tactical
events. This analysis enables companies
to examine how different scenarios
will affect their financials, thereby

helping them to determine the best
course of action and enhance the sales
and operations plan. Yet, in order for a
company to achieve perfect-order fill
rates and customer service targets, the
sales and operations plan creation must
be tied to plan achievement.
To accomplish this, companies must be
able to track their daily progress against
the sales and operations plan and take
corrective actions to resolve any
performance gaps or deviations as they
occur instead of waiting for the next
months S&OP cycle to modify future
plans. As companies sense any gaps
in performancesuch as demand or
mix deviations, supply constraints, or
unexpected competitive actionsthey
must have access to process playbooks

to improve their response time. Process
playbooks provide companies with
the most profitable solution to a
particular deviation, automatically
escalating deviations not included in the
playbooks to the appropriate executive
for immediate resolution. By employing
this type of continuous improvement
process, companies can ensure that they
are operating in accordance to plan.
Achieving
the PlanningExecution
Connection
Despite the various benefits, many
companies find it challenging to connect
the executive planning and execution

sides of S&OP. In fact, a recent AMR
Research study found thatfew companies
claimed linking successfully the S&OP
output to operational or execution
processes. The study further shows that
30% of the companiesfind driving the
use of a plan in daily operations is their
biggest challenge.
Technology plays a key role in
synchronizing this process. Companies
interested in achieving an integrated
planning framework that connects
execution, operational, tactical, and
strategic processes will benefit from a
technology solution that features the
following.
A Robust S&OP Data Management
System: Given the breadth and depth of
todays global supply chains, companies
have exponentially more data that have

to be consolidated into one format that
can be easily digested and acted upon.
Solutions need a meta-data management
layer that features mappings and
common data definitions for business
unit, product, geography, etc., to help
facilitate this process. Plus, with the
increase of partners from emerging
markets, companies need to be able to
consolidate data with varying degrees of
sophistication and different time horizons
into one cohesive plan.
A Consolidated Business View for
All Stakeholders: An effective S&OP
process involves input from stakeholders
such as finance, product development,
procurement, manufacturing, demand
and supply planning, and sales and
marketing. Yet, each stakeholder needs
the ability to view the time-phased plan
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FORECASTING & DEMAND PLANNING
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27
Figure 5 | Synchronized S&OP Maturity Model
Fig
in the language and hierarchy level

respective to that individuals role in the
organization. For instance, a production
planner may only need visibility into
family-level demand on a key resource
within his plant, whereas a senior-level
executive may want an aggregated
financial view of how the plan is
operating against budget and whether
the company is on track to achieve its
long-term objectives.
Visibility into All Supply Chain
Functions: Businesses need insight
into company-wide supply chain
planning activities, as well as the plans
of their supply chain partners. This level
of visibility is critical for companies
initiating demand-shaping activities as
they need visibility into the extended
supply chain network to ensure planned
promotions wont strip away their
capacity to make the product. This
visibility will become even more critical
as the economy recovers, enabling
companies to divert sources of supply to
higher-margin markets in order to boost
28
the companys overall margins.

Automated Workflow Synchronization:
Within the S&OP process, theres a
cadence and order to the activities that
must occur and a level of coordination
required among stakeholders. As
companies deploy an integrated S&OP
framework, the number of steps and
coordination of activities across these
functions and resources will increase.
By using automated workflows and
alert mechanisms, critical decisions
can be elevated to the appropriate
stakeholders, ensuring that the
company continues to achieve its goals
and objectives by operating according
to plan.
Its The Journey, Not

The Destination
A companys
that closes
gap will be
the industry
need for an S&OP process

the planning-execution
determined primarily by
in which it operates. Not
all stages of the S&OP maturity model,

however, will apply to each industry
(Figure 5). For example, companies
in the consumer electronics industry
are constrained by increasingly short
product life cycles. Consequently,
execution to plan has become
a condition for market survival,
prompting those in the consumer
electronics industry to move toward the
highest levels of S&OP synchronization.
On the other hand, industrial
manufacturers, business-to-business
manufacturers, and companies with
slower-moving consumer goods can
achieve great gains through modest S&OP
improvements such as enhanced process
orchestration and synchronization with
finance. Ultimately, the closer a company
is to the end consumer, the more
important it is for them to understand
the demand stream and harness that
knowledge to create an integrated S&OP
process that satisfies the companys
business objectives and bottom line.
[email protected]
A History of CPFR
By Larry Lapide
E X E C U T I V E S U M M A R Y | Fourteen years ago Collaborative Planning, Forecasting and Replenishment (CPFR) was introduced
as a concept for which a manufacturer and retailer could jointly do replenishment planning of the retailers inventories. Its history
has largely followed the Gartner Hype Cycle. It started out with a lot of hype during the Internet/Dot.com Bubble, and then fell
into a trough of disillusionment when the Bubble burst. Today its use is relatively pervasive, however, not in the same way it was
standardized during the early days. Its about a bigger conceptsupply chain collaboration.
L AR RY L API D E | Dr. Lapide is a Research Affiliate at MIT and a Lecturer at the University of Massachusetts, Boston
Campus. He has extensive experience in industry, consulting, business research, and academia as well as a broad
range of forecasting experiences. He was an industry forecaster for many years, has led forecasting-related consulting
projects for clients across a variety of industries, and has researched as well as taught forecasting. He was also a
market analyst researching forecasting and supply chain software.
(This is an ongoing column in The Journal, which is intended to give a brief view on a potential topic of interest to
practitioners of business forecasting and planning. Suggestions on topics that you would like to see covered should
be sent via email to [email protected])
got on the Collaborative Planning,
waste in consumer product goods (CPG)
sales.
supply chains. Eventually the excitement
innovations, it followed the Gartner
program bandwagon very early, just as
was about supplier-customer collabora-
Hype Cycle in which early-on, after
it was getting started. There was much
tion in general, as offering the long-term
a trigger, it experienced a period of
excitement about it in the supply chain
panacea, and the epitome among ways
inflated expectations, then a period of
community. It was viewed as a way
from which to integrate supply chains
trough of disillusionment, and eventually
for manufacturers and retailers to
and thereby gain huge benefits in
enlightenment that led to its current
drastically reduce inventories, costs, and
inventory reductions and increased
period of productivity.
Like
most
new
technology
29
The Early Days
and
to
the Internet to totally integrate supply
represent the implication of a see far
chains. Like the Internet, we all felt that
My first awareness of CPFR came
initiative. According to the article, a
it was going to change everything
over 14 years ago upon reading
small consulting firm, Benchmarking
and that we were entering into a new
a Business Week magazine article,
Partners, had developed CFAR with
economic model.
dated October 21, 1996, titled
funding from Wal-Mart, IBM, SAP,
Clearing The Cobwebs from the
and Manugistics (now part of JDA
Stockroom: New Internet Software
Software) and was trying to establish
May Make Forecasting a Snap (http://
industry standards for the way retailers
www.businessweek.com/1996/43/
and their suppliers should collaborate
b3498166.htm).
over the Internet. That January, I joined
The article described a working pilot

that was being conducted by WarnerLambert Company and Wal-Mart
to co-forecast the retailers sales of
Listerine mouthwash, and to improve
the retailers inventory replenishment
Replenishment
or
CFAR,
Benchmarking Partners for about a

year to play a part in CPFRs evolution,
and continued to track the industry
initiative during my tenure as a supply
chain analyst for AMR Research (now
part of Gartner).
The first major AMR Research report

I wrote on CPFR was published in July
1998: Are We Moving from Buyers
and Sellers to Collaborators? While
the title was posed as a question as
to whether CPFR was going to be a
big deal, the report was bullish on its
long-term prospects. In that report,
I showed Figure 1 to depict not just
the manufacturer-retailer collaboration
(regarding demand planning), but also
all the various other opportunities
of the product. The initiative at that
During this time, like many others, I felt
along a supply chain for collaboration
time was not called CPFR; instead, it
that CPFR was going to be great and
among selling and buying trading
was called Collaborative Forecasting
an important way in which to leverage
partners. I conjectured that the
Figure 1 | Major Collaboration Opportunities within a Supply Chain
Fig
Source: Lapide, Lawrence Are We Moving from Buyers and Sellers to Collaboratiors? The Report on Supply Chain Management, AMR Research/Gartner , July 1998.
30
collaboration concept was going to

be useful not only for the relationship
between a manufacturer and a retailer
(i.e., what CPFR was focused on),
but also between a manufacturer
and its multi-tiered set of suppliers
to
do
Synchronized
Production
Scheduling and Collaborative Product

Development. I also postulated
collaboration among manufacturers
The Meltdown
Changed
Everything
for CPFR
Since the early days, I would say
CPFR never became the big deal we
all thought it would be when it was
first introduced. Once the Internet
and their logistics provider to do
meltdown or Dot.Com Bubble burst in
collaborative logistics planning for
2000, the enthusiasm for CPFR waned
transportation and distribution center
despite there being ample evidence
(i.e., warehousing) services.
of its benefits that were gleaned
In addition, I identified three levels

of electronic commerce between a
buyer and a seller: 1) transactional,
2)
information-sharing,
and
3)
collaborative. I described these as the
from the early pilots of the program.

