Collaborative Planning, Forecasting and Replenishment (CPFR) and the Network Cracking the Bullwhip!

Collaborative Planning, Forecasting and Replenishment (CPFR) and the Network Cracking the Bullwhip! Prepared by James E. demin BT Infonet CPFR and The Network Volume 3 www.bt.infonet.com

Introduction This paper explores the network implications of an emerging business initiative in the consumer goods industry referred to as Collaborative Planning, Forecasting, and Replenishment (CPFR) where manufacturers, distributors, and retailers jointly work together to plan, forecast, and replenish products. While reliance upon some form of communications media is an obvious aspect of any CPFR initiative, all too often the network infrastructure is not adequately considered and the effectiveness of the CPFR initiative suffers. The ability to optimise the global wide area network communications infrastructure can greatly contribute to the end-to-end performance of collaborative planning between trading partners. This optimisation at the network-level can then generate orders-of-magnitude improvements in the business performance metrics of CPFR, which include; fill rates, supply chain cycle times, supply chain inventory levels, and shareholder value. Figure #1 - Collaborative Planning, Forecasting and Replenishment (CPFR) 2 CPFR and The Network

The genesis of CPFR can be traced to 1995/96 when Wal-Mart and Warner-Lambert (now part of Pfizer), together with SAP and Benchmarking Capital, initiated an experiment to jointly forecast and plan the replenishment of Listerine, a popular brand of mouthwash. The experiment was limited to one Warner-Lambert plant and three Wal-Mart distribution centres. As a result of CPFR, Warner- Lambert s service levels increased from 87% to 98%, while the lead times to deliver the product decreased from 21 to 11 days. The partnership also increased Listerine sales by $8.5 million over the test period. The success later prompted the Voluntary Inter-industry Commerce Standards (VICS) association, in cooperation with over thirty other consumer goods companies from the drug, grocery, general merchandise, and apparel industries, to set up guidelines for synchronising business processes, forecasts, and replenishments, now formalised as CPFR. The central theme of the CPFR guidelines was and still is the alignment of business processes and standardisation of technologies to share forecast and other planning information securely, simultaneously, globally and in real-time. Therein lies the enormous dependency upon the network, which is the infrastructure component that must be properly designed and supported in order to provide these capabilities (i.e. securely, simultaneously, globally and in real-time). better visibility to each other s plans through real-time collaboration. Other studies by industry research groups have suggested that inventory carrying costs for fast-moving items can vary from between 20% and 100% of its value on an annualised basis. The nature and scope of the collaboration between supply chain partners have taken on many different forms, each having its own distinct advantages and shortcomings. To study the benefits of CPFR in realistic situations warrants a view of the supply chain as a total environment or ecosystem, encompassing all of its components (organisations, functions, processes, technologies and activities). Doing so is made all the more difficult as a result of the number and complexity of the data-driven decisions to be made within a collaborative supply chain, as well as the inter and intra-organisational issues that must be addressed. What management wants to see in the enterprise s supply chain is an equilibrium between customer demand and the production planning. By achieving this goal, production levels (i.e. supply) can be precisely matched to demand. Over the last decade collaborative relationships between trading partners in the supply chain have been recognised as a recipe for operational and financial efficiency. Evidence strongly suggests that there are significant rewards to improving supply chain efficiency. For example, a U.S. Department of Commerce report indicated that there is more than $1 trillion in finished goods inventory in U.S.-based stores, distribution centres and manufacturing plants. Much of this inventory is "just in case" merchandise that would be unnecessary if trading partners had Figure #2 Equilibrium Between Customer Demand and Production Planning 3 CPFR and The Network

