Campbell Soup Company: A Leader in Continuous Replenishment Innovation
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1.Campbell’s Implementation of CPR
Campbell is a largest branded product company, which has made a strong stand in US grocery distribution channels. By maintaining excellent relationships with its retailors and wholesaler customers, they were continuously involved in improving the channel efficiency and effectiveness for mutual benefit of the company and as well as its customers.
Continuous product replenishment (CPR) was the process used by Campbell to improve the channel efficiency. Initially the CPR Pilot program was conducted with HEB using a PC-Based process that was intensive manually. This was based on an internal Lotus spreadsheet application. Use of this PC system was not introduced to experiment or test with CPR, but it was very easy and quick to implement the change in the process.
Campbell was using electronic data interchange (EDI) with many customers, which facilitated development of CPR capabilities. With EDI Campbell could gather the total volume of data between retailor and manufacturer. EDI gave a machine readable structured format between computers at different companies. There was a continuous development and expansion of CPR Systems, New Mainframe system was tested and released expanding the CPR program to new customers, with third and fourth release simulation tools became more powerful sales tool.
Problems that led to CPR implementation:
•Increase in product promotions made forward buying favorable for the supply chain. •The addition of promotional pricing to forward buying made it difficult to estimate the consumer demand. •The uncertainty in total demand and large fluctuations in periodic demand increased manufacturer inventory. •This resulted in higher manufacturing costs in a direct pull through demand environment. •The exaggerated demand variations and increased lead times created inefficiencies in the channel.
CPR Program performance
1)With this change the retailors could share the correct data on product shipments from its warehouse and the manufacturer could maintain adequate warehouse inventory levels. 2)Important issue on shifting to CPR by wholesalers and retailers was transportation scheduling and management. 3)Even after using truck loads for shipments CPR reduced the total transportation costs for Campbell. 4)There was an increase in sales volume through supply channel to consumers. 5)Eliminating the excess inventory helped in reducing the production costs. 6)Reduction in the peak promotional volume allowed more consistent transportation scheduling and avoided the premium rates charged to the carriers. 7)Sales for CPR customers increased by an average of 7.9% which is 50% higher than the average increase in volume during the same period. 8)Sporadic demand was reduced to a great extent and all the costs associated with it naturally came down
2) Campbell structured prices for CPR
New Pricing policy EDLP was structured to support implementation of CPR avoiding incentives for forward buying, diverting and without charging the customer for using CPR. Thus the EDLP alternative was used to provide customers with an average equal to the average price paid by customers using the traditional pricing structure. According to the traditional pricing structure, wholesalers and retailers who constituted most of CPR potential customers were paying less average procurement, storage and handling costs when compared with the EDLP price. The retailors and wholesalers were reluctant to use EDLP price because the profit obtained through forward buying represented only part of the net profits from operations. Lower prices due to this would naturally be carried over to the retailer customers and these created lower markups due to hidden margins. EDLP was a hybrid plan, which still made some money through promotional and advertising policies. Another new policy CPR2 was introduced to expand and increase CPR adoption. CPR2 used the existing pricing structure and provided cash incentives for not forward buying. The cash bonus was not reduced in the product cost and the retailor or wholesaler could recollect this. There was another issue in deciding the rebate for this pricing program and 125% was selected to include most of the customers. They still allowed retailers to continue EDLP program who preferred level pricing. CPR2 required more degree of trust between customers and retailers. Additional policies:
•Forward buying by the wholesalers was the primary cause for this change in pricing structure. We could probably use the manufacturer to take control of the inventory than the wholesaler. •After so many years in the industry they could probably use more stable forecasting system to know the sporadic demand from the market by doing proper market research. •They can also set a minimum order quantity as a safety stock in order to compensate the unknown demand. •Categorization of the products should be considered depending on the number of sales only selected products should be set for promotional activities. •The ambiguity in the pricing pattern in the CPR2 and CPR systems can be discussed on the average net price and some incentives should be provided to the EDLP customers.
3) Change in the internal process of Campbell
In the technology driven world, Campbell could implement ERP, which introduces modularity in the business process, and we can easily get the connectivity between modules like sales, production, inventory, finished goods and many more departments. ERP will lead to reengineering the whole process and will be good point to computerize the whole supply chain if necessary. Some of the other points they can consider to change are as follows: •Increasing the CPR adoption in both EDLP and CPR2 modes will have financial implications on a long run. So its better to consider any one or completely add a new one for all the customers would be more beneficial. •Proper market research and knowing the customer demand should be done and priority should be given to the products, which have good demand so that we could eliminate the sporadic demand.
•Promotional policies should be used only to the products, which have a great market demand and more stable. •By following the above procedure we can eliminate the hidden margins between the wholesaler and retailer, which gets rid of monopoly in the supply chain. •This actually will decrease the dilemma with the partners of Campbell is associated with it and they can be mutually beneficial. •Implementation of the CPR Mainframe system resulted in balancing of truckloads through the optimization of shipments. •There should be reorder from the top-level management and stand on the policies so that there is one agreement or policy, which will be followed through out the company. •Implementation of the EDI process led them to know more about the customer demand and using the same process would help in knowing the current data necessary for the manufacturer and retailor to maintain their inventory levels. •Establishing a well-defined lean manufacturing pull system could be used to reduce over production and associated wastes.