LCBO harvests supply chain improvements

MISSISSAUGA, Ont. – As far as the LCBO is concerned, the glass is half full.

The Liquor Control Board of Ontario wasn’t always this optimistic about its supply chain, but a complete review of the procurement process has allowed the company to gain a better understanding of where its products are coming from and how soon they’ll be received.

The LCBO’s supply chain crunch was rooted in a desire to improve customer service. As part of a five-year plan, which was launched in 1999, the company overhauled its stores in an effort to make them more customer-friendly. The LCBO projected a revenue spike of 18 per cent but actually grew 38 per cent (worth an estimated $750 million).

The growth put a strain on the LCBO’s supply chain, and delivery rates began to slip. “Our warehouses were bursting at the seams,” said Craig Miller, team leader of the LCBO’s supply chain. Miller spoke at GS1 Canada’s annual Canadian Standards Briefing Thursday.

The LCBO was also added more products to its selection. “Consumer tastes were changing,” he said. “We were evolving beyond the entry-level wines,” and adding a greater variety of beers.

“Our supplier base broadened. We were dealing with suppliers from 68 countries, from five continents around the world.”

In order to address its supply chain complications, the organization looked to a methodology often used in retail called CPFR (collaboration, planning, forecast and replenishment). A supply chain project team was created which reported to a steering committee.

“Our role was to build workable solutions,” said Miller, “and when they’re up and running, turn them back to the end users. Like Wal-Mart, we believed it was important to work closely with our trading partners.”

Wal-Mart has been a beacon in the retail industry for its whole-hearted endorsement of RFID (radio frequency identification) technology as a means to gather more data from its suppliers. Miller said that the LCBO isn’t ready to embrace RFID yet, but did create its own inventory management platform which could be used to improve supplier relationships.

What started as an exchange of Excel spreadsheet data evolved into a homegrown application running on a SQL server platform. Suppliers e-mail report data to the LCBO, which is then automatically fed into the company’s database. In the future, said Miller, the LCBO and its suppliers will share a Web-based portal to allow them to collaborate more efficiently. The portal, which will be designed and built in-house, is expected to go live before the end of 2006.

“The notion (with CFPR) is that they want to expand the integration of this between the buyer and the seller, but also within the organization so there’s a better understanding of what’s going on,” said Marty McGuiness, an independent retail consultant based in Toronto.

The LCBO has more supplier stress than a lot of other companies since their scope is international, he said. “The circumstances vary a lot based on the product. Is this a product I can reorder or is this a one-time buy? It is a seasonal product?”

Before the CPFR project, “we were always kind of guessing what our inventory levels were in our supplier warehouses.” By using a common set of forecasting standards and assumptions, the LCBO and its suppliers were able to accurately meet supplier/retailer requirements with an error rate of less than 10 per cent.

“It’s the difference between sharing information and guessing,” said Miller. “Both our trading partners and ourselves truly understand what’s happening.”

Each of the LCBO’s suppliers receives quarterly updates on its key performance metrics. One supplier might generate a different set of metrics than another based on the type of alcoholic product they sell. “I don’t think there’s any one right (way to measure accuracy) when it comes to forecasting,” said Miller. “Some SKUs are more volatile than others. . . . All we’re looking for, really, is improvement.”

Approximately one-third of the LCBO’s supplier base is involved in the CPFR project. Miller said that number should grow to about 40 per cent. Interest is increased, he said, with the LCBO’s plan to move the project online to a portal that everyone can access.

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