However, managing supply chains in today s competitive world is increasingly challenging. The greater the uncertainties in such factors as supply and demand, globalisation of the market, shorter product and technology life cycles, and the increased use of outsourced manufacturing, distribution and logistics partners, the greater is the complexity of the supply chain. These and numerous other factors unfortunately all too often result in growing disequilibria between customer demand and production planning. Figure #3 Disequilibria Between Customer Demand and Production Planning In its simplest form, CPFR seeks to permit the more precise production planning of inventories and a matching of supply and demand. Success with CPFR is thereby achieved when production planning has become demand-driven on an end-to-end basis throughout the supply chain. During the last two decades enterprise applications such as those from SAP, i2, Manugistics, Oracle, and others have begun to provide the automated support for the collaborative business processes that seek to enable CPFR. However, these technologies in and of themselves pose some very vexing challenges for network managers who seek to administer infrastructures that enable the necessary levels of security, performance, scalability and globalisation. As a result, the ability of organisations to glean the benefits of CPFR is largely a function of their success with properly designed networks that satisfy the requirements for CPFR. This makes the selection of a global network service provider of paramount importance to enterprises undertaking such initiatives. Supply Chain Management Fundamentals The supply chain is far from being a low-hanging fruit and represents an enormous exposure for virtually all organisations in the consumer goods and other inventory-intensive industries. Also, supply chain risks come in many different forms. First, the financial risks can be huge and failure catastrophic for enterprises who fail in supply chain execution. Inventory costs due to obsolescence, mark-downs and stock-outs can be very punishing, with almost immediate impacts to an organisation s bottom-line performance. Personal computers, for example, devalue by more than one percent per week. Recent statistics from a survey of major retailers showed that retail mark-downs constitute approximately 20% of total retail sales volumes. Mismanaged supply chains, leading to excessive or mismatched inventory can thereby lead to huge financial risks. Financial risks can also result from the risk of reworking stock levels and penalties imposed for nondelivery of goods. The complexity and uncertainty forces of a supply chain can also drive what are referred to as "chaos risks." These chaos effects result from overreactions, unnecessary interventions, second-guessing, mistrust, and distorted information throughout a supply chain. The well-known bullwhip effect (addressed later in this paper), which describes increasing fluctuations of order patterns from downstream to upstream supply chains, is an example of such chaos. This increased chaos will invariably lead to higher costs and inefficiencies through over-ordering. 4 CPFR and The Network

Figure #4 - Chaos Dynamics of the Supply Chain The existence of chaos in a supply chain also means that it is impossible to make the right decisions for every player within a supply chain. The risks of making the wrong or ineffective decisions, or decision risks, become the inevitable consequence. Thus, it will not be possible to design optimal production schedules if there is uncertainty as to when materials or components will be available. Ultimately, the supply chain is exposed to market risks, i.e., missing the market opportunities presented. A supply chain cannot be responsive to changing market trends and customer preferences if the right market signals cannot be readily obtained and quickly interpreted. Similarly, a supply chain cannot successfully penetrate a new market segment if there is a marked inability to quickly change production or available supplies to meet fluctuations in demand. Finally, market opportunities can be missed when customers and distributors inadvertently place orders with impossibly short order lead times that cannot be met by current production capacity. A supply chain with high-risk exposure cannot be efficient. There will always be tangible risks in a supply chain, which can lead to poor performance, but there are also intangible elements such as the attitudes and perceptions of the users and members of the supply chain. The intangible lack of confidence in a supply chain leads to actions and interventions by supply chain members, which collectively, could further increase the risk exposure. A classic example of this is the potential reaction from the customer and/or distributor-facing end of a supply chain. For example, if a sales team believes that order cycle and order fulfillment times are not reliable, they will devise their own means of addressing such perceived limitations. They may order stock so as to have adequate supply levels to support their existing customer demands and submit additional phantom orders (i.e. creating their own private buffer stock) to secure additional on-hand supply, which thereby causes inefficiencies. Similarly, they may place orders in anticipation of potential future demand with the intention of later cancelling such orders prior to scheduled shipment if anticipated demand does not materialise. This risk spiral 5 CPFR and The Network

