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The partners are Henkel KGaA, the Dusseldorf, Germany-based maker of household cleaners,

adhesives, toiletries and other home care products, and Grupo Eroski, the Spanish grocery chain
whose thousands of outlets range from "hypermarkets" to mini-markets. Together they launched
a successful CPFR pilot, at a time when few such efforts were in evidence in Europe or the U.S.
Henkel may not be a household name in the U.S., but it's tough to ignore in Europe, which
accounts for 50 percent of sales. The diversified company has sold off or acquired numerous
entities in its 126 years of existence. In 2001, it shed two chemical-making units, Cognis and
Henkel-Ecolab. The move reflected a desire to focus on its core product line of detergents,
cleansers, adhesives and toiletries. Henkel's current U.S. holdings include Manco, the maker of
Duck Tape, and a 27-percent share in The Clorox Co.
At a time when many consumer-goods manufacturers are struggling, Henkel has done reasonably
well. It showed an operating profit of 168m euros in the second quarter of 2002, up 11.5 percent
over the same period of the previous year. In the first six months of 2002, sales of the Henkel
Group rose 3.3 percent, to 4.9bn euros. Still controlled by the Henkel family, the company has
about 47,000 employees around the world, doing business in 70 countries.
Beneath the surface, though, Henkel's operations haven't been so consistent. In the late 1990s,
the company was suffering from serious flaws in its forecasting and execution methods.
Inventory levels were unacceptably high, yet stockouts were chronic. So were transportation
inefficiencies.
Much of the problem stemmed from an inability to gauge the amount of product needed in a
given market. According to Esteban Garriga, trade services manager of Henkel Iberica in
Barcelona, the company was experiencing sales-forecast accuracy of between 40 and 45 percent.
Clearly there was a need for better ties with retailers.
But Henkel didn't rush blindly into a collaboration project. First, says Garriga, it needed to get its
own house in order. That meant implementing a new demand-planning system for internal
forecasting. At the time, the company had no coherent system, was unable to integrate a
continuous replenishment program into the forecast, and couldn't even communicate the basic
events on which it relied. Forecasts were produced through Excel spreadsheets. The results were
no surprise: high costs and poor service.
Henkel's goals were equally clear. It wanted to eliminate a slew of internal glitches, including
stockouts, delivery errors and invoicing complaints. Forecasts had to be synchronized with
production at one end, and consumer demand at the other. Purchasing and distribution, two of the
corporate world's most notorious "silos," had to be integrated. Sales and marketing had to be kept
in the loop as well, for access to key demand data.
The answer, at least from an internal standpoint, lay in acquisition of the Demand Planning (DP)
module of the Rockville, Md.-based Manugistics Group, Inc. The purchase was accompanied by
a wholesale reengineering of Henkel's business processes.

Manugistics' DP tool provides 95 percent of the company's total forecast. It draws on information
from marketing and sales, among other sources. At the same time, Henkel took pains to define
key performance indicators (KPIs), mostly related to forecast accuracy and promotions planning.
(Promotions were among the areas giving Henkel the most trouble, Garriga says.)
Henkel's fulfillment analysis incorporated such key elements as the planning horizon,
modifications to the plan, associated promotional volumes, and internal follow-up by various
players in the organization. From that analysis, the company derived an event plan that identified
who was responsible for each step of the process. Internal forecasts, especially those related to
special programs or promotions, became a joint effort for the first time.
Revised Forecasts
They also became considerably more accurate. Henkel went from bi-monthly forecast revisions
to weekly and even daily adjustments. What's more, the forecasts were based on a far larger
universe of data than before, supplied by all departments of the company. And the resources need
to process the data declined sharply. Before, says Henkel, staff would spend 40 percent of its
time on data analysis and management, and the rest on processing. Following implementation of
the DP and demand-forecasting tools, the same individuals were spending 80 percent of their
time on analysis.
Implementation of the DP software was just the first step in Henkel's quest for forecasting
accuracy. "Even with Manugistics, it was not enough," says Garriga. "In the end, it doesn't help if
the information you put into the planning systems is wrong." And promotions can still go askew
if the manufacturer can't react to sudden changes in demand.
Forecasting priorities of manufacturer and retailer differ in key areas, says Garriga. The former
focuses on shipments, order-lead time, production capacity, product availability, promotions and
raw-materials supply. The latter looks at visibility to consumer demand, in-stock position,
variance in shipments, promotional activity, growth plans, and distributor structure.
Somehow those disparate concerns must be melded into a coherent forecasting model. For
Henkel, the answer lay in CPFR, the set of collaborative processes which has attracted heavy
attention in the U.S. and elsewhere, but has so far yielded little in the way of completed projects.
That was even truer back in 1999, when Henkel, its DP software in place, began casting about
for a CPFR partner.
It didn't look for long. Eroski, says Garriga, was Henkel's "customer number one" in Spain. The
two were doing a significant amount of business together, but the processes underlying that
partnership left much to be desired. Half of Henkel's sales forecasts had an average error of more
than 50 percent. Stockouts were common, especially on promotional items. Shipments would
frequently arrive late at Eroski's central warehouse, which was servicing 500 stores.
One of Spain's leading grocery retailers, Eroski was a natural candidate for the experiment.
Focused mainly on the Basque region, the company operates 47 hypermarkets, 800 supermarkets
under the Consum brand, and some 2,000 Charter mini-markets. It also has three hypermarkets
and 17 supermarkets in France. In addition to the central warehouse, Eroski maintains a number
of regional distribution platforms, along with direct-store delivery for distant points or selected