Along with the World Wide Web, CPFR
was going through its trough of
disillusionment. Companies discovered that it was difficult to
scale up the piloted processes in
path that buyers and sellers would
order to collaborate with larger
follow, and that would ultimately
swatches of their retail-customer
lead to a strategic relationship that
bases. Many suppliers just wound up
would include CPFR.
implementing it (in its standardized
Meanwhile, early in CPFRs history,

the Voluntary Interindustry Commerce Solutions (VICS) Association
form) with a few of their major, mostwilling, and capable customers that
were demanding it.
embraced the concept as part of
However, while CPFR in its original
its mission and set to work on devel-
form ended up not being the perfect
oping industry standards and supporting CPFR pilots. According to its

Website (www.vics.org/committees/
cpfr/): Since the 1998 publication of
the VICS CPFR guidelines, over 300
companies have implemented the
process. Numerous case studies of
CPFR projects document in-stock
approach, I would say its introduction

was an important watershed event for
all types of electronic collaboration.
It was instrumental in showing that
collaboration as a concept throughout
the supply chain could be leveraged
to improve planning and operations.
The term CPFR became associated
with a variety of inventory co-
percentage improvements of 2% to 8%
management programs, such as Vendor
for products in stores, accompanied
Managed Inventory (VMI) and Supplier
by inventory reductions of 10% to
Managed Inventory (SMI), as well as
40% across the supply chain.
forecast-sharing and other various
types of downstream data sharing

(including the sharing of channel and
warehouse inventories, and warehouse
withdrawals).
All these types of collaboration
programs are very much alive today.
Many CPG companies (e.g., General
Mills, P&G, and Hersheys) have
implemented successful co-inventory
management programs such as VMI and,
to a lesser extent, CPFR, with significant
portions of their customer bases.
High-tech companies, such as Dell
and Cisco Systems, have important comanagement inventory programs with
their suppliers (i.e., SMI). Lastly, many
manufacturers have implemented Justin-Time (JIT) inventory replenishment
programs to support production
operations and that are driven by
inventory replenishment forecasts
being shared with their suppliers and
contract-manufacturers.
Per the Gartner Hype Cycle, we have
reached a period of enlightenment
for CPFR and are currently in a period
of productivity that is not just
about CPFR in its originally devised
standardized form, but also, and more
importantly, about a broader concept
of supply chain collaboration. And with
the possible exception of Collaborative
Logistics Planningwhich appears
to have become a collaborative
process of less interestmuch of the
collaboration is as depicted in Figure
1. So just like the recent Internet
concepts, such as the Web 2.0 and 3.0,
CPFR concepts have been successfully
implemented, however, not in the same
standardized ways we all thought they
would over 14 years ago at the peak of
the hype!
[email protected]
31
CPFR:
Fact, Fiction, or Fantasy?
By Ron Burnette
E X E C U T I V E S U M M A R Y | The article shows how the Collaborative, Planning, Forecasting and Replenishment program has
evolved over time, what changes have occurred over time, and why. It also shows how the spirit of collaboration that germinated from
this program spread in other areas both inside and outside the enterprise. At the end, the author gives a quiz so you can determine how
much collaboration you have within your organization.
R O N B U R N E T T E | Mr. Burnette is the Product Director at Logility, Inc. He has more than 20 years of experience in
the development, support, and marketing of software, including financial, manufacturing, and collaborative supply
chain business processes. He represents his company at the deployment working group of Collaborative Planning,
Forecasting and Replenishment (CPFR) of Voluntary Interindustry Commerce Standards Association (VICS).
ow has CPFR impacted business

processes today? Has the original
charter of companies sharing and mutually
acting upon shared information come
to fruition? Or has the collaboration
morphed into something different and
better? I will try to answer these and
many other questions regarding the state
of CPFR. But first we must start at the
beginning.
a software and research firm located in

Cambridge, MA.
CPFR to emphasize the role of Planning

in the collaborative process framework.
CPFR started out as CFAR, Collaborative

Forecasting and Replenishment. To
promote CFAR, specifications were
posted on the web and more than 250
companies, including Sears, JC Penny, and
Gillette, were briefed. According to a 1996
Business Week article, 20 companies were
in the process of implementing CFAR.
THE CPFR Model
The Birth of CPFR
Benchmarking Partners then presented

the CFAR standard to the Voluntary
Interindustry Commerce Standards
(VICS) to prepare CFAR as an international
standard. Based on a suggestion from
Procter & Gambles vice president of
supply chain, the standard was renamed
Collaborative Planning, Forecasting and

Replenishment (CPFR) has been around
for quite some time. Born in 1995, it was
co-led by Wal-Marts vice president of
supply chain and Benchmarking Partners,
32
The CPFR model provides the basic

framework for the flow of information,
goods, and services between two
trading partners (buyer/seller). Under
the CPFR guidelines, trading partners
develop a joint business plan to identify
and codify the terms of their relationship
including areas of responsibility, jointly
developed calendars, guaranteed
customer service levels, and timing of
replenishment orders. In many CPFR
arrangements these plans are defined
in a formal agreement.
A key differentiator of CPFR is that it is an

exception-driven process which allows
trading partners to collaboratively review
sales and order forecasts. Up until CPFR,
most collaborative efforts were data
driven and exceptions were not a part
of the process. The exception-driven
platform provides CPFR the scalability
which other collaborative efforts such
as Vendor Managed Inventory (VMI) and
Efficient Consumer Response (ECR) could
not. Processes such as VMI and ECR rely
on external supply chains or ERP systems
to identify sales forecasts or order forecast
outliers. CPFR, however, was designed to
REPLENIShMENT
FORECASTING
PLANNING
Figure 1 |
Nine Steps to the CPFR Process
Figure 2 | Benefits Derived by Early Adopter
incorporate these exceptions right into

the process. For example, Step 4 of the
nine steps of the original CPFR process
was Identify Exceptions for Sales Forecast
Inputs. This allowed trading partners to
compare their forecast and identify where
they had a difference outside of allowed
tolerances. Step 5 of CPFR was a defined
process to determine how to resolve the
differences in sales forecasts. This was a
quantum leap forward from the datadriven VMI model in that the framework
of the process identified the types of
exceptions to look for and how to resolve
them. It also addressed built-in latency
issues that are inherent in a data driven
process.
Problems with the

Original Model
While the concept of CPFR was
groundbreaking, there were some design
flaws in its initial framework. This original
structure consisted of a rigid nine-step
process (see Figure 1) that started with Step
1 and required companies to follow a set
path to implement each successive step.
While each step is an important criterion in
establishing a collaborative environment,
it left companies with little room for

flexibility to meet their specific business
requirements. Even with this limitation,
many companies were very successful in
their efforts to implement a CPFR process.
In 2001, AMR Research identified several
benefits early adopters realized from their
CPFR initiatives (see Figure 2).
A Case Study
A leading sports accessories supplier
faced a tough challenge. The company
had very little visibility into demand
and therefore could not accurately
predict how much product each retailer
needed to have in stock. This was further
complicated by the need to sell to large
mass retailers as well as smaller specialty
retailers. The first step was to grab the
low-hanging fruit by implementing the
Logilitys Voyager Solutions. This covered
forecasting (Demand Planning), inventory
optimization (Inventory Planning),
replenishment planning (Replenishment
Planning), and a CPFR compliant
solutionVoyager Collaborate. They
quickly reduced forecast error by up to
25% at the customer level and increased
visibility across their supply chain. This
new-found visibility led to the realization
33
that more than just forecast accuracy that

needed attention.
Figure 3 | Anomalies in the Buying Patterns (Manufacturing vs Actual vs Retailer
After reviewing the forecast each month,

