collaborative planning forecasting & replenishment
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COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT
CPFR
GRO
UP
: C2 Shreshtha Rath U111125
Budhadev nayak U111134
Parul Verma U111151
Rachna Bagaria U111154
Sampat Patnaik U111162
Manu Vats U111167
COLLABORATIVE COMMERCE
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.
Definition -
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
COLLABORATIVE COMMERCE : INITIAL PARADIGM SHIFTS
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 forecast
Drive replenishment
Drive MRP
THE COLLABORATIVE PROCESS
CPFR
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.
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
• 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
A BRIEF HISTORY (contd.)
THREE MODES OF CPFR
Basic CPFR: a limited number of business processes integrated between a
limited number of supply chain partners
Advanced CPFR goes beyond data exchanges to
synchronise forecasting information systems and
coordinate planning and replenishment processes
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
COLLABORATIVE COMMUNITIES
One to One
Price is not primary driver
Products are branded or differentiated
Fulfillment is competitive weapon
Discontinuous innovation, integrating processes
Exception Based
TRADING EXCHANGES
Many to Many
Price is key decision factor
Products are not differentiated
Fulfillment is homogeneous
Continuous Innovation, automating old business to new business processes
Self-Service based
1. Front-End Agreement
2. Joint Business Plan
3. Create Sales Forecast4. Identify exceptions5. Resolve exceptions
6. Create Order Forecast7. Identify exceptions8. Resolve exceptions
9. Generate Order
Once
Qtr
.
Wk,
Mo
Wk,
Mo
Collaborative Planning
Collaborative Forecasting
Collaborative Replenishment
Seller
Buyer
Sales Forecast
Order Forecast
CPFR PROCESS
• 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
THE CPFR® OPPORTUNITY
8 collaboration tasks form cycle of 4 activities. Each activity consists of two collaboration tasks.
CPFR® REFERENCE MODEL
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
CPFR: KEY TENETS
Establish the ground rules for
the collaborative relationship.
Determine product mix and
placement, and develop event
plans for the period.
1. STRATEGY & PLANNING
• 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.
1.1 COLLABORATION ARRANGEMENT
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
OUTPUT : Memorandum of understanding
• 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.
1.2 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.
OUTPUT : joint business plan
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. DEMAND & SUPPLY MANAGEMENT
• 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.)
2.1 SALES FORECASTING OVERVIEW
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
SALES FORECASTING STEPS
• 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.
OUTPUT
• 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
2.2 ORDER PLANNING/FORECASTING OVERVIEW
• 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.
OUTPUT : Time-phased, netted order forecast
• 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
3. EXECUTION
• 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
ORDER GENERATION OUTPUT
• Monitor planning and execution
activities for exception conditions
• Aggregate results, and calculate key
performance metrics
• Share insights and adjust plans for
continuously improved results
4. ANALYSIS
• 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.
PERFORMANCE ASSESSMENT
• 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
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
BARRIERS TO COLLABORATION
CPFR BENEFITS
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: DEMAND
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
2. 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: SUPPLY
3. 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: SUPPLY
CPFR® BENEFITS
Improved customer
service
More effective inventory
management
Improved profitability
CPFR® ROI BENEFIT CATEGORIESStorage Costs
22%Inventory Expense
17%Intransit inventory for Rail
>1%Reduced 3’rd Party Storage 13%
Increased Sales 25%Improved Margin 1%Customer Retention 8%
Transportation 19%• C
arrier Management >1%
• Load Planning >1%
• Truck Tendering/Carrier Selection 1%
• Truck Cycle Time 6%
• Rail Cycle Time 10%
• Demurrage >1%
• Excess Freight Charges 2%
Process Efficiencies 6%• I
nventory Control 1%
• Logistics 2%
• Order Management / CSR 2%
• Purchasing >1%
Total Benefit 100%
SARA LEE
Federated Dept. Stores
MeadSchool & Office
Kimberly Clark
JCPenney
VF Corp.
Staples
CPFR® Initiative Participants
GRO
UP
: C2 Shrestha Rath U111125
Budhadev nayak U111134
Parul Verma U111151
Rachna Bagaria U111154
Sampat Patnaik U111162
Manu Vats U111167