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COLLABORATIVE PLANNING,FORECASTING AND REPLENISHMENT GROUP : C2 Shreshtha Rath U111125 Budhadev nayak U111134 Parul Verma U111151 Rachna Bagaria U111154 Sampat Patnaik U111162 Manu Vats U111167
COLLABORATIVE COMMERCEDefinition - Processes, technologies and the supporting standards that allow continuous and automated exchange of information between trading partnersThrough collaboration, suppliers and retailers can worktogether to fulfill consumer’s wishes better, faster and at lesscost by improving business process efficiency and reducingwaste.
COLLABORATIVE COMMERCE : INITIAL PARADIGM SHIFTS Greater sharing of data and responsibility Common goals and metrics Forecasts aligned, & time phased across supply chain Managed by shared exception criteria Committed forecast ---> frozen orders Pre-notification of issues in meeting consumer demand Capitalize on trading partner strengths, resources & systems
THE COLLABORATIVE PROCESS Joint Business Planning Retailer Manufacturer Common Event CalendarRetailer Forecast Drivers Manufacturer Forecast• In stock position Drivers• Fill Rate • Capacity• Consumer Demand • Order Lead time• Price Changes Joint Forecast • Consumer Behaviour• Growth Plans • Product Availability• Distribution Channels • Promotions • Raw material supply
INTRODUCTION 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.
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 and service failures.
A BRIEF HISTORY (contd.)• 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
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
COLLABORATIVE COMMUNITIES TRADING EXCHANGES One to One Many to Many Price is not primary driver Price is key decision factor Products are branded or differentiated Products are not differentiated Fulfillment is competitive weapon Fulfillment is homogeneous Discontinuous innovation, integrating Continuous Innovation, automating old processes business to new business processes Exception Based Self-Service based
CPFR PROCESSOnce 1. Front-End Agreement Collaborative Planning Seller 2. Joint Business Plan Qtr. Order Forecast 3. Create Sales Forecast Wk, Mo Collaborative Forecasting 4. Identify exceptions 5. Resolve exceptions 6. Create Order Forecast Collaborative Wk, Mo 7. Identify exceptions Replenishment 8. Resolve exceptions Buyer 9. Generate Order Sales Forecast
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® REFERENCE MODEL 8 collaboration tasks form cycle of 4 activities. Each activity consists of two collaboration tasks.
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
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.
OUTPUT : 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.
OUTPUT : 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: 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: – 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
SALES FORECASTING STEPS 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
SALES FORECASTING STEPS 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
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.
3. 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
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.
EXCEPTION MANAGEMENT • 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.
BARRIERS TO COLLABORATION Internal Alignment Silo Mentality Silo Compensation Not Invented here mentality Business Practices Out of Sync With Reality Legacy Systems Personal Comfort Zones Lack of Leadership Uninformed Opinions
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 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
CPFR BENEFITS: DEMAND 3. Category Management – Before beginning CPFR, both parties should scrutinize and inspect shelf positioning activities – 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: SUPPLY1. Improved Order Forecast Accuracy – CPFR enables a time-phased order forecast that provides additional information, greater lead time for production planning, and improved forecast accuracy2. Inventory Reductions – CPFR helps reduce forecast uncertainty and process inefficiencies – With CPFR, product can be produced to actual order instead of storing inventory based on forecast
CPFR BENEFITS: SUPPLY3. Improved Technology ROI – Technology investments for internal integration can be enabled with higher quality forecast information – Driving internal processes with common, high-quality data.4. Improved Overall ROI – As other processes improve, the return on investment 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
CPFR® BENEFITS Improved Improved customer profitability service More effective inventory management