they noticed some anomalies with the
buying patterns of one their key retail
partners. This became the catalyst for a
collaborative relationship with this mass
retail partner, which was already involved
in other CPFR initiatives. Soon the two
companies were able to quickly identify
the problem areas. Figure 3 shows where
the exception-driven nature of CPFR
quickly identified what the problem was.
The retail partner ordered a product the
product management team had already
discontinued.
With a collaborative framework in place
the supplier was able to work with the
buyer to identify the problem and the
way to resolve it. Through collaboration
with the customer, one sporting goods
accessory supplier:
Increased sales by 20%
Decreased inventory by 16%
The supply chain team matured into
a proactive planning and category
management organization
Identified additional collaborative
opportunities starting with their
Asian-based suppliers
CPFR: Phase II
As with any good business process,
CPFR evolved. The underlying tenets
of CPFR were sound; however, the
implementation structure was too rigid
for many companies to implement. The
original CPFR model was designed as a
nine-step linear implementation. And,
many companies believed they had to
implement all nine steps before they
became CPFR compliant and could
realize the benefits of collaboration.
For example, Steps 3, 4, and 5 focus
on sharing and resolving conflicts
34
Source: AMR Research
with the sales forecast. Steps 6, 7, and

8 focus on the order forecast. Some
companies only wanted to share order
forecast information, but felt they had to
implement Steps 3, 4, and 5 before they
could begin the collaborative sharing
process.
So, the CPFR committee at VICS went to
work to revise the process. This led to the
flexible CPFR model we know today. The
new model incorporated the planning,
management, and execution from the
first model, and then added essential
process steps that were previously
missing and addressed the rigidity
issues. Now, companies have the ability
to decide which aspects to focus on;
for example, sales forecasting vs. order
forecasting, order generation vs. order
fulfillment, and so on. Additionally, it
added a structure of keeping a scorecard
on collaboration.
This was a key addition to the new CPFR
process. The focus, and rightly so, in
the first version of CPFR was to identify
exception conditions and direct trading
partners on how to resolve those errors.
The scorecard added the ability to look
back and identify how well each trading

partner performed. Did the manufacturer
maintain the agreed upon days of supply
with the retailer/distributor? Did the
retailer/distributor give the manufacturer
insight into their promotional plans
in a timely manner? These and many
other metrics could then be used to
further fine-tune the collaborative
efforts of each trading partner. This was
quite different from some of the other
collaborative processes such as VMI or
ECR where one partner typically realized
a disproportionate share of the benefits
and workload.
CPFR Today
I started this article by asking some basic
questions regarding the state of CPFR in
todays business world. Well, there are no
simple answers. One undeniable fact is
that CPFR has spawned an ever-increasing
interest in all types of collaboration.
I have seen an increase in internal
collaboration, such as that between
sales and marketing and supply
chain teams. External collaboration
has grown with a keen focus on

sharing information with customers,
suppliers, and transportation carriers.
While each of these collaboration
efforts might not follow the set CPFR
standards, the interest in information
sharing and exception-based process
management certainly has its roots in
CPFR.
One can even argue that todays
increased interest in Sales and
Operations Planning (S&OP) was
sparked by CPFR. When companies
started their CPFR initiatives, they first
had to look internally at the accuracy of
their supply chain information to assess
their confidence in the commitments
they made to customers. In most
cases, what they found wasnt pretty.
Companies quickly embarked on ways
to correct this, where S&OP was, and
still is, the obvious solution.
So while companies may not rigidly follow
the CPFR standards and guidelines, they
certainly use its established framework to
share information that can be mutually
acted upon. The fact is that CPFR is here
to stay.
Looking Ahead
Where do we go from here? Is there
another phase in the cycle of CPFR
evolution? I am not sure. One thing
is for certain, the importance of
collaboration is well understood and
it is now one of the key initiatives
of many of leading supply chain
organizations around the world. The
tools are available and best practice
examples abound to bring to life
collaboration, in whatever form works
for your company. Just remember,
technology provides the means, we have
to supply the effort and commitment.
[email protected]

WHERE ARE YOU?

To determine where you are in the collaborative process, I have wrapped up this
article with a little quiz. Keep a pencil handy to see how well you did. Answer either
with Fact, Fiction, or Fantasy. Ready? Dont peak at the answers.
Questions
1. Technology = Collaboration?
2. The value of collaboration cannot be measured.
3. Collaboration is challenging?
4. Collaboration increases worker and enterprise productivity?
5. Collaboration should be the ultimate goal of your organization?
Answer
1. Technology = Collaboration? Fantasy This is a common misconception.
Collaboration does not occur just because people or information are connected.
80% of software tools implemented are used to coordinate, communicate, and
cooperate, as opposed to collaborate.
If you want to achieve strategic value from collaboration, you must first cultivate a
collaborative culture.
2. The value of collaboration cannot be measured. Fiction The value of
collaboration can be measured. It is more difficult and complex than the typical
internal business process since the nature of collaboration is to create change.
To do that you need to define and assess fine-grained qualitative changes that
occur from your collaborative efforts.
3. Collaboration is challenging? Fact Collaboration is not a natural human or
organizational structure. Trust me, I know. It requires that team members are
willing and motivated to invest time to listen and share ideas.
To ensure excellence, your employees must have incentives as well as personal
success measures and organizational measures in place. Also, celebrate your
success.
4. Collaboration increases worker and enterprise productivity? Fiction Many
organizations oversimplify collaboration under the guise of enhanced worker
productivity. The results of a collaborative initiative may be enhanced quality;
however, the activity of collaborating may introduce additional work. The good
news is that your valuable human resources will be focused on high-impact
relationships.
You need to be very clear about why people are collaborating and the impact this
will have on their workload.
5. Collaboration should be the ultimate goal of your organization? Fiction The
ultimate goal is to deliver upon your key metrics, such as profitability, perfect order
levels, and high customer satisfaction levels. Collaboration is a proven method to
increase your visibility, get closer to customers and consumers, and stand at the
heart of most of your workplace initiatives.
Business managers should understand that collaboration is an attribute of many
different processes and that they need to create a culture and define business
processes to support collaboration.
How did you do? If you got 0 - 1 correct, please go to www.vics.org and tap
into their excellent resource papers. 2 - 3 correct means that you are on the
collaborative path. Keep doing what youre doing and you will successfully
implement collaborative processes in your organization. 4 - 5 correct? I may be
calling on you!
35
INTERNATIONAL
ECONOMIC
OUTLOOK
Fiscal Policy Exhaustion

and Sovereign Risk Slow
Down Global Recovery
By Evangelos Otto Simos
Dr. Simos is Director of Forecasting at e-forecasting.com, a division of Infometricas Data Center, 65 Newmarket Road, Durham,
NH 03824, U.S.A., www.infometrica.com, [email protected]. This report does not purport to be a complete description
of global economic conditions and financial markets. Neither the Journal nor Infometrica, Inc. guarantee the accuracy of the
projections, nor do they warrant in any way that the use of information or data appearing here in will enhance operational or
investment performance of individuals or companies who use it. The views presented here are those of the author, and in no way
represent the views, analysis, or models of Infometrica, Inc. and any organization that the author may be associated with.
I. Global Assessment and Outlook
wo of the sixteen members of the Euro Areathe

European Unions bloc using the euro as its common
currencyhave been rescued. Greece received a bailout of
110 billion euros and Irelands bailout hit 85 billion euros.
Financial pressures from debt burdens and rising borrowing
costs for several larger economies of the Euro Area have
not yet reached their peak. It is expected that in 2011
Portugal and Spain will have large amounts of funding to
roll over, in addition to immense incremental net borrowing
requirements. The contagion fears seem to hit other large
economies evidenced by elevated Italian bond spreads over
German bonds. For 2011, it is estimated that Portugal and
Spain will have funding requirements in excess of 250 billion
euros and Italys needs will be close to 340 billion euros.
also have larger spillover effects on the banking institutions of
Financial and sovereign debt problems in larger countries,

like Spain and Italy, are not only far costlier to solve but they
same time, the Euro Area is the most important trading partner
36
other economies and, most importantly, on global growth by

weakening international trade. Given a worldwide exhaustion
with fiscal policy by both the public and governmentsthey now
see deficit-driven stimuli and ballooning debts as the problem
rather than the solutionfiscal consolidation is expected to
dominate economic policy over the next two years.
Consequently, austerity programs on bailed-out countries will
adversely affect their growth, jobs, incomes, and their imports.
The larger the bailed-out country, the larger its adverse effect
upon its major trading partner. For instance, Ireland is the fifth
largest purchaser of United Kingdoms exports and Spaniards
buy a lot of goods made in Germany, France, and Italy. At the
of the United States outside North America.
The ongoing European financial and sovereign risk crises,
forecast for Europe and subsequently spillover effects
coupled with increased uncertainty from the loss of
upon the rest of the world. In 2011, Euro Area is now forecast
confidence in economic policy and newly emerged fears
to grow by 1.4% and worldwide output to expand by 3.8%,
of geopolitical factors related to the Korean Peninsula have
about 1% lower than an estimated growth rate of 4.7%
resulted in further trimming of our baseline economic
for 2010.
II. Short-Term Indicators and Forecasts