products.
In crafting a CPFR program, the partners had little in the way of examples on which to draw. At
the time, says Garriga, there were no mature projects in Europe, other than a couple of isolated
efforts in Italy. Not much had been completed in the U.S. either, although Henkel drew heavily
on groundwork laid by the Voluntary Inter-industry Commerce Standards Association (VICS),
and the experience of CPFR pioneers such as former Nabisco executive Joseph Andraski.
Work began in late 1999. Henkel and Eroski were aided by Accenture (then Andersen
Consulting), which acted as consultant and systems integrator. Accenture had already defined the
CPFR standard for processes and information exchange on behalf of two dozen companies
(including Henkel) that make up the group known as ECR Europe. (ECR, for Efficient Consumer
Response, is a collaborative planning effort within the grocery industry, which predates CPFR.)
That effort led directly to Henkel's individual pilot.
On the software side, Henkel once again chose Manugistics, whose NetWORKS Collaborate
module provided the platform for information-sharing. The customer was the first in Europe to
implement Manugistics' collaboration product, according to Martine Gosse, the vendor's Parisbased marketing director for Europe. The pilot involved the entire category of detergent products
sold by Henkel through Eroski's markets.
Opening the Pipeline
Its own internal forecasting processes finally in place, Henkel was able to assume sole
responsibility for providing the production forecast, figuring proper supply levels and generating
orders. Yet it still needed a free-flowing pipeline for data between itself and Eroski. The partners
began exchanging information once a day on outgoing stock, stock figures and orders; once a
week on order forecasts; every 15 days on sales forecasts (eventually through the NetWORKS
Collaborate tool), and every four months on the promotional events calendar.
With the help of the internet, Henkel and Eroski developed common business and promotional
plans, compared sales forecasts, order forecasts and exceptions, and obtained information on
changes in promotions and product availability relative to demand, among other things.
They also paid close attention to measurements. The pilot was built around a select number of
KPIs, including customer-service levels at Eroski's central warehouse, number of stockouts,
number of promotions, stock rotation, forecast reliability, truck fill rates, pallet fill rates, and
number of urgent orders.
No major process change is without obstacles. Jaume Ferrer, Accenture's partner responsible for
supply chain in continental Europe, says the major one was human in nature. At the pilot stage,
he says, CPFR is largely a matter of change management. Entrenched practices, such as
manufacturers offering discounts to stimulate sales long before goods are actually bought by
consumers, must be stopped.
Gosse agrees that a "mentality change" was necessary in order for the partners to collaborate
fully. CPFR is still a relatively new concept in Europe, she says. So is the notion of supply-chain

