CPFR Collaborative Planning, Forecasting, and Replenishment

Collaborative CommerceDefinition - 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 consumers 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 CPFRBasic CPFR: a limited number of business processes integrated between a limited number of supply chain partnersDeveloped 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 customerAdvanced CPFR goes beyond data exchanges to synchronise forecasting information systems and coordinate planning and replenishment processes

A Brief HistoryCPFR evolved from Efficient Consumer Response (ECR).

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

Prior to ECRRelationships often adversarial.Little or no joint planningLack 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 reactA 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 industriesApparel, automotive and high tech.

SARA LEEFederated Dept. StoresMeadSchool & Office Kimberly ClarkJCPenneyVF Corp.StaplesCPFR Initiative Participants

Collaborative Planning, Forecasting, & Replenishment The Collaborative ProcessManufacturerRetailer Forecast Drivers In stock positionFill RateConsumer DemandPrice ChangesGrowth PlansDistribution ChannelsCommon Event CalendarJoint ForecastRetailer Manufacturer Forecast Drivers Capacity Order Lead timeConsumer BehaviourProduct AvailabilityPromotionsRaw material supplyJoint Business PlanningGenerate joint forecastGenerate joint forecastDrive replenishmentDrive MRP

The CPFR OpportunityA set of guidelines supported and published by the Voluntary Inter-industry Commerce Standards (VICS) AssociationTrading 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 managementImproved customer serviceImproved profitability

Typical CPFR Benefits Source: AMR Research (2009)

Retailer BenefitsTypical ImprovementBetter Store Shelf Stock Rates2% to 8%Lower Inventory Levels10% to 40%Higher Sales5% to 20%Lower Logistics Costs3% to 4%Manufacturer BenefitsTypical ImprovementLower Inventory Levels10% to 40%Faster Replenishment Cycles12% to 30%Higher Sales2% to 10%Better Customer Service5% to 10%

CPFR Benefits: DemandEnhanced RelationshipImplicitly, 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. Greater SalesThe 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.

Category ManagementBefore 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 OfferingBefore CPFR implementation, the buyer and seller collaborate on a mutual product scheme that includes SKU evaluation and additional product opportunities.

CPFR Benefits: SupplyImproved Order Forecast AccuracyCPFR 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.Inventory ReductionsCPFR helps reduce forecast uncertainty and process inefficiencies. How much inventory does your company hold to cover up for forecasting errors or a trading partners 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 ROIThrough 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 ROIAs other processes improve, the return on investment from CPFR can be substantial.Increased Customer SatisfactionWith 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:

Strategy & PlanningDemand & Supply ManagementExecutionAnalysis.

Each activity consists of two collaboration tasks.

CPFR Is Consumer-CentricConsumer 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/ .

Collaboration Tasks Under CPFR

Strategy & PlanningEstablish 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 relationshipAssigning roles, responsibilities, checkpoints and escalation proceduresParticipating 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 understandingDefines 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 partys 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 planJoint 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 ManagementSales 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 Analyze current joint business planAnalyze the potential effects of the current joint business plan on future retail sales Analyze causal informationAnalyze 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

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 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 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

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

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

Output: Time-phased, netted order forecastThe 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.

ExecutionPlace 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.

AnalysisMonitor planning and execution activities for exception conditions. Aggregate results, and calculate key performance metrics.Share insights and adjust plans for continuously improved results.

Performance assessmentTrading 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-Marts Report)

Level of ParticipationIn-Stock Rate(Improvement)Weeks of Supply(Improvement)Inventory Turnover(Improvement)Active7.85%5.3 weeks3.72Less3.10%n/an/a

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