The baseline forecast incorporates major findings of the World
Economic Survey conducted by the German Ifo Institute and the
Paris-based International Chamber of Commerce. In the results
of the survey, which was conducted in the fourth quarter of
2010, about 1,100 executives from 113 countries indicated that
although the worlds economic climate continued to improve
in the fourth quarter of 2010, the pace of growth has slowed
for a second quarter in a row. The recent overall readings of
the worldwide survey are consistent with a continuation of the
global recovery but at a slower pace than in 2009 and in the first
half of 2010. The major findings of the fourth quarters survey are
as follows.
Worldwide, executives evaluated the economic situation of
the fourth quarter of 2010, favorably with overall business
conditions at satisfactory levels. They found economic activity
in their countries to be a lot better than in the fourth quarter of
2009. Most important, regarding the future, executives expect
economic conditions in the first half of 2011 to be better than
those that prevailed in the last quarter of 2010.
On a regional basis, North American executives assessed the
current economic situation to be still at unsatisfactory levels but
significantly better than a year ago. Looking forward, business
experts from the United States and Canada expect economic
conditions to improve in the next six months compared to
the fourth quarter of 2010. In Asia, executives appraised the
current economic situation as above satisfactory levels and
at substantially higher performance levels than a year ago;
they were not equally confident about the future, expecting
economic activity in the next six months to be about the same
as in the fourth quarter of 2010. In Western Europe, executives
appraisals of current conditions were again below satisfactory
levels but significantly above economic activity that they
experienced in the fourth quarter of 2009; expectations of
European business executives on future economic conditions
signaled a slight improvement in economic activity in the next

two quarters.
With respect to prices, survey participants expect average
worldwide inflation over the next two quarters to accelerate
from current levels.
Looking at world trade, the business executives combined
expectations call for the volume of both exports and imports
to be higher in the next two quarters compared to trade flows
during the fourth quarter of 2010.
Using the soft data findings of the World Economic Survey,
a 113-country composite global business activity index is
constructed by e-forecasting to evaluate and forecast the shortterm worldwide business cycle. A reading of 50, the flatline, is
used as reference in evaluating the wave of alternating booms
and busts that mark the global economy. In the fourth quarter
of 2010, our global business activity index registered 57, which
is just one point above the previous quarter and the second
quarterly above-fifty reading in a row since the fourth quarter of
2008, confirming the end in the global recession.
e-forecastings global activity index tracks quarterly and
in a timely way economic conditions around the world. Its
historic behavior is consistent with the index of industrial
production for a group of 23 advanced economies, the
so-called industrial countries, constructed by hard data
and maintained by the International Monetary Fund (IMF).
However, the IMFs industrial production index lags behind
our diffusion indicator in terms of timeliness by two to three
quarters. The e-forecasting global activity index is a real time
indicator providing readings at the end of the last month of the
reference quarter.
Historically, changes in our global activity index mirror the growth
rate of worldwide industrial production (see Chart 1). Based on
the real time behavior of our indicator, industrial activity in the
37
IMF World Industrial Production, % change from previous year
Chart 1 | Predicting Global

Activity
CHARTIndustrial
1
Chart 2 | PredictingCHART
World2Trade
CHART
1
PREDICTING GLOBAL
INDUSTRIAL
ACTIVITY
PREDICTING GLOBAL INDUSTRIAL ACTIVITY
70
70
20
20
CHART 1
PREDICTING WORLD TRADE
PREDICTING GLOBAL INDUSTRIAL ACTIVITY
70
30
70
20
World Trade Volume, right scale

Global Activity Index, left scale
35
35
0
0
-35
-35
35
0
0
-10
-10
35
10
10
15
10
-35
-15
-35
-10
Global Demand, left scale

-70
-70
World Industrial Production, right scale

92
92
92
94
94
94
96
96
96
98
98
98
00
00
00
02
02
04
04
06
08
10
12
06
08
10
12
12
e-forecasting.com Index, 02
change 04
from previous
06 year
08
10
e-forecasting.com Index, change from previous year
70
70
CHART 2
CHART 2
-20
-20
-70
-70
92
92
92
94
94
94
96
96
96
98
98
98
00
00
00
02
04
06
-30
08
10
02 change
04from 06
06
08
10
e-forecasting.com Index,
previous
year 10
02
04
08
e-forecasting.com Index, change from previous year
12
-20
12
30
30
70
CHART 2
30
worldsWorld
advanced
economies is estimated to continue advancing
Trade Volume, right scale
in
35 the fourth quarter of 2010 but at a slower pace than in the
15
35
15
previous quarter.
Derived from the opinions of about 1,100 business experts from
0 modeling business executives two-quarter-ahead

0
By
0
0
expectations into a dynamic high frequency forecast, we
-35
-15
predict
the expansion in the global business activity index-15
to
-35
Global
Demand,
left
scale
continue in the nextGlobal
two Demand,
quarters.
However, growth in global
left scale
industrial
production is forecast to slow down in the first two
-70
-30
-70
-30
92
94
96
98
00
quarters
in
2011,
following
a
steep
acceleration
in
the
fi
rst
92
94
96
98
00
02 change
04from previous
06
08
year 10
02 change
04from
06
08
previous
year 10
three quarters of 2010.
of0 international trade, measured by global exports adjusted 0for
Our composite index of global economic activity also serves

as an indicator of worldwide demand and, consequently, its
change from a year ago mirrors the year-to-year growth rate
in the demand for internationally traded goods and services.
113 countries, e-forecastings composite global activity index

35
15
has shown a strong performance record in tracking the volume

price changes (see Chart 2).
-35
-15
Following a decline in the last quarter of 2009 at an annual rate
Global Demand, left scale
of 5.5%, the volume of international trade recovered and its

-70
-30
growth
rate
peaked
in the
second quarter of 2010 at an annual
92
94
96
98
00
02 change
06
08
from previous
year 10
rate of 18%. However,
based on
our04index,
growth
in the volume
of worldwide trade is estimated to have decelerated in the last

quarter of 2010. In addition, the predictive power of our global
activity index suggests that growth in the volume of world trade
will further decelerate in the first two quarters of 2011.
III. Regional Contributions to Global Growth

In our baseline annual forecast, global outputa worldwide
composite of 60 countries that account for 94% of the worlds
GDP using as weights each countrys relative GDP converted
to international dollars at purchasing-power-parity (PPP)is
estimated to have increased 4.7% in 2010 following a decline of
8% in 2009. Growth in global output is forecast to slow down to
3.8% in 2011 and then accelerate to 4.2 percent in 2012.
Given the relative economic size and expected output growth
in each of the major regional blocs, the contribution of each
38
region to overall global economic growth is computed and

presented in Table 2. This unique regional contributions-togrowth analysis helps identify the distribution of worldwide
growth and, consequently, the allocation of global demand
among geographic areas along with its changing pattern over
the forecast horizon.
The baseline forecast calls for output in the countries of the North
America region (NAFTA) to advance by 2.2% in 2011. Therefore,
NAFTA will contribute just 1.5% to the growth in global demand
Table 1 | Global Economic Growth and Inflation

