Cpfr final

CPFR Collaborative Planning,

Forecasting, and Replenishment

Collaborative Commerce

• Definition -

Processes, technologies and the supporting standards that allow continuous and automated exchange of information between trading partners

Through collaboration, suppliers and retailers can work together to fulfill consumer’s wishes better, faster and at less cost by improving business process efficiency and reducing waste.

What is CPFR®?

• A business practice

• Trading partners working together in planning fulfilling customer demand.– Links sales and marketing best practices to

supply chain planning and execution processes.

– Objective is to increase availability to the customer while reducing inventory, transportation and logistics costs.

Three modes of CPFR

Basic CPFR: a limited number of business processes integrated between a limited number of supply chain partners

Developed CPFR: will typically involve a greater number of data exchanges between two partners, and may extend to suppliers taking responsibility for replenishment on behalf of their customer

Advanced CPFR goes beyond data exchanges to synchronise forecasting information systems and coordinate planning and replenishment processes

A Brief History

CPFR evolved from Efficient Consumer Response (ECR).

ECR: Improve supply chain performance through better coordination of marketing, production, and replenishment

activities.

• Prior to ECR– Relationships often adversarial.– Little or no joint planning– Lack of information sharing results in “unpredictable” ordering

patterns, excessive inventories, service failures,… • In 1987, P&G and Wal-Mart pioneered in Continuous

Replenishment Process (CRP)– Information sharing – Joint demand forecasting – Coordinated shipments.

• CRP is best-known as the Vendor-Managed Inventory (VMI) program. This partnership laid the foundation for ECR.

• 1996, CPFR® (Collaborative, Planning, Forecasting, and Replenishment) pilot between Wal-Mart and Warner Lambert.

• CPFR® – Value chain partners co-ordinate plans to reduce the variance between

supply and demand and share the benefits of a more efficient and effective supply chain .

– Allow trading partners time to react• A supplier can build inventory well in advance of receiving a

promotional order and carry less safety stock at other times. • A retailer can alter the product mix to reduce the impact of supply

problems.

• Adopted by numerous other industries– Apparel, automotive and high tech.

SARA LEESARA LEE

Federated Dept. StoresFederated Dept. Stores

MeadSchool & Office

Kimberly ClarkKimberly Clark

JCPenneyJCPenney

VF Corp.

Staples

CPFR® Initiative Participants

Collaborative Planning, Forecasting, & Replenishment

The Collaborative Process

Collaborative Planning, Forecasting, & Replenishment

The Collaborative Process

Manufacturer

Retailer Forecast Drivers

• In stock position• Fill Rate• Consumer Demand• Price Changes• Growth Plans• Distribution Channels

Common Event Calendar

Joint Forecast

Retailer

Manufacturer Forecast Drivers

• Capacity • Order Lead time• Consumer Behaviour• Product Availability• Promotions• Raw material supply

Joint Business Planning

Generate joint forecast Generate joint fo

recast

Drive replenishment

Drive M

RP

The CPFR® Opportunity

• A set of guidelines supported and published by the Voluntary Inter-industry Commerce Standards (VICS) Association

• Trading partners share their plans for future events, and then use an exception-based process to deal with changes or deviations from plans.

• By working on issues before they occur, both partners have time to react. – A supplier can build inventory well in advance of receiving a

promotional order and carry less safety stock at other times. – A retailer can alter the product mix to reduce the impact of

supply problems.

CPFR Benefits

More effective inventory management

Improved customer service

Improved profitability

Typical CPFR® Benefits

Retailer BenefitsTypical

ImprovementBetter Store Shelf Stock

Rates 2% to 8%Lower Inventory Levels 10% to 40%Higher Sales 5% to 20%Lower Logistics Costs 3% to 4%

Manufacturer BenefitsTypical

ImprovementLower Inventory Levels 10% to 40%Faster Replenishment

Cycles 12% to 30%Higher Sales 2% to 10%Better Customer Service 5% to 10%

Source: AMR Research (2009)

CPFR Benefits: Demand

1. Enhanced Relationship– Implicitly, CPFR strengthens an existing relationship and

substantially accelerates the growth of a new one. – Buyer and seller work hand-in-hand from inception through

the actual result on business plan, base, and promotional forecasts.

