Campbell Soup's Continuous Replenishment Program: Evaluation and Enhanced Inventory Decision Rules

Campbell Soup's continuous replenishment (CR) program is a novel innovation designed to improve the efficiency of inventory management throughout the supply chain. With CR (1) retailers pay a constant wholesale price but continue to participate in consumer promotions, (2) retailers transmit to the supplier daily inventory information via electronic data interchange (EDI), and (3) the supplier assumes responsibility for managing retailer inventories, i.e., vendor managed inventories (VMI). We develop simple inventory management rules to operate CR, and we test these rules with a simulation using actual demand data provided by Campbell Soup. On this sample we find that retailer inventories were reduced on average by 66% while maintaining or increasing average fill rates. This improvementreduces a retailer's cost of goods sold by ~1.2%, which is significant in the low profitmargin grocery industry. Furthermore, these savings could have been achieved without VMI.