Economic Growth
Market Size
Inflation
percent change in real GDP
percent change in consumer prices
REGION
2009 GDP
$PPP Billion
2009
2010
2011
2012
2009
2010
2011
2012
WORLD
EUROPEAN UNION (27)
Euro Area (16)
Austria
Belgium
Cyprus
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovak Republic
Slovenia
Spain
Non-Euro Area (11)
Bulgaria
Czech Republic
Denmark
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Sweden
United Kingdom
OThER EUROPE
Norway
Russia
Switzerland
Turkey
Ukraine
NORTh AMERICA
Canada
Mexico
United States
SOUTh AMERICA
Argentina
Brazil
Chile
Colombia
Peru
Venezuela
ASIA & PACIFIC INDUSTRIAL
Australia
Japan
Korea
New Zealand
EMERGING ASIA
China
Hong Kong
India
Indonesia
Malaysia
Pakistan
Philippines
Singapore
Taiwan
Thailand
MIDDLE EAST & AFRICA
Egypt
Iran
Israel
Saudi Arabia
South Africa
64,988
14,773
10,533
323
383
23
179
2,094
2,812
333
173
1,738
39
10
659
241
115
55
1,358
4,239
90
253
197
24
186
32
55
688
255
334
2,125
3,850
252
2,116
313
879
289
16,861
1,278
1,464
14,119
3,843
583
2,010
243
407
251
349
6,479
849
4,152
1,362
115
16,597
9,047
301
3,615
961
383
439
324
251
735
539
2,586
469
811
208
594
504
-0.8
-4.1
-4.0
-3.9
-2.7
-1.7
-8.0
-2.5
-4.7
-2.0
-7.6
-5.0
-4.1
-2.1
-3.9
-2.6
-4.7
-7.8
-3.7
-4.3
-5.0
-4.1
-4.7
-13.9
-6.3
-18.0
-14.8
1.7
-7.1
-5.1
-4.9
-6.8
-1.4
-7.9
-1.9
-4.7
-15.1
-3.0
-2.5
-6.5
-2.6
-0.2
0.9
-0.2
-1.5
0.8
0.9
-3.3
-3.2
1.2
-5.2
0.2
-1.6
6.3
9.1
-2.8
5.7
4.5
-1.7
3.4
1.1
-1.3
-1.9
-2.2
1.0
4.7
1.1
0.8
0.6
-1.8
4.7
1.3
1.0
1.3
1.3
0.4
1.8
1.4
1.9
-3.6
-1.0
0.8
2.0
1.7
1.5
0.6
3.0
1.7
-0.7
1.9
0.0
2.0
2.0
1.8
0.6
-1.0
1.3
3.4
-1.9
4.4
1.7
3.9
0.9
4.3
1.8
4.5
3.8
2.9
3.1
5.0
2.6
6.4
7.5
7.5
5.0
4.7
8.3
-1.3
3.5
3.0
2.8
6.1
3.0
9.6
10.5
6.0
9.7
6.0
6.7
4.8
7.0
15.0
9.3
7.5
3.2
5.3
1.6
4.2
3.4
3.0
3.8
1.7
1.4
1.6
1.7
1.8
2.0
1.6
2.0
-2.3
1.0
1.0
3.1
1.7
1.7
-0.1
4.3
2.4
0.7
2.3
2.0
2.2
1.9
2.9
2.0
3.1
2.9
3.8
1.5
2.6
1.8
3.8
1.8
4.3
1.8
3.6
4.5
2.2
2.4
2.9
2.1
4.2
5.1
4.5
5.8
4.1
4.6
-0.5
2.1
3.2
1.2
3.8
3.3
7.4
8.5
4.2
8.1
5.9
4.2
2.5
4.7
4.1
3.1
3.9
4.0
5.4
3.0
3.3
4.5
3.7
4.2
2.1
1.8
1.8
1.7
2.5
1.9
1.8
2.0
1.1
2.4
1.4
3.0
2.0
1.7
0.6
4.4
3.0
1.8
2.9
4.0
3.5
2.2
3.4
3.0
4.0
2.6
3.9
4.4
3.0
2.3
3.9
2.3
4.4
1.8
3.7
4.8
2.5
2.5
3.8
2.3
3.9
3.0
4.1
4.6
4.6
5.7
1.0
2.7
3.5
2.0
4.2
3.1
7.7
8.6
4.3
8.0
6.5
5.2
4.0
4.5
4.4
4.7
4.3
4.1
5.7
3.0
4.2
4.4
3.9
2.3
0.9
0.3
0.4
0.0
0.2
1.6
0.1
0.2
1.4
-1.7
0.8
0.4
1.8
1.0
-0.9
0.9
0.9
-0.2
2.6
2.5
1.0
1.3
-0.1
4.2
3.3
4.2
3.5
5.6
2.0
2.1
9.1
2.2
11.7
-0.5
6.3
15.9
0.2
0.3
5.3
-0.3
6.7
6.3
4.9
1.7
4.2
2.9
27.1
0.0
1.8
-1.4
2.8
2.1
2.9
-0.7
0.5
10.9
4.8
0.6
20.8
3.2
0.6
-0.9
-0.8
9.1
16.2
10.8
3.3
5.1
7.1
3.6
1.9
1.5
1.5
2.0
2.2
1.4
1.6
1.3
4.6
-1.6
1.6
2.3
1.9
1.3
0.9
0.7
1.5
1.5
2.9
2.2
1.6
2.0
2.5
4.7
-1.4
1.0
2.4
5.9
1.8
3.1
6.6
2.5
6.6
0.7
8.7
9.8
1.7
1.8
4.2
1.4
7.2
10.6
5.0
1.7
2.4
1.7
29.2
0.5
3.0
-1.0
3.1
2.5
5.8
3.5
2.7
13.2
5.1
2.2
11.7
4.5
2.8
1.5
3.0
7.6
11.7
9.5
2.3
5.5
5.6
3.0
1.8
1.5
1.7
1.9
2.3
1.8
1.6
1.4
2.2
-0.5
1.7
1.9
2.1
1.1
1.2
1.9
2.3
1.1
2.6
2.9
2.0
2.0
2.0
3.3
0.9
1.3
2.7
5.2
1.9
2.5
6.4
1.4
7.4
0.5
5.7
10.8
1.2
2.0
3.2
1.0
7.3
10.6
4.6
3.0
2.6
2.5
32.2
1.0
3.0
-0.3
3.4
5.5
3.9
2.7
3.0
6.7
5.5
2.1
13.5
4.0
2.4
1.5
2.8
7.1
10.0
8.5
2.8
5.3
5.8
2.8
1.7
1.5
1.7
1.9
2.5
1.7
1.7
1.4
0.5
0.8
1.8
1.5
2.2
1.3
1.3
2.4
2.5
1.3
2.1
3.0
2.0
2.0
2.0
3.0
1.0
1.3
3.0
3.0
2.0
1.7
5.9
2.5
6.5
0.9
6.0
9.3
1.6
2.0
3.0
1.4
7.2
11.0
4.6
3.0
3.2
2.0
29.9
1.2
3.0
0.2
3.0
2.4
3.0
2.0
2.5
4.7
5.4
2.3
9.5
4.0
2.1
1.5
2.5
7.1
9.0
10.0
2.5
4.5
5.6
The 60 countries in this table account for 93% of worlds estimated GDP expressed in PPPs in 2008
Source: www.e-forecasting.com
39
in 2011, although NAFTAs market size is 26% of the global market.
demand in 2011.
In the Euro Area, the combined real GDP of the 16 members of

the European Union (EU) that use the Euro as common currency
is forecast to edge up 1.4% in 2011, thus contributing just 6% to
the increase in the worlds real GDP.
In the industrial bloc of the Asia and Pacific region, which

includes Japan, Korea, Australia, and New Zealandgrowth in
output is forecast to register 2.1% in 2011, thus contributing 5%
to the growth of global demand.
In the Emerging Asia region, which includes the two most

populous and fastest growing countries, China and India,
real output is forecast to grow by 7.4% in 2011, faster than
any other economic bloc does. In 2011, the Emerging Asia
area will contribute 52% to the growth of global demand.
The two largest countries of the blocChina and Indiaare
forecast to contribute nearly one-half (45%) of the worlds
Real GDP in the major countries in South America is

forecast to increase by 4.2% in 2011. The region has
become again an important and vital part of the global
economy. In 2011, South America is forecast to contribute
7% to the growth of global demand, which is more than
the individual contributions of the United States and the
Euro Area.
[email protected]
Table 2 | Contribution of Regions to Global Growth