– Continual CPFR meetings strengthen this relationship.

2. Greater Sales– The close collaboration needed for CPFR implementation

drives the planning for an improved business plan between buyer and seller.

– The strategic business advantage directly translates to increased category sales.

3. Category Management– Before beginning CPFR, both parties inspect shelf

positioning and exposure for targeted SKUs to ensure adequate days of supply, and proper exposure to the consumer.

– This scrutiny will result in improved shelf positioning and facings through sound category management.

4. Improved Product Offering– Before CPFR implementation, the buyer and seller

collaborate on a mutual product scheme that includes SKU evaluation and additional product opportunities.

CPFR Benefits: Supply

1. Improved Order Forecast Accuracy– CPFR enables a time-phased order forecast that provides

additional information, greater lead time for production planning, and improved forecast accuracy vs. either stand-alone VMI/CRP or other industry tools.

2. Inventory Reductions– CPFR helps reduce forecast uncertainty and process

inefficiencies. – How much inventory does your company hold to “cover up”

for forecasting errors or a trading partner’s inability to have the product available in a timely manner?

– With CPFR, product can be produced to actual order instead of storing inventory based on forecast.

3. Improved Technology ROI– Through the CPFR process, technology investments for

internal integration can be enabled with higher quality forecast information.

– Your company will benefit by driving internal processes with common, high-quality data.

4. Improved Overall ROI– As other processes improve, the return on investment from

CPFR can be substantial.

5. Increased Customer Satisfaction– With fewer out-of-stocks resulting from better planning

information, higher store service levels will prevail, offering greater consumer satisfaction.

The CPFR® Reference Model

8 collaboration tasks form cycle of 4 activities:

A. Strategy & PlanningB. Demand & Supply

ManagementC. ExecutionD. Analysis.

Each activity consists of two collaboration tasks.

http://www.vics.org/committees/cpfr/

CPFR® Is Consumer-Centric

• Consumer – At the center of the model. – Retailers, manufacturers and suppliers work

together to satisfy the demand of the end consumer.

• The circling arrows between the retailer ring and the manufacturing ring show the eight CPFR® collaboration tasks. – Collaboration tasks are NOT numbered; NO

predetermined sequence is implied.

CPFR: Key Tenets

• The consumer is the ultimate focus of all efforts • Buyers” (retailers) and “sellers” (manufacturers)

collaborate at every level • Joint forecasting and order planning reduces surprises

in the supply chain • The timing and quantity of physical flows is

synchronized across all parties • Promotions no longer serve as disturbances in the

supply chain

http://scm.ncsu.edu/public/cpfr/ .

http://scm.ncsu.edu/public/cpfr/

Collaboration Tasks Under CPFR®

1. Strategy & Planning

Establish the ground rules for the collaborative relationship.

Determine product mix and placement, and

develop event plans for the period.

1.1 Collaboration Arrangement

• Setting the business goals and defining the scope for the relationship

• Assigning roles, responsibilities, checkpoints and escalation procedures– Participating companies identify executive

sponsors, agree to confidentiality and dispute resolution processes.

– Develop a scorecard to track key supply chain metrics relative to success criteria, and establish any financial incentives or penalties.

• Outcome – Memorandum of understanding– Defines the process in practical terms. – Identifies the roles of each trading partner and

how the performance of each will be measured. – Spells out the readiness of each organization

and the opportunities available to maximize the benefits from their relationship.

– Formalizes each party’s commitment and willingness to exchange knowledge and share in the risk.

1.2 Joint Business Plan

• Trading partners exchange information on corporate strategies and business plans to develop a joint business plan.

• Identifies the significant events that affect supply and demand, such as promotions, inventory policy changes, store openings / closings, and product introductions.

• Outcome –A mutually agreed upon joint business plan– Joint calendar for promotions, inventory policy

changes, store openings/closings, and product changes for each product category, etc.

– Clearly identifies the roles, strategies, and tactics for the SKUs that are to be brought under the umbrella of CPFR.

– Cornerstone of the forecasting process.

2. Demand & Supply Management

Sales forecasting: Projects demand at the point of sale

Order planning/forecasting: (a)Determines future product order & delivery requirements based upon the

sales forecast. (b)Takes into account inventory

positions, transit lead times, shipment quantities, and other factors.

