CPFR Collaborative Planning, Forecasting, and Replenishment
Collaborative Commerce 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.
Processes, technologies and the supporting standards that allow continuous and automated exchange of information between trading partners
What is CPFR ® ? 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.
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)
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. 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.
CPFR ® Initiative Participants SARA LEE Federated Dept. Stores Mead School & Office Kimberly Clark JCPenney VF Corp. Staples
Collaborative Planning, Forecasting, & Replenishment The Collaborative Process Manufacturer Common Event Calendar Joint Forecast Retailer Retailer Forecast Drivers Joint Business Planning Generate joint forecast Generate joint forecast Drive replenishment Drive MRP
Manufacturer Forecast Drivers
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 Source: AMR Research (2009) Retailer Benefits Typical Improvement Better 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 Benefits Typical Improvement Lower Inventory Levels 10% to 40% Faster Replenishment Cycles 12% to 30% Higher Sales 2% to 10% Better Customer Service 5% to 10%
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 the actual result 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.
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. 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.
The CPFR ® Reference Model 8 collaboration tasks form cycle of 4 activities: Demand & Supply Management
Each activity consists of two collaboration tasks.
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.
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 http://scm.ncsu.edu/public/cpfr/ .
Promotions no longer serve as disturbances in the supply chain
Collaboration Tasks Under CPFR ®
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 J oint 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.
Demand & Supply Management Projects demand at the point of sale Order planning/forecasting: Determines future product order & delivery requirements based upon the sales forecast.
Takes into account inventory positions, transit lead times, shipment quantities, and other factors.
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: Distribution center withdrawals Manufacturer consumption data
Important to incorporate information on any planned events (ex. – Promotions, plant shut downs, etc.)
Sales Forecasting Steps Analyze current joint business plan Analyze the potential effects of the current joint business plan on future retail sales Analyze causal information Analyze the potential effect of causal factors on future retail sales based on historical events and the resulting sales impact Collect and analyze consumption data
Point-of-Sale (PoS) data, warehouse withdrawals, manufacturing consumption
Store openings or closings, promotions, or new product introductions This comprehensive list of events will be used to populate a shared-event calendar Update shared event calendar Align events from each trading partner, resulting in a common plan
Agree upon this short-term event plan
Gather exception resolution data Gather sales forecast exception resolution data from previous iterations
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 … Example: http://scm.ncsu.edu/public/cpfr/
...and this information is then used to generate a replenishment forecast for the DC.
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
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.
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. Exception management
Forecast accuracy problems, overstock/stock-out conditions, and execution issues must be identified and resolved in a timely manner.
CPFR BENEFITS (Wal-Mart’s Report) Level of Participation In-Stock Rate (Improvement) Weeks of Supply (Improvement) Inventory Turnover (Improvement) Active 7.85% 5.3 weeks 3.72 Less 3.10% n/a n/a