Percentage Points Contribution
Relative Contribution, Percent
REGION
2009
2010
2011
2012
EUROPEAN UNION (EU27)
-0.96
0.29
0.37
0.46
Euro Area (euro16)
-0.67
0.16
0.22
Non-Euro Members (11)
-0.29
0.12
OThER EUROPE
-0.43
NORTh AMERICA
2010
2011
-123.3
6.1
9.6
11.0
0.27
-86.3
3.4
5.8
6.6
0.14
0.18
-36.9
2.7
3.7
4.4
0.23
0.23
0.23
-54.8
4.9
5.9
5.6
-0.78
0.75
0.56
0.62
-100.3
16.0
14.7
14.8
United States
-0.58
0.57
0.45
0.48
-74.5
12.3
11.7
11.6
SOUTh AMERICA
-0.01
0.38
0.25
0.23
-1.6
8.1
6.7
5.6
ASIA & PACIFIC INDUSTRIAL
-0.32
0.35
0.20
0.27
-41.4
7.6
5.4
6.4
EMERGING ASIA
1.50
2.45
1.99
2.13
192.2
52.5
52.2
51.4
China & India
1.45
1.99
1.72
1.82
185.5
42.7
45.1
43.7
MIDDLE EAST & AFRICA
0.04
0.13
0.16
0.16
5.2
2.7
4.1
3.9
4.7
3.8
4.2
100.0
100.0
100.0
100.0
WORLD GROWTh1
-0.8
2009
Sum of Regional Contributions
Source: www.e-forecasting.com
40
2012
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supply chain Forecasting & Planning conference: asia
24-25 March 2011 | InterContinental Shanghai | Shanghai, China

Become a Certified Professional Forecaster (CPF) | Only China Exam Date of the Year | 26 March 2011
PARTIAL LIST OF SPEAKERS
PRESENTATION
SPEAKERS
COMPANIES
Keynote Presentation
how Good Forecasting Can Make a Dierence
Roland Mahr
Finance Director - Philippines
Pfizer
Market Intelligence and the Budget

Forecasting Process
Dian Chu
Market Intelligence Specialist
Marathon Oil Corporation
Integrated Business Management Process: The

Balance between Demand and Supply at hersheys
Mauro Rodrguez-Marn
Demand Planner
hersheys
Chinas New Urban Centers and how They

Change the Economic Map
Ran Xu
Associate Director, Custom Research,
North Asia
Economist Intelligence Unit
Process Excellence through Dierentiated

Planning and Segmentation
Muralidhar Nittala
Senior Manager SC Process Excellence
Siddhaarth Vivek
Specialist SC Process Excellence
Johnson & Johnson Medical
ST2AR - Sell Thru Triggered Automated

Replenishment and Improving Forecast Accuracy
Cuneyt Kayacan
Operations Director
Sony Eurasia
how to Align Sales and Manufacturing in the

Forecasting Process at Nippon Paint
Jun huang
Vice President
Nippon Paint
Consensus Forecasting & Planning

at Jollibee Foods
Arlene de Leon
Planning Manager
Jollibee Foods Corporation
New Product Forecasting & Planning

Issues, Experience and Success Factors
Alok Kumar Sengupta

Manager Business Development
AnalyticsMerck and Co. Inc

(MSD India)
41
The Economic
Outlook for 2011
By Jack Malehorn
The information in this forecast is gathered by The Journal from sources it considers reliable. Neither The Journal nor the
individual institutions providing the data guarantee accuracy; nor do any of them warrant in any way that use of the data
appearing herein will enhance the business or investment performance of companies or individuals who use them. Jack
Malehorn is a professor at Georgia Military College (Milledgeville, Georgia). He is on the Editorial Review Board to the
Journal of Business Forecasting. He has worked as President and CEO of The Black Hill Manufacturing Co., and COO of NorCom
Advanced Technologies. He has also worked as Chief Economist for United Telephone Company of Pennsylvania and
New Jersey, which is an operating company of Sprint. He has taught as an Adjunct Professor at Johns-Hopkins University,
Graduate School of Business. For any comments and suggestions, contact him by email at [email protected].
PARTICIPANTS | Conf Board = Conference Board, New York, New York; Global Insight = Global Insight, Eddystone, Pennsylvania; GSU - EFC = Georgia
State University, Economic Forecasting Center, Atlanta, Georgia; Moodys Economy = Moodys Economy.com, Westchester, Pennsylvania; Mortgage =
Mortgage Bankers Association, Washington, D.C.; NAM = National Association of Manufacturers, Washington, D.C.; Northern Tr = Northern Trust Company;
Chicago, Illinois; Perryman Gp = The Perryman Group, Waco, Texas; S&P = Standard & Poors, New York, New York; US Chamber = U.S. Chamber of Commerce,
Washington, D.C.; Wells Fargo = Wells Fargo Bank, San Francisco, California.
It was the best of times, it was the worst of times...

is the opening line in Charles Dickens classic, A Tale of Two Cities.
t seemed appropriate to mention the Charles Dickens classic as

the salient theme in this quarters economic outlook. Given the
immense uncertainty surrounding the state of the economy, you
would naturally expect quite divergent points of view unfolding.
True, I cannot really find anyone who argues a glowing and
positive assessment of the nations economy; still, there are those
who believe we are not far removed from a more robust recovery
than presently experienced. On the other hand, there exists a
contingent with a far less sanguine point of view. Let us proceed
to the analysis.
at Georgia State Universitys J. Mack Robinson College of Business
Dr. Rajeev Dhawan, Director of the Economic Forecasting Center
line: Dhawan believes real economic growth, i.e., real GDP will
42
wrote in his quarterly Forecast of the Nation an article entitled,

Abnormality: The Economys New Normal. In it, he paints a
compelling case of an apparent structural shift that has occurred
in the economy. Dhawan says, The new normal in the nations
economy is the abnormal and we have to make peace with it. As
such, using as reference points historical economic experiences
for comparison purposes is futile. The reason for his pessimism
is linked to depressed home values, ballooning entitlements,
the divided political arena, and a shaky banking system. Bottom
Participants
Quarter
GROSS DOMESTIC PRODUCT (GDP)
PERSONAL DISPOSABLE INCOME
Bill. of Chained 2005 Dollars, Level
(Based on GDP Concept) Curr. Bil. of $, Level (SAAR)
11/1
11/2
11/3
11/4
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
13323.9
13360.9
13427.1
13487.8
11532.6
11614.4
11697.8
11796.0
Fannie Mae
Doug Duncan
13398.9
13495.7
13598.6
13710.0
11409.9
11459.8
11535.5
11613.2
Global Insight
Nigel Gault
13413.2
13480.1
13563.3
13671.9
NA
NA
NA
NA
GSU-EFC
Rajeev Dhawan
13386.9
13456.7
13538.9
13619.6
11522.6
11620.1
11726.9
11841.5
Moody's Economy
Mark Zandi
13429.7
13526.9
13629.4
13764.3
11550.0
11685.1
11832.2
11994.0
Morgan Stanley
Richard Berner
NA
NA
NA
NA
NA
NA
NA
NA
Mortgage
Jay Brinkman
13392.9
13461.4
13542.5
13628.3
11415.6
11454.4
11516.1
11584.8
NAM
David Huether
13412.0
13493.3
13592.5
13728.0
11551.4
11688.6
11838.2
12001.9
Northern Tr
Paul Kasriel
13421.0
13517.3
13619.4
13738.0
NA
NA
NA
NA
Perryman Gp
Ray Perryman
13473.7
13581.3
13692.4
13809.8
11599.4
11740.7
11878.6
12037.0
S&P
David Wyss
13430.0
13502.0
13593.0
13707.0
11528.0
11614.0
11702.0
11811.0
UBS
Maury Harris
13441.3
13535.2
13630.5
13732.6
11584.5
11709.5
11839.9
11976.0
US Chamber
Martin Regalia
13414.0
13504.1
13608.5
13713.4
NA
NA
NA
NA
Wells Fargo
John Silvia
13407.6
13482.3
13562.6
13658.1
NA
NA
NA
NA
13411.2
13492.1
13584.5
13689.9
11521.6
11620.7
11729.7
11850.6
Consensus
Participants
Quarter
TOTAL LIGHT VEHICLE SALES