exists everywhere, and the only way to break the spiral is to find ways to increase confidence in the end-to-end supply chain. Therefore, the elements of the supply chain that can reduce the lack of confidence visibility, control and chaos must be adequately understood and addressed. >> Visibility Confidence in a supply chain is weakened when end-to-end order cycle time, i.e., the time it takes from when an order is requested by a customer through to delivery, is excessively long. The increased globalisation of supply chains and the prevalent use of subcontract manufacturing, distribution and logistics partners can contribute to the length of time it takes to complete all the needed steps in the order fulfillment process. Associated with pipeline length is the lack of visibility within the supply pipeline. Hence, it is often the case that one member of a supply chain has no detailed knowledge of what goes on in other parts of the chain - finished goods inventory, material inventory, work-in-process, actual demands and forecasts, production plans, capacity, yields, and order status. Visibility issues can be addressed by providing all partners with access to real-time information systems such as through extranets, trading exchanges, direct ERP-to-ERP integrations, etc. However, to be effective such systems must deliver reliable and predictable end-to-end performance, with security provisions that permit only authorised users to access the information. >> Control In addition to visibility, supply chain confidence requires the ability to take control of the supply chain operations. Sadly, most supply chains do not have a great deal of control once the order is released. Hence, Figure #5 CPFR Shared Processes and Data 6 CPFR and The Network

even if a supply chain manager has visibility of some portion of the pipeline, he/she often cannot make changes within short time periods to accommodate demand fluctuations. For example, even if information is obtained on demand changes or yield shortfalls, the supply chain manager may be helpless: (a) since the suppliers may not be flexible to respond to such changes, (b) there are no expediting options available, or (c) the production line is inflexible and production scheduling changes are not feasible, etc. Semiconductor manufacturers are often faced with this problem of lack of control. The long lead times by factories are such that, even if the manufacturer is made aware of sudden market demand changes, it takes too long to respond and the market opportunities are then missed. The problems of control can be partially addressed by initiatives that seek to provide real-time access to standardised internal and external master data related to raw materials, components, finished goods, production planning, etc. Such initiatives often involve agreeing upon standard data formats, XML transactions, etc., which lead to very large transactions being passed over the global network infrastructures. Hence, the network designs must be able to accommodate such standards, as well as exhibit the necessary security/access controls so that partners are willing to freely exchange their data with other members of the supply chain. Therefore, network firewalls, managed extranets, encryption techniques, etc. all become crucial to the success of addressing control issues. >> Chaos Without supply chain confidence, members of the supply chain are vulnerable to chaos and decision risks. Sales people may start over-ordering since they do not have timely visibility of the correct demand signals, or they know from experience that supplies may be late or insufficient to fill the complete orders. Production plans are thereby based upon inflated production lead times due to similar lack of visibility and control. "Safety lead times" are commonly used in standard Manufacturing Resource Planning (MRP) systems, since production planners do not want to incur production delays. The lack of means to expedite or be flexible in manufacturing also implies that any yield shortfalls or production downtimes have to be made up for by additional production, and as a result, lead times are often stretched out in production plans. The irony is that when planned production lead times are inflated, actual lead times will gradually match the planned target, a human behaviour known as Parkinson s Law, which prescribes that when a goal is too lax, then the tendency is for workers to relax and actually "achieve" the goal. Once information can freely flow across the supply chain, then an organisation is positioned to achieve reductions in total system inventory while simultaneously improving responsiveness to demand. The ability to match supply more closely with demand is often referred to as agility and the key to agility is speed. If flows through the pipeline can be accelerated then it stands to reason that volatile unpredictable demand can be met more precisely. Even better, there are lower levels of inventory in the pipeline because it is shorter in effect information has been substituted for inventory a key concept in understanding supply chain management. Again, information is substituted for inventory, which is the basis for enabling significant efficiency improvements. However today, agility requires synchronisation from one end of the supply global pipeline to the other. Synchronous supply requires transparency of demand and pipeline inventory in as close to real-time as possible. It also requires a willingness on the part of all the members of the supply chain to work to a single supply chain plan. A decade ago such an idea would have seemed fanciful. 7 CPFR and The Network