management, whereby companies tear down barriers between traditional functions and
encourage the free flow of data.
With the CPFR pilot in place, the quality of Henkel's sales forecasts improved steadily. In the
period between October 1999 and March 2000, the share of forecasts showing an average error
of more than 50 percent declined from nearly half of the total to around 5 percent. Meanwhile,
forecasts with an error rate of less than 20 percent - a reasonable level, given the vagaries of
consumer taste - grew from 20 percent to 75 percent.
Other KPIs during that period showed similarly strong results: a 98-percent customer-service
level, five days of supply, 2-percent stockouts, better than 85-percent forecast reliability, 98percent truck fill rates, and 99-percent pallet fills. Perhaps most importantly, says Garriga, was
the integration of data on new-product introductions with that concerning local activities, into a
single, reliable forecast. Previously, such information was not a regular part of logistics plans.
The partners set up a relatively small team to get the pilot rolling. Henkel contributed five
people, including a consultant from Manugistics, while Eroski supplied four. They were backed
by internal information technology staffers, as well as a team of Accenture consultants. The latter
were instrumental in plotting how the pilot could be expanded to include additional products,
Garriga says.
Of special note on the personnel side was the companies' insistence on the involvement of sales
and customer-service staff. Sales people have a poor record of participation in such partnerships,
says Garriga. And customer-service reps aren't schooled in the intricacies of sales forecasting or
commercial planning. But the market knowledge of those individuals is too valuable to waste. So
Henkel's key account manager for Eroski, not a demand-planning expert, was chosen to
spearhead collaboration that would lead to creation of a sales forecast. And the customer-service
team was given responsibility for incorporating promotions into the forecast.
Demand, Production Linked
The demand planner, meanwhile, focused on synchronizing that end of the chain with production
planning. To avoid supply glitches, plans would be squared with capacity constraints before
figures were transmitted to Eroski. In the event of a discrepancy, the system would generate a
warning message. For the pilot, Henkel established a forecasting horizon of five weeks, giving
production enough time to get its operations in line. The period would later be expanded to two
months.
Within six months of launching the CPFR pilot, Henkel presented its preliminary results at an
ECR conference in Europe. But it took another six months, says Garriga, to get all of the
program's elements into place.
Along the way, the partners discovered how hard it was to implement all nine steps of the CPFR
process model as developed by VICS. They can be broken down into three categories - planning,
forecasting and replenishment - with the final one focusing on collaborative order generation.
Henkel did end up addressing most of the nine steps, but only in the form of a high-level

business case, aided by Accenture, on the feasibility of implementing CPFR throughout Europe.
And, in the case of the Eroski project, it bypassed at least one step - the use of technology tools
for validating exceptions - altogether. Instead, the company is relying on the telephone and email for that purpose.
A key lesson, says Garriga, was that each customer requires a unique focus, emphasizing some
stages at the expense of others. The Eroski pilot centered on collaborative forecasting, an area in
which Henkel had considered itself especially weak. A subsequent CPFR effort, with the
Catalonian grocery retailer Condis, tackled up-front agreements leading to promotional
calendars. According to Garriga, the software tools created to support CPFR might focus on one
area or the other, but never both.
It's easy to get lost in the mass of requirements that make up the CPFR model. Garriga
recommends that companies avoid treating the effort as a single "super project." Rather they
should approach it as a series of 20 to 30 smaller, more manageable tasks. Such an approach can
also be helpful in implementing CPFR with smaller customers.
Henkel also learned about the importance of maintaining a CPFR process indefinitely. Long after
a pilot has been implemented, companies must keep in place a task force to oversee its continued
success, Garriga says.
Henkel's success with Eroski led directly to the subsequent pilot with Condis, which operates
300 stores in Spain's Catalonia region under the brand names of Condis Supermarkets and
Distop. This time around, Henkel sought to include not just the manufacturer and retailer, but an
upstream supplier. The goal, says Garriga, was end-to-end integration of the supply chain
through the deployment of CPFR.
Launched in September 2000, the Condis pilot was completed earlier this year. The relatively
low-tech effort involved the use of spreadsheets for data, with collaboration taking place through
e-mail and telephone. The focus this time was on promotional SKUs.
Jointly defined KPIs in the Condis pilot included forecasting accuracy, promotion planning,
promotion plan changes, service levels, inventory levels, number of rush orders, and the use of
full pallets and full trucks. Initial results showed a 15-percent improvement in forecast accuracy
between January and July of 2001, along with better joint planning of promotions. Customerservice levels climbed to 99 percent without an increase in inventory levels. Overall supply-chain
costs fell 6 percent, largely due to a decline in rush orders.
From the start, says Garriga, Henkel's biggest challenge was getting its arms around the complex
CPFR model, and what was needed to apply it. "We had to know all of the drivers of the
forecast," he says. "Then we had to decide what to focus on."
Longer term, CPFR continues to be impeded by a general reluctance by supply-chain partners to
collaborate in a meaningful way. Many tout the virtues of collaboration, but few seem willing to
undertake the revamping of business processes, and sharing of sensitive information, that make it
possible.

As for Henkel, it is bent on extending its success in the Eroski and Condis pilots to other
customers during the coming year. Following its own advice, the company will take modest steps
toward that goal. "Instead of big projects," says Garriga, "we'll be looking for smaller ones that
we can easily implement."

