Technology And Operations Management,Presentation Transcript
CPFR ® Henry C. Co Technology and Operations Management, California Polytechnic and State University Read Coyle, et al, Supply Chain Management: A Logistics Perspective , pp. 249-252.
“ Even children can tell you what they want and help you assure that they get it. Imagine your trading partners in that role … and the benefits you could see are not child’s play.” www.intrinsicvaluechain.com
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.
Data registration Data synchronization Foundational Steps Common Data Standards Electronic Product Code (EPC) – physical carriers Global Data Synchronization (GDS) – enabler for maintaining uniform, standards-based data usable throughout the supply chain.
CPFR Drivers Out of stocks = 3.1% loss in sales to retailer Out of stocks = 4-5% loss in sales to manufacturer Forecasting a key cause of out of stocks on warehouse supplied items. Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996
Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996 “ This does not take into account other intended purchases lost at time of the visit” Out of Stocks Translate into 3.1% Loss in Sales to Retailer 8.2 6.5 3.4 3.1
8.2 6.5 1.5 5.0 Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996 “ This does not take into account other intended purchases lost at time of the visit” Out-of-Stocks result in 4-5% Loss in Sales to Manufacturer
Forecasting a key Cause of Out of Stocks on Warehouse Supplied Items Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996
Sales history used as a predictor for future demand.
Forecasts do not include future planning and set programs.
Manufacturers are not building to retailer/consumer demand.
Forecasting of promotional, seasonal, and new item remain a critical issue.
Collaboration occurs most often after the initial order is placed.
Difficulties in forecasting
Influence of promotions
Changing demand patterns
Solutions to uncertainty
Inventory – an expensive method of avoidance
Cooperative planning between trading partners.
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.
Collaborative Planning, Forecasting, and Replenishment
CPFR is recognized as a breakthrough business model for planning, forecasting, and replenishment.
Uses available Internet-based technologies to collaborate from operational planning through execution.
Developed by Wal-Mart and Warner-Lambert in 1995.
In 1987, P&G and Wal-Mart pioneered in Continuous Replenishment Process (CRP). With CRP, P&G makes the main inventory replenishment decisions for Wal-Mart.
P&G monitors Wal-Mart’s inventory levels (physically or via electronic messaging) and makes periodic resupply decisions regarding order quantities, shipping, and timing. Transactions customarily initiated by Wal-Mart (like purchase orders) are initiated by P&G instead.
CRP between Wal-Mart and P&G is best-known as the vendor-managed inventory program.
In 1994, Wal-Mart extended CRP by providing its sales forecasts to the vendors. This is called. Co-managed Inventory Program.
In 1995/1996, Wal-Mart initiated a co-managed inventory effort with Warner-Lambert called CFAR.
Wal-Mart then asked VICS to study and develop an industry-wide process around this proprietary practice to create a more productive supply chain.
VICS stands for Voluntary Interindustry Commerce Standards Association.
CPFR ® is a set of guidelines supported and published by the 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.
CPFR ® stands for Collaborative Planning Forecasting and Replenishment
CPFR ® Initiative Participants SARA LEE Federated Dept. Stores Mead School & Office Kimberly Clark JCPenney VF Corp. Staples
CPFR ® Initiative Participants Apparel Group Benchmarking Partners Inc. Corning Consumer Products DAMA Project Ernst & Young LLP Federated Department Stores Fieldcrest Cannon Goody’s Family Clothing Hewlett Packard JC Penney Johnson & Johnson Kimberly-Clark Kmart Levi Strauss & Co. Lucent Technologies May Department Stores Mead School & Office Nabisco Nestle-Canada Pillsbury Procter& Gamble QRS Sara Lee Schnucks Spiegel Staples Uniform Code Council Wal-Mart Warner-Lambert
The VICS CPFR ® Guidelines http://www.gmabrands.com/industryaffairs/docs/cpfr.pdf http://www.cpfr.org/Guidelines.html
The VICS CPFR ® Guidelines
Voluntary guidelines aimed at structuring and guiding supply chain partners in setting up their relationship and processes.
Allows visibility to trading partners’
The plan and the forecast are entered by suppliers and buyers into an Internet accessible system.
Within established parameters, any of the participating partners is empowered to change the forecast.
Only a few CPFR initiatives have been made public, but results are impressive.
Figure 7-4, p. 253: Coyle, et al, Supply Chain Management: A Logistics Perspective
In 2004, VICS revised the 9-step CPFR ® reference model.
The CPFR ® Reference Model
8 collaboration tasks form an iterative cycle of 4 activities:
Strategy & Planning
Demand & Supply Management
Each activity consists of two collaboration tasks.
Figure 7-3, p. 250: Coyle, et al, Supply Chain Management: A Logistics Perspective
CPFR ® Is Consumer-Centric
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.
Strategy & Planning Activity
One of the two collaboration tasks under the Strategy & Planning Activity is Collaboration Agreement.
Its outcome is a memorandum of understanding affirming each trading partner’s roles and expectations, confidentiality of shared information, means of measuring success, and the organizations’ roles and responsibilities with respect to commitment of resources, exception handling and performance measurement.
The other collaboration task is Joint Business Plan. The outcome of this activity typically include joint calendar for promotions, inventory policy changes, store openings/closings, and product changes for each product category, etc.
Demand & Supply Management
The two collaboration tasks under the Demand & Supply Management activity are sales forecasting and order forecasting.
The trading partners develop a single forecast of consumer demand based on combined promotion calendars and analysis of POS data and causal data.
The sales forecast is eventually used as a baseline to create a single order forecast.
Under the Execution activity, the buying organization (order generation) place orders and the vendor fulfill the orders by delivery shipments (order fulfillment).
The buyer receives and stocks products, records sales transactions and makes payments.
The Analysis activity consists of two collaboration tasks. In performance assessment, the trading partners calculate key performance metrics (e.g., in-stock level, forecast accuracy targets, etc.), and share insights and adjust plans for continuous improvement.
The trading partners generate and agree to a list of exception items for their CPFR initiative, and develop a process to resolve sales forecast exceptions.
In exception management, the trading partners monitor plan vs. execution to identify deviations and exceptions. The trading partners resolve exceptions by determining causal factors, adjusting plans where necessary.
Forecast accuracy problems, overstock/stock-out conditions, and execution issues are to be identified and resolved in a timely manner.
Collaboration Tasks Under CPFR ®
CPFR Benefits More effective inventory management Improved customer service Improved profitability
Typical CPFR ® Benefits Source: AMR Research (2001) 5% to 10% Better Customer Service 2% to 10% Higher Sales 12% to 30% Faster Replenishment Cycles 10% to 40% Lower Inventory Levels Typical Improvement Manufacturer Benefits 3% to 4% Lower Logistics Costs 5% to 20% Higher Sales 10% to 40% Lower Inventory Levels 2% to 8% Better Store Shelf Stock Rates Typical Improvement Retailer Benefits
CPFR Benefits: Demand
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 fruition on business plan, base, and promotional forecasts.
Continual CPFR meetings strengthen this relationship.
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.
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.
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
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.
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.
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.
Improved Overall ROI
As other processes improve, the return on investment from CPFR can be substantial.
Increased Customer Satisfaction
With fewer out-of-stocks resulting from better planning information, higher store service levels will prevail, offering greater consumer satisfaction.