However, two factors have significantly changed the landscape of supply chain management in the last few years. The first of these is the availability of the technology and software applications to enable the capture and sharing of information across a supply chain increasingly using extranets. The second, is the increasing willingness of members of the supply chain to put aside the traditional arms-length relationships with each other and in its place move towards closer, partnership-type arrangements. Again, the networks over which these collaborations take place must possess the necessary levels of performance, scalability, security and reliability in order for these benefits to be realised to their maximum potential. CPFR Fundamentals The key concepts behind CPFR can perhaps best be explained by comparing it to the traditional Reorder Point (ROP) approach. Under a ROP procedure, retail level planners collect product information and marketing programs at the product distribution point level. Combining this information with point-of-sale (POS) data, item-level forecasts and event calendars that record promotional dates, special marketing programs, etc., are thereby generated. Based upon inventory and/or service level targets, the forecasts (and all the corresponding errors) are used to generate reorder points. When inventory of an item reaches the specified reorder point, the retailer/distributor places an order to the manufacturer. If the product is available, it is shipped to the retailer/ distributor; if not, the retailer/distributor will seek alternative solutions to replenish the item. The manufacturer, on the other hand, collects product knowledge and marketing programs of major retailers from public sources. Based upon retailer/distributor orders and historical shipment information, the manufacturer generates a forecast by item, and in most cases, by geographic region. These forecasts also drive the production of the items, as well as the geographic regions where the items will be produced and warehoused. However, such independent planning between the members of the supply chain can result in extended cycle times, poor customer service, inefficient use of working capital, items being produced and/or stocked in the wrong geographic regions, etc. During the last decade CPFR emerged as a method to counter some of the shortcomings of the ROP approach. The objective behind a CPFR initiative is that the trading partners work off a common forecast or plan. That is, the retailer, distributor and the manufacturer collect market intelligence on product information, store promotional programs, etc., and share the information in real-time over a global Wide Area Network (WAN). In most cases, the retailer or distributor owns the sales forecast. If the manufacturer agrees with the forecast, automatic replenishments are made to the retailer/distributor via predetermined business contracts so that a specified level of inventory or customer service is maintained. If the manufacturer and retailer cannot agree upon the forecasts or if there are exceptions, such as an unusual seasonal demand or a new store opening, the forecasts are reconciled manually. Prior to implementing CPFR, the distributor and the manufacturer agree upon several key factors, such as how to measure service levels and stock-outs, how to set inventory and service targets, etc. However, with CPFR the distributor and manufacturer will jointly redesign key business processes such as setting increased sales objectives, or improving transaction mechanisms to reduce costsofallparties. If life were only that simple! 8 CPFR and The Network

The "Bullwhip Effect" The bullwhip effect was coined from an initiative undertaken by logistics experts at Procter & Gamble (P&G) who were examining the order patterns for one of their best-selling products, Pampers. Its sales at retail stores were fluctuating, but the variabilities were not particularly excessive. However, these experts were surprised by the increasing degree of variability in the distribution of orders. When they looked at P&G's orders of materials to their suppliers, such as 3M, they discovered that the swings were even greater. At first glance, the variabilities did not make any sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variabilities in the supply chain were continually amplified as they moved up the supply chain. P&G called this phenomenon the "bullwhip effect," and the phenomenon holds true for virtually every organisation whose product or service involves multi-level supplier relationships, regardless of the industry. In some industries, this also is known as the "whiplash" or the "whipsaw" effect. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies. Companies seeking to effectively counteract the bullwhip effect must start by thoroughly understanding its underlying causes, which can be very complex. Figure #6 Bullwhip Effect 9 CPFR and The Network

When a supply chain is plagued with a bullwhip effect and demand information is distorted, the following business impacts can often result: >> Excessive inventories >> Poor product forecasts >> Insufficient or excessive capabilities >> Lost revenues >> Misguided capacity plans >> Inactive transportation and logistics >> Missed production schedules >> Poor customer service >> Uncertainly and costly production >> High costs for corrections (e.g. expedited shipments, overtime, etc.) Essential to minimising the bullwhip effect is to first understand the forces, which drive customer demand planning and inventory consumption, as they are the triggers for replenishment order quantities at various points in the supply chain. The most effective process for smoothing out the oscillations of the bullwhip effect will typically be distributors and suppliers understanding what drives demand and supply patterns and then, collaboratively working to improve information quality and compressing cycle times throughout the entire supply chain process. These opportunities for improvement will typically include the following: >> Minimise the cycle time in receiving projected and actual demand information by interconnecting systems on a 24/7 basis, with the objective of near zero downtime and latency of data updates. >> Understand product demand patterns at each stage of the supply chain by similarly interconnecting logistics providers, raw materials suppliers, secondary suppliers, etc. >> Increase the frequency and quality of collaboration through shared demand information such as establishing direct ERP-to-ERP collaboration between supply chain partners. >> Minimise or eliminate latencies, information queues and batch capture/update processes that would otherwise create information flow delays. This may be greatly aided by the use of network monitoring and application-level reporting tools, as well as networkbased probes, which can be used to identify such delays on a continual and real-time basis. >> Eliminate inventory replenishment methods that launch "demand lumps" into the supply chain. >> Eliminate incentives for customers and distributors which directly cause demand accumulation and order staging prior to submitting replenishment requests, such as volume transportation discounts. >> Minimise incentivised promotions that will cause customers to delay orders and thereby interrupt smoother ordering patterns. >> Offer products at consistently good prices to minimise buying surges brought on by temporary promotional discounts. >> Establish the monitoring of actual demand for product to as near a real-time basis as possible. >> Identify, and preferably, eliminate the cause of customer order reductions or cancellations. 10 CPFR and The Network