(FOR & DOM.) | Mil. of Units (SAAR)
11/1
11/2
11/3
11/4
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
9.9
10.0
9.8
9.7
11.9
12.3
12.5
12.8
Fannie Mae
Doug Duncan
9.8
9.7
9.7
9.7
12.4
12.6
13.0
13.4
Global Insight
Nigel Gault
9.7
9.7
9.6
9.5
12.1
12.5
13.0
13.6
GSU-EFC
Rajeev Dhawan
9.7
9.6
9.4
9.4
12.2
12.6
12.8
13.0
Moody's Economy
Mark Zandi
10.0
10.0
9.9
9.7
12.1
12.3
12.7
13.2
Morgan Stanley
Richard Berner
NA
NA
NA
NA
NA
NA
NA
NA
Mortgage
Jay Brinkman
9.8
9.8
9.5
9.4
12.4
12.6
12.9
13.2
NAM
David Huether
10.0
10.1
10.1
9.8
12.1
12.3
12.7
13.2
Northern Tr
Paul Kasriel
10.0
9.8
9.5
9.0
11.8
12.0
12.2
12.5
Perryman Gp
Ray Perryman
9.5
9.3
9.0
8.8
12.4
12.4
12.7
12.6
S&P
David Wyss
9.7
9.6
9.5
9.4
12.2
12.5
13.0
13.6
UBS
Maury Harris
9.4
9.3
9.2
9.0
NA
NA
NA
NA
US Chamber
Martin Regalia
9.5
9.2
9.2
9.0
NA
NA
NA
NA
Wells Fargo
John Silvia
9.9
9.8
9.7
9.5
11.8
11.9
12.1
12.4
9.8
9.7
9.5
9.4
12.1
12.4
12.7
13.0
Consensus
UNEMPLOYMENT
(CIVILIAN%) | (SAAR)
43
Participants
PERSONAL CONSUMPTION EXPENDITURE

(Based on GDP Concept) Curr. Bil. of $, Level (SAAR)
Quarter
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
10552.7
10621.4
10709.4
10802.7
Fannie Mae
Doug Duncan
10568.5
10649.8
10736.3
10822.2
Global Insight
Nigel Gault
NA
NA
NA
NA
GSU-EFC
Rajeev Dhawan
10601.1
10685.7
10777.3
10872.3
Moody's Economy
Mark Zandi
10481.3
10575.5
10688.2
10822.6
Morgan Stanley
Richard Berner
NA
NA
NA
NA
Mortgage
Jay Brinkman
10541.2
10605.7
10682.9
10779.0
NAM
David Huether
10484.2
10582.1
10697.3
10833.5
Northern Tr
Paul Kasriel
NA
NA
NA
NA
Perryman Gp
Ray Perryman
10612.3
10722.0
10848.8
10982.5
S&P
David Wyss
10609.0
10694.0
10796.0
10916.0
UBS
Maury Harris
10621.7
10739.0
10888.4
11047.2
US Chamber
Martin Regalia
NA
NA
NA
NA
Wells Fargo
John Silvia
NA
NA
NA
NA
10563.6
10652.8
10758.3
10875.3
Consensus
Participants
CHAINED
(2000) | PRICE INDEX (Level)
Quarter
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
111.6
111.9
112.2
112.5
Fannie Mae
Doug Duncan
112.0
112.2
112.4
112.6
Global Insight
Nigel Gault
111.7
111.9
112.3
112.6
GSU-EFC
Rajeev Dhawan
111.7
112.0
112.4
112.7
Moody's Economy
Mark Zandi
111.5
111.8
112.1
112.5
Morgan Stanley
Richard Berner
NA
NA
NA
NA
Mortgage
Jay Brinkman
111.7
111.8
111.9
112.1
NAM
David Huether
111.6
112.1
112.5
112.91
Northern Tr
Paul Kasriel
111.9
112.2
112.7
113.3
Perryman Gp
Ray Perryman
112.3
112.9
113.6
114.1
S&P
David Wyss
111.7
112.0
112.4
112.7
UBS
Maury Harris
112.2
112.4
112.9
113.6
US Chamber
Martin Regalia
NA
NA
NA
NA
Wells Fargo
John Silvia
111.7
111.9
112.2
112.6
111.8
112.1
112.5
112.9
Consensus
44
be far below annual growth rates we had

become accustomed to during the mid-90s
until recently. Dhawan continues: Another
abnormality the country will be living with
stems from adoption of the second phase of
the Feds quantitative easing, or QE2, strategy
of buying treasury bonds, or printing money
as he called it. Facing an economy resting on
the edge of a deep precipice, the so-called
double dip recession, the Fed must provide
adequate liquidity. Although it did spark a
stock market rally, which was the intended
effect, it also resulted in a simultaneous drop
in the dollar. Dhawan said the QE2 strategy
will help the economy indirectly by raising
inflationary expectations, which will boost
the equity market. Furthermore a weak dollar
will boost exports, especially to emerging
markets. These factors, said Dhawan, will
hopefully increase CEO confidence, which will
be the key to investment and job creation.
When CEOs feel optimistic and confident,
they tend to lobby and convince their boards
that the situation is right to expand the scale
of operations, said Dhawan. He noted that
the CEO Confidence Index is up sharply
from its nadir in late 2008. Because of this we
saw job growth in 2010, but the investment
driving that growth was primarily to replace
obsolete equipmentnot for new additions.
As a result, he added, I dont think the 15%
plus tech investment rate that is necessary to
accelerate job growth can be attained in the
face of fiscal uncertainty and political gridlock
in Washington.
On the other hand, Dr. Mark Zandi from
Moodys paints a fairly upbeat scenario in his
most recent work entitled, Near Term Threats,
Improving Fundamentals. Zandi gives
credence to the emotional weight of overt
pessimism currently embracing the economy.
Uncertainty over the extension of the Bush
Tax Cuts has many unnerved; Zandi notes
the difficulty of the present economy trying
to digest over $200 billion in tax increases if
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Congress does nothing. This coupled with an estimated more

than 1 million unemployed workers losing their unemployment
insurance during the holiday season will certainly not improve
the current state of the recovery. Still there are positive
developments. For one, Zandi cites the importance of world
governments not being tempted into erecting trade barriers
or investment and immigration restrictions similar to those
experienced during the Great Depression. In addition, he notes
record corporate earnings as a harbinger of good things to come.
In an insightful analysis, Zandi takes this perspective directly into
the boardrooms across America. Business leaders who realize that
earnings will begin to slow from just cost cutting will naturally
migrate to an aggressive search for growth opportunities, thus
stimulating both investment and hiring. As Zandi puts it: It is not
a matter of whether or not they are capable; it is more about their
willingness. In turn, he believes households that arduously have
deleveraged by taking advantage of the declining cost of credit
and building savings have fed a growing pent-up demand for
vehicles and other consumer durables. Finally, he believes that
the banking and credit markets have successfully restructured
and should be more willing to lend in the future.
The question rises: Given these different outlooks, what does
it mean vis--vis the future? Lets look to the Consensus for
answers. The Consensus Outlook calls for continued subdued
growth albeit positive for 2011 at a slightly better than 2% rate
in real GDP.
Households
The indicators linked to household growth are not overly
optimistic. Given a recalcitrant housing market and early less than
optimistic holiday sales data, it is not anticipated that households
will singly lead the way in the new year. Nominal DPI and PCE
are expected to grow near 3%, still below normal recovery levels
from the past. As you can ascertain from the Outlook Table,
unemployment is expected to show little improvement over
the year due to less than needed job creation and an increasing
concern over structural unemployedthose who have lost
their jobs and do not have the skills or education to successfully
reenter the workforce.
Total light vehicle sales remain relatively flat according to our
Outlook Table. Housing starts are abysmally soft. There is no
doubt that the greatest detriment to resurgence in consumer led
46
growth is the mood of consumers, in general. Whether or not this