The marketing and sales team has no way out since the rivalry among the key player like P&G
and Reckitt Benckiser and other private labels are playing on price while Henkel is playing on
innovation and superior product quality. The idea is outdated in the since the needs of consumer
have been changed with the passage of time. The marketing team only does promotions and
makes new products with limited low prices, which ultimately burdens the cost structure and
minimizes profit margins.
Cost and Benefits associated with large range of SKUs
Henkel Iberica(A) Case Solution
Costs
The company is making a wide range of SKUs in detergents division, which is a good thing to
give to consumers by providing a variety of products however, it burdens the cost structure and
minimizes margins. The war is for price and the company is focusing on variety and innovation
which also increases the R&D cost.
In order to make awareness among customers about a wide range of marketing, promotions and
other promotional activities are required which increases the cost of the company. Also, the
promotional goods are left to be sold during the promotional period in the warehouse, therefore
this also increases handling and caring cost and the company usually sells them for more than the
manufacturing cost which is purely a loss (see exhibit 2 in excel sheet).
Due to heavy promotions, marketing and a wide range of products the sales of every division
have increased except for Consumer & craftsmen adhesives along with the corporate division by
significant percentages. However, the COGS has been increased and the profitability has reduced
and also the profitability for both of the years is quite low as per the standard (See exhibit 1 in
excel sheet)
Benefits
Due to the wide range of products, the revenue of almost all the divisions has increased and the
formula of innovation is working well.Due to the latest production techniques and promotions
people thinkand see Henkel as a brand, symbol of excellence and a promise of quality as it brings
an image and prestige to the companys reputation and name. (See exhibit 1 in excel sheet)

The company is able to fulfill and get timely orders from its suppliers for the replenishment of
order through CRP (continuous replenishment program) which enables warehouses and retailers
integrated which helps to timely fulfill orders.
CPRF (Collaborative replenishment forecasting and replenishment) strategy allows the company
to flow information to upstream and downstream users and allows the company to manage its
multiple brands and SKUs, which gives Henkel edge over rivals and improves its supply chain
efficiency.
Everyday Low Price (EDLP) strategy
The companys promising style of providing low cost to its customers without letting the
customer wait for the sales promotion or to wait for a sale fair is known as EDLP everyday low
price strategy.
In simple words, it can be defined when a company promises to provide good quality product in
reasonable or lesser prices compared to the rivals is known as EDLP strategy. In strategic
management it is known as Best Cost Strategy and in marketing its value proposition is known
as More for Less value proposition.
Benefits
In the case of Henkel, the strategy will work but not up to the expectations since the cost
structure of the company is high (see exhibit 2) and if the company uses the strategy then it will
suffer regarding profit.
On the other hand, this strategy can change the course of the companys profit trend because the
rivalry on the price is high in the industry. There are many cheap products available which
almost provide the same quality and the presence of many private labels is making the survival
of the company difficult.
This strategy works best when there is a large number of competitors in the industry and the
rivalry is intense and the usage of the product of consumer is similar. On the other hand,as the
situation is similar as per the case. Moreover, based on the assumptions of EDLP, the company
may also face increase in sales by sacrificing per unit profit and a gain in volume of units sold.
1.Estimate the cost savings to HI if obsoletes and out-of-stocks related to promotions could be
eliminated. For obsoletes, the loss is holding and transportation cost + salvage lost. For out-ofstock, the loss is mainly opportunity cost. If HI eliminate both obsoletes and out-of-stocks, cost
saving will be 450,000 + 8% x (8,975,000,000+9,410,000,000)/2 x (66%-44%) +0.2% x
(602,000,000+630,000,000)/2 = 162,238,000 + 1232000 = 163.5 million Euros
2.Using Schwarz IDIB Portfolio perspective, CPFR might be viewed as an improvement in HIs
information and decision-making systems. Suggest alternatives to CPFR that might involve
implementation and/or buffering. Improvement in implementation:

Selection of CPFR Partners


Trading partners who wish to collaborate with each other need to assess the potential relationship
according to anticipated, realistic benefits, pertinent to common business goals, organizational
and cultural issues. For a successful relationship, a close fit on these aspects is preferred, or
some indication that the potential exists to develop relationship with joint objectives and goals.
Senior Management Buy In
Senior management must assume the role of CPFR sponsor for each of the trading partners to
ensure that the necessary resources (Human Resources, Technical Infrastructure, Time and
Project Budget) are prioritized and dedicated to the project. Trust Based Relationship
CPFR involves sharing sensitive information. To take full advantage of the benefits of CPFR,
trading partners need to create a relationships founded on trust. Sharing sensitive data and close
collaboration demands reliability. CPFR should not be seen as a tool to develop a good
relationship; rather, it can help to enhance a good, existing trading partner relationship. Internal
Reward Structure
The reward structure within each organization needs to be aligned with the objectives of the
CPFR initiatives in order to ensure the...

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