>> Provide vendor-managed inventory (VMI) services by collaboratively planning inventory needs with the customer to projected end-user demand levels then, monitor actual demand to fine tune the actual VMI levels. VMI can often increase sales and profits especially in industries where buyers can go to alternative sources if the primary provider is out-of-stock. No discussion of supply chain management and CPFR would be complete without addressing the process of item synchronisation, which is the exchange (at a point in time) of basic business data used throughout the supply chain process to create a common understanding between trading partners. This includes product and price data and trading partner location information. To understand the importance of item synchronisation consider the following statistics, based upon a study performed by A.T. Kearney, a leading management consulting firm: Even the most modern of supply chain management systems, with all the bells and whistles, cannot automatically stop the "bullwhip effect." It s a demand management process problem with very broad implications because it often encompasses policies, enterprise applications (ERP, SCM and CRM), interfaces, networks, trading exchanges, data format inconsistencies, timing differences, etc. >> Within the North American retail market, supply chain inefficiencies result in annual lost sales of $40 billion, or 3.5% of total sales. >> 30% of items in retail catalogues have data errors, which cost between $60 and $80 each and consume 25 minutes of manual cleansing. It is therefore a mission imperative to continually seek to reduce any potential disruptions to the accurate and realtime communications between supply chain partners. By doing so, the variabilities resulting in the bullwhip effect can be similarly reduced. However, the techniques for minimising the bullwhip effect represent very daunting network challenges that involve seeking near 100% system availability, predictable performance, scalability and access controls across a global environment between numerous partners. As a result, even seemingly minor improvements in network performance, availability and reliability can yield orders-of-magnitude contribution to business performance. Item Synchronisation >> 60% of invoices generated errors and 43% of invoices resulted in deductions. >> For new products it can take up to four weeks for complete and accurate item data to reach the retailer for entry into their procurement systems. These data inconsistencies result in inaccurate purchase orders, credit transactions, payments and an operational cost to resolve and correct. As noted previously, a basic requirement of CPFR is the reliance upon the data exchanged between partners. Therefore, before activities such as ordering and delivery can accurately occur, data must be exchanged and synchronised to ensure alignment between the partners. Effective item synchronisation is based upon the electronic exchange of data and the continuous maintenance of data attribute values between two or more different systems to ensure item information alignment. The end result is that the data attribute values are the same within all of the 11 CPFR and The Network