can be turned around abruptly is the question.
Business
The Consensus calls for modest growth across business
barometers. The strategically critical non-residential fixed
investment is expected to rise roughly 5%. Capacity utilization
rates are expected to advance albeit at a snails pace. The key to
a resurging business environment will undoubtedly be found in
Washington. If the characteristic gridlock can be worked out on
issues surrounding taxes and regulations regarding healthcare
reform, then these numbers may improve in future editions of
the Outlook.
Inflation
The one bright spot in the economy over the last two years has
been the lack of inflationary price pressures. In fact, the concern
has been more about the likelihood of deflation. The Outlook
calls for modest price pressure during the year at or near 1%.
Still, in the long run, some nervousness is apparent relative to the
aggressive position by the Fed and core price components such
as food and gas.
Money, Interest,
and the Fed
In this section, the Fed once again commands center stage.
Undoubtedly the Fed will have its fingers on the pulse of the
nation. Whether it can keep the patient alive without shocking
it to death via overstimulation is going to be a delicate balancing
act. M2the most widely watched gauge of monetary policy
intentis expected to be at a near 3% growth range. The
Fed Funds rate is anticipated to advance some but still in
unprecedented territory. The AAA bond rate is expected to move
up gradually during the year.
A Holiday Note
It is our fervent wish that you have a most enjoyable and blessed
holiday season. At this time, it seems only appropriate to publically
recognize many participants who contribute so generously to
this effort during the year. Without them this publication would
certainly not be forthcoming!
[email protected]
Participants
Quarter
INDUSTRIAL CAPACITY UTILIZATION
(1982-1984=100) | LEVEL
(SAAR)
11/1
11/2
11/3
11/4
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
219.3
219.9
220.6
221.4
NA
NA
NA
NA
Fannie Mae
Doug Duncan
219.1
219.6
220.1
220.6
73.0
73.3
73.5
73.8
Global Insight
Nigel Gault
220.2
220.8
221.7
222.8
73.1
73.5
74.2
74.5
GSU-EFC
Rajeev Dhawan
220.4
221.2
221.9
222.9
72.6
72.8
73.3
73.9
Moody's Economy
Mark Zandi
219.6
220.5
221.6
222.8
73.7
74.5
75.3
76.2
Morgan Stanley
Richard Berner
NA
NA
NA
NA
NA
NA
NA
NA
Mortgage
Jay Brinkman
219.0
219.4
220.0
220.6
73.3
73.4
73.5
73.6
NAM
David Huether
219.7
220.6
221.6
222.9
73.7
74.4
75.2
76.1
Northern Tr
Paul Kasriel
219.8
220.4
221.5
222.9
74.8
74.2
73.6
73.5
Perryman Gp
Ray Perryman
219.8
221.2
222.5
223.7
78.1
77.9
78.5
78.7
S&P
David Wyss
220.7
221.3
222.3
223.4
73.3
73.8
74.6
75.0
UBS
Maury Harris
220.2
220.6
222.1
223.5
76.2
76.9
77.6
78.3
US Chamber
Martin Regalia
220.3
221.2
222.2
223.2
NA
NA
NA
NA
Wells Fargo
John Silvia
219.7
220.7
221.7
222.9
NA
NA
NA
NA
219.8
220.6
221.5
222.6
74.2
74.5
74.9
75.4
Consensus
Participants
Quarter
FEDERAL FUNDS RATE
AAA CORPORATE BOND RATE
11/1
11/2
11/3
11/4
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
0.2
0.2
0.2
0.2
4.5
4.5
4.8
5.0
Fannie Mae
Doug Duncan
0.2
0.2
0.2
0.2
4.7
4.8
5.0
5.1
Global Insight
Nigel Gault
0.1
0.1
0.1
0.2
4.4
4.4
4.5
4.6
GSU-EFC
Rajeev Dhawan
0.1
0.2
0.2
0.2
4.6
4.9
5.3
5.8
Moody's Economy
Mark Zandi
0.1
0.1
0.1
0.3
4.3
4.6
4.9
5.5
Morgan Stanley
Richard Berner
NA
NA
NA
NA
NA
NA
NA
NA
Mortgage
Jay Brinkman
0.2
0.2
0.2
0.2
4.9
4.8
4.8
4.9
NAM
David Huether
0.2
0.2
0.1
0.1
4.3
4.6
4.9
5.5
Northern Tr
Paul Kasriel
0.2
0.2
0.2
0.2
N/A
N/A
N/A
N/A
Perryman Gp
Ray Perryman
0.2
0.5
0.8
1.3
4.8
5.3
5.6
5.7
S&P
David Wyss
0.1
0.1
0.1
0.2
4.4
4.4
4.4
4.5
UBS
Maury Harris
NA
NA
NA
NA
NA
NA
NA
NA
US Chamber
Martin Regalia
0.3
0.3
0.3
0.3
NA
NA
NA
NA
Wells Fargo
John Silvia
0.1
0.1
0.1
0.1
4.5
4.4
4.5
4.6
0.2
0.2
0.2
0.3
4.6
4.7
4.9
5.1
Consensus
CONSUMER PRICE INDEX
47
NON-RESIDENTIAL FIXED INVESTMENT
PARTICIPANTS
BOOKS
(Bil. of Chained 2005 Dollars)
Quarter
11/1
11/2
11/3
11/4
Practical Guide to Business Forecasting
Conf. Board
Ken Goldstein
1417.5
1423.8
1440.5
1448.1
Fannie Mae
Doug Duncan
1455.8
1489.6
1523.9
1559.9
Edited by Chaman L. Jain & Jack Malehorn

Flushing, New York: Graceway Publishing
Company. 2005. pp. 510. $59.95.
Global Insight
Nigel Gault
1418.0
1433.0
1451.0
1470.0
Benchmarking Forecasting Practices
GSU-EFC
Rajeev Dhawan
1442.8
1469.6
1495.2
1521.3
Moody's Economy
Mark Zandi
1424.8
1443.8
1462.2
1485.0
By Chaman L. Jain & Jack Malehorn

Flushing, New York: Graceway Publishing
Company. 2006. pp. 116. $68.95.
Morgan Stanley
Richard Berner
NA
NA
NA
NA
Mortgage
Jay Brinkman
1447.2
1478.9
1513.1
1550.0
NAM
David Huether
1424.3
1442.4
1460.0
1482.5
Northern Tr
Paul Kasriel
1434.9
1463.6
1497.1
1534.2
Perryman Gp
Ray Perryman
1431.0
1457.3
1470.8
1491.7
Sales & Operations Planning:

The Executives Guide
S&P
David Wyss
1419.8
1434.1
1452.9
1472.8
By Thomas F. Wallace and Robert A. Stahl

2006. pp. 112. $44.95.
UBS
Maury Harris
1429.3
1452.3
1485.7
1520.1
US Chamber
Martin Regalia
1,445.2
1,466.7
1,489.3
1,514.3
Wells Fargo
John Silvia
1478.4
1516.5
1554.0
1595.4
1436.1
1459.4
1484.3
1511.2
Consensus
PARTICIPANTS
Quarter
The Business Forecasting Deal

By Michael Gilliland
2010. pp. 252 $49.95.
Demand-Driven Forecasting:
A Structured Approach
By Charles Chase
2010. pp. 270 $37.80.
FOR INFORMATION CALL/CONTACT:
INSTITUTE OF BUSINESS
FORECASTING & PLANNING
Tel. 516.504.7576 | Email. [email protected]
MONEY SUPPLY M2
PRIVATE hOUSING START TOTAL
Bil. of $ | (Level, SAAR)
Mil. Units | (SAAR)
11/1
11/2
11/3
11/4
11/1
11/2
11/3
11/4
Conf. Board
Ken Goldstein
8873.4
9010.0
9141.8
9266.7
Fannie Mae
Doug Duncan
8461.6
8292.7
8134.1
7999.7
0.61
0.67
0.75
0.81
Global Insight
Nigel Gault
8855.5
8986.1
9104.9
9229.5
0.64
0.72
0.82
0.95
GSU-EFC
Rajeev Dhawan
8898.1
9040.9
9186.7
9311.0
0.64
0.73
0.76
0.83
Moody's Economy
Mark Zandi
8846.6
8924.2
8997.3
9079.6
0.64
0.70
0.82
0.97
Morgan Stanley
Richard Berner
NA
NA
NA
NA
NA
NA
NA
NA
Mortgage
Jay Brinkman
NA
NA
NA
NA
0.58
0.64
0.67
0.74
NAM
David Huether
8847.8
8926.6
9001.4
9086.5
0.6
0.70
0.82
0.98
Northern Tr
Paul Kasriel
NA
NA
NA
NA
0.55
0.56
0.58
0.60
Perryman Gp
Ray Perryman
8822.7
8938.5
9047.4
9178.0
0.70
0.76
0.80
0.82
S&P
David Wyss
8868.1
9009.9
9133.0
9260.8
0.64
0.71
0.82
0.95
UBS
Maury Harris
NA
NA
NA
NA
NA
NA
NA
NA
US Chamber
Martin Regalia
NA
NA
NA
NA
0.64
0.69
0.71
0.75
Wells Fargo
John Silvia
8850.0
9000.0
9100.0
9225.0
0.64
0.70
0.78
0.82
8813.8
8903.2
8983.0
9070.8
0.63
0.69
0.75
0.83
Consensus
48
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