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2-1 Sales Forecasting Overview

• Consumption data is used to create a sales forecast.

• This consumption data differs depending on the product, industry, and trading partners: – Retailer POS data – Distribution center withdrawals – Manufacturer consumption data

• Important to incorporate information on any planned events (ex. – Promotions, plant shut downs, etc.)

Sales Forecasting Steps

1. Analyze current joint business plan– Analyze the potential effects of the current

joint business plan on future retail sales

2. Analyze causal information– Analyze the potential effect of causal factors

on future retail sales based on historical events and the resulting sales impact

3. Collect and analyze consumption data – Point-of-Sale (PoS) data, warehouse

withdrawals, manufacturing consumption

4. Identify planned events – Store openings or closings, promotions, or

new product introductions – This comprehensive list of events will be

used to populate a shared-event calendar

5. Update shared event calendar – Align events from each trading partner,

resulting in a common plan – Agree upon this short-term event plan

6. Gather exception resolution data – Gather sales forecast exception resolution

data from previous iterations

7. Generate sales forecast – Generate the forecast for a given period with

forecasting tools that use all relevant information and guidelines. Either partner or both partners may generate the sales forecast, depending upon the scenario

Output

• Single sales forecast generated by one or both parties

• Used as a baseline for the creation of an order forecast, as well as other supply chain activities.

2-2 Order Planning/Forecasting Overview

• Sales forecast, causal information, inventory policies, etc. are used to generate a specific order forecast.

• Actual volume numbers are time-phased and reflect inventory objectives by product and receiving location.

• The short-term portion of the forecast is used for order generation.

• The longer-term portion is used for planning.

How Sales Forecasts Drive Order Forecasts

• Using POS forecast and inventory policy information, we can calculate

when each store needs to release an order to the Retailer DC …

• ...and this information is then used to generate a replenishment forecast for the DC.

Example:



• The same process can be used to develop an order forecast for the

manufacturer.

Output: Time-phased, netted order forecast

• The order forecast allows the seller to allocate production capacity against demand while minimizing safety stock.

• The real-time collaboration reduces uncertainty between trading partners and leads to consolidated supply chain inventories.

• Inventory levels are decreased, and customer service responsiveness is increased. A platform for continual improvement among trading partners is established.

Execution

Place orders, prepare and deliver shipments, receive and stock product

on retail shelves, record sales transactions and make payments.

Order generation— Transitions order forecasts into firm demand

Order fulfillment — Producing, shipping, delivering, and stocking the

products

http://scm.ncsu.edu/images/cpfr2big.gif

Order Generation Output

• Committed orders by the buying organization (the retailer) and delivery shipments from the vendor. – The buyer receives and stocks products, records

sales transactions, sends order acknowledgment and makes payments.

• Buyer and seller agree on a “time fence” where forecasts are frozen. – Near-term orders are fixed; Long-term ones are

used for planning.

4. Analysis

Monitor planning and execution activities for exception conditions.

Aggregate results, and calculate key performance

metrics.

Share insights and adjust plans for continuously

improved results.

Performance assessment

• Trading partners calculate key performance metrics (e.g., in-stock level, forecast accuracy targets, etc.)– To evaluate achievement of business goals, uncover trends,

or develop alternative strategies;– To share insights and adjust plans for continuous

improvement.

• Generate and agree to a list of exception items for your CPFR initiative.– Develop a process to resolve sales forecast exceptions.

• Monitor plan vs. execution to identify deviations and exceptions. – Trading partners resolve exceptions by

determining causal factors, adjusting plans where necessary.

– Forecast accuracy problems, overstock/stock-out conditions, and execution issues must be identified and resolved in a timely manner.

Exception management

CPFR BENEFITS (Wal-Mart’s Report)

Level of Level of ParticipationParticipation

In-Stock In-Stock RateRate

(Improvement)(Improvement)

Weeks of Weeks of SupplySupply


Inventory Inventory TurnoverTurnover


ActiveActive 7.85%7.85% 5.3 5.3 weeksweeks 3.723.72

LessLess 3.10%3.10% n/an/a n/an/a

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