systems, both seller and buyer, and the processing of business documents can thereby be performed without content exceptions. Again, the global WAN plays a crucial role in an organisation s ability to successfully accommodate the requirements of item synchronisation. The methods of accomplishing item synchronisation include the following: >> Peer-to-Peer The seller transmits item and price information directly to the buyer. This may be performed in a variety of ways, both electronic and manual: EDI (electronic data interchange), CD-ROM, spreadsheets, etc. >> Data Pool The seller and buyer agree to share a common database of product/price information. This is accomplished through the use of third party catalogue services. The seller sends data to the third party and the buyer pulls data from various sellers from the same third party. >> Trading Exchange A number of exchanges, or e-marketplaces, have emerged in the last several years. As members of the exchange, the seller can send product and price data to the exchange and the buyer can pull data from the exchange. EDIINT/AS2 EDIINT/AS2 has become the standard data communications protocol for conducting and managing supply chain transactions between partners. EDIINT is a working group of the Internet Engineering Task Force (IETF). Formed in February 1996, EDIINT was chartered by the IETF to create a set of secure protocols for sending EDI data over the Internet. The two EDIINT standards that have been certified are AS1 and AS2. >> AS1 provides Secure/Multipurpose Internet Mail Extensions (S/MIME) encryption and security over Simple Mail Transfer Protocol (SMTP). S/MIME secures data with authentication, message integrity, nonrepudiation, and privacy features and is the primary means of transporting most Internet email. SMTP is the protocol used by most email systems for sending email messages between servers. >> Service Bureaus such as UCCnet UCCnet is a owned subsidiary of the Uniform Code Council (UCC) that provides global item registry and data synchronisation services for subscribing organisations. Item synronisation is almost always based upon the use of agreed-to or mandated data exchange standards such as EDIINT AS2 (Electronic Data Interchange Over the Internet Applicability Statement 2). These transactions can often create challenges to the global WAN over which they are exchanged as a result of their sizes and other unique characteristics. >> AS2 provides a solution for securely exchanging EDI using MIME and the Hypertext Transmission Protocol (HTTP) instead of SMTP as the transport protocol. AS2 specifies the means to connect, deliver, validate, and reply to (receipt) data in a secure and reliable way. AS2 does not concern itself with the content of the EDI document, only the transport. AS2 essentially creates a wrapper around EDI flat files and provides security and encryption around the HTTP packets. 12 CPFR and The Network

Figure #7 Ediint AS2 Transaction Flows While EDIINT/AS2 is a sound, proven and increasingly popular method for exchanging information across a supply chain, it does create network challenges associated with ensuring adequate security, performance and network bandwidth sizing. For example, an EDIINT message contains numerous headers, which increase transaction sizes. Such factors must be considered when designing a network that will satisfy required levels of performance and scalability. 13 CPFR and The Network

Typical EDIINT/AS2 headers include the following: Header Element From To Disposition-Notification-To Message-ID Subject Disposition-Notification-Options Receipt-delivery-option Receipt-report-type Receipt-security-selection Input-format Agent Application Date Time RefNum UserParam GISB-Version Transaction-set Input-data Receipt-disposition-to Date Transaction-ID Time-c Priority Expiration Contents Sender Recipient Party to receive receipts Unique identifier Text describing contents Delivery options for MDN s Delivery options for General Reciepts Type of receipt to return Type of crypto to apply to receipt Token to describe data type of payload Indication of 3rd party involvement Object method to invoke at receiver s server Payload creation date/time Unique message reference number Catch all headers provided by sender, repeated by receiver in receipt/response messages. Primarily used for state/content. Protocol version Identification of transaction type identifier Name associated with the payload Party to receive General Reciept Message creation date Unique identifier contained in receipt. Combined with Reference Number. Uniquely identifies a package. Date/Time of record acknowledging receipt by receiver Message Priority Delivery Expiration Exchanging data via EDIINT/AS2 is a step in the direction of easing the pain associated with managing multiple streams of information between partners in a global supply chain. However, the network challenges are much more complex than merely connecting to the Internet. Network Implications The overriding objective of supply chain management and CPFR are to provide a high velocity flow of high quality and relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to distributors and customers. These goals are dependent upon a robust global communications infrastructure. Also, enterprise-class applications used to support CPFR, such as those from SAP, i2, Manugistics, Oracle and others, have become the cornerstone of most multinational corporation s (MNCs) supply chain management strategies. Adopting such a software suite can provide numerous advantages for an enterprise seeking to automate its inventory and production planning processes. However, these applications in and of themselves represent numerous network challenges as a result of such factors as their transactional characteristics, the geometric increase in transactional growth resulting from A2A transactions (i.e. transactions created by one application interacting with another), etc. For example, a single order transaction initiated by a user of a CRM application can be multiple 14 CPFR and The Network

megabytes in size and can require greater than 1,000 turns (round-trips between servers) to transmit the necessary data between servers interconnecting members of an integrated supply chain. The challenges of accommodating such transactional characteristics over a global WAN cannot be underestimated. Also, there may be literally millions of such transactions processed throughout the course of the average month, with each having requirements for real-time performance, access controls, 24/7 availability, etc. Hence, enterprises seeking to undertake CPFR initiatives must be prepared to address the communications challenges of integrating the processes, industry-specific data exchange formats, software applications and partners within the supply chain. BT Infonet s Application-Defined Networking (ADN) approach addresses the challenges of business processes and enterprise applications by designing networks that are optimised for clients specific business objectives, processes and applications. By utilising this approach clients benefit by having fully managed global network infrastructures that are "right-sized" to the unique characteristics of the enterprise and the applications in use. As a result, optimisation of process effectiveness is achieved by a communications infrastructure that is responsive, scalable and secure. Figure #8 - Transactional Characteristics of Interfaced Enterprise Applications 15 CPFR and The Network

In summary, there is no single risk-free formula for effectively implementing CPFR initiatives within an enterprise. Such initiatives require the reshaping of relationships between trading partners, establishment of collaborative business process environments and the implementation of software technologies that are exceedingly complex and inherently risky. The global WAN implications of these initiatives are crucial to their ultimate success. BT Infonet s ADN approach and expertise with the optimisation of processes and enterprise-class applications can greatly benefit organisations undertaking such initiatives. Networks designed using BT Infonet s ADN methodology represent the best value to multinationals seeking to derive ROI from their technology investments. Figure #9 - Application Defined Networking (ADN) 16 CPFR and The Network

About BT Infonet Infonet Services Corporation, a member of the BT Group plc group of companies, known for its quality of service, is a leading provider of managed network communications services for multinational entities. Employing a unique consultative approach, BT Infonet offers integrated solutions optimising the complex relationship between enterprise applications and the global network. Extensive project management capabilities are the foundation for the services and solution offerings (broadband, Internet, intranet, multimedia, videoconferencing, wireless/remote access, local provisioning, application and consulting services) positioning BT Infonet as a single-source partner for multinational entities. In particular, BT Infonet IP VPN solutions offer multinationals a unique combination of Private and Public IP services as well as a full set of Managed Security and Mobility Services. Rated Best in Class overall in Telemark s survey of Global Managed Data Network Services, Infonet Services Corporation has also won Best Customer Care and Best Carrier at the World Communication Awards. Founded in 1970, Infonet Services Corporation owns and operates The World Network, accessible from more than 180 countries, and provides local service support in over 70 countries and territories. Additional information about Infonet Services Corporation is available at www.bt.infonet.com. BT Group plc is a public limited company registered in England and Wales under registration number 4190816 with listings on the London and New York stock exchanges. Additional information about the company is available at www.bt.com/aboutbt. BT Infonet Worldwide Sales Headquarters Asia-Pacific 8 Temasek Boulevard #36-01 Suntec Tower Three Singapore 038988 Tel: +65 6820 3518 Fax: +65 6820 3520 Europe, Middle East and Africa 350/358 Avenue Louise Box 3 B-1050 Brussels, Belgium Tel: +32 2 627 39 11 Fax: +32 2 640 97 41 Latin America Mardoqueo Fernandez 128 Piso 7 Providencia, Santiago, Chile Tel: +56 2 368 9400 Fax: +56 2 368 9415 North America One Parkview Plaza Suite 610 Oakbrook Terrace, Illinois 60181 USA Tel: +1 630 573 9000 Fax: +1 630 573 1003 BT Infonet Corporate Headquarters 2160 East Grand Avenue El Segundo, California 90245-5024 USA Tel: +1 310 335 4700 Fax: +1 310 335 4507 BT Group plc Corporate Headquarters 81 Newgate Street London, United Kingdom EC1A 7AJ Tel: +44 121 433 4404 Fax: +44 1903 833371 An ISO 9001 Registered Firm 17 Infonet, DialXpress, Global Connect, Global Workplace, PerspeXion and The World Network are registered trademarks of Infonet Services Corporation. DialXpressway, FirstWatch, GRXpress, Insight Matters, MobileXpress and SiteWise are trademarks of Infonet Services Corporation. BT Infonet is a trademark of British Telecommunications plc. Other product names that may be used herein are for identification purposes only and may be trademarks of their respective companies. Copyright 2005, Infonet Services Corporation. All rights reserved. 06/05 MP-WP018-02-BT.