CPFR: THE NEXT STEP IN SUPPLY CHAIN MANAGEMENT EVOLUTION

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Collaborative Planning, Forecasting and Replenishment (CPFR) is a business model in which retailers and manufacturers extend collaboration from operational planning through to execution using Internet-enabled technology.  In the retail and consumer product industries, CPFR has emerged from its business model status and is poised to enter a full-scale operational mode.

WHAT IS CPFR

CPFR integrates ECR principles, including VMI, SMI, CRP and Category Management (for full definitions see www.kamcity.com/kamwords).

These practices have been captured and articulated as the guiding principles for CPFR:

·  The trading partner framework and operating process focuses on consumers and are orientated toward the value chain success.

One key finding that has come out of the VMI and JMI programmes is that no single business process fits all trading partners, as they have different competencies based on their strategies, different sources of information and different views of the marketplace.  CPFR is structured as a set of scenarios, which recognise key process competencies that must be addressed to determine which company should lead core process activities.

·  Trading partners manage the development of a single shared forecast of consumer demand that drives planning across the value chain.

Retailers see and interact with the end consumer in person and infer consumer behaviour using PoS data.  They also see a range of sellers, their product offerings and their plans for marketing those products.  Sellers see a range of buyers and their merchandising plans.  They can also monitor consumer activity with some delays, through syndicated data.  Given these different views, demand planning capabilities can be improved through an interchange of active data and business intelligence without breaching confidence.

·  Trading partners jointly commit to the shared forecast through risk sharing in the removal of supply process constraints

The process model is segmented into stages:

Planning

1. Develop Collaboration Agreement: This is where the retailer and manufacturer establish the guidelines and rules for the collaborative relationship.  This agreement addresses each party’s expectations and the actions and resources necessary for success.

2. Create Joint Business Plan: Improves the overall quality of forecasting by including data from both parties.  It also facilitates communication and coordination across the supply chain.

Forecasting

3. Create Sales Forecast: Retailer, PoS data, casual information and information on planned events are used to create a sales forecast that supports the joint business plan.

4. Identify Exceptions For the Sales Forecast: Items that fall outside the sales forecast constraints set jointly by the manufacturer and retailer.

5. Resolve/Collaborate on Exception Items: Involves resolving sales forecast exceptions by querying sales data and submitting any changes to the sales forecast.

6. Create Order Forecast: PoS data, casual information and inventory strategies are combined to generate a specific order forecast that supports the shared sales forecast and the joint business plan.  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, while the long-term portion is used for planning.

7. Identify Exceptions for Order Forecast: Determines what items fall outside the order forecast constraints set jointly by the manufacturer and distributor.

8. Resolve/Collaborate on Exception Items: Involves the investigation of order forecast exceptions through querying of shared data.

Replenishment

9. Order Generation: This step means the transformation of the order forecast into a commited order, which can be handled either by the manufacturer or distributor depending on competencies, systems and resources.  The created order is expected to consume the forecast.

CPFR is driven by the facts that collaborative relationships across the value chain can be more efficient, more cost-effective, and more successful in satisfying consumers than adversarial practices.

Those companies that understand, analyse and target the potential ROI of CPFR early on the implementation process will recognise the financial opportunity it makes possible and use it to create a shared focus and commitment inside the company and across trading partner relationships.

WHAT IT MEANS

Adopting CPFR will enable companies to increase sales and profits, improve ROI, reduce inventory, reduce the amount of working capital, thus increasing ROCE.

·  Increased Sales and Profit: Better operating efficiency and effectiveness results in lower costs, and better stocks result in additional sales.

·  Improve Technology ROI: Investments in enterprise systems and supply chain planning or decision support systems can be leveraged if companies extend these technologies to their trading. partners.  The cost of this technology is modest, and the cost of extension is low because of the Internet.

·  Reduce Inventory: Total inventory across the value chain is estimated to be US$1 trillion.  CPFR best practices can reduce these inventories by 15 to 25 per cent.  Less inventory means that fewer facilities are needed.

·  Reduce Working Capital: If large sums of money are tied up in working capital, there is less money to invest in product development or in the architecture.

·  Reduce Resources that Handle Exceptions: It requires considerable resources to find a lost order or to track an order that hasn’t been delivered on time. 

·  The bottom line: The product doesn’t hit the shelf when it’s supposed to, creating problems for the store manager and then to everyone in the supply chain.  Better planning improves in-store/on-shelf presence and consequently the elimination of the fire-fighting that consumes endless hours.

·  Improve Relationships with Key Trading Partners: The ability to communicate more effectively with trading partners has a very positive effect by strengthening the relationship, thus paving the way for enhanced collaboration.

·  Improve Corporate Focus: Companies align priorities, performance goals and their own organisational structure toward common goals.  The real objective becomes satisfying the customer in a collaborative fashion.

IMPLEMENTATION CHALLENGES

According to a report on retail e-businesses called ‘Beyond CPFR: Retail Collaboration comes of age’ published by AMR Research Inc. in April 2001, CPFR will be at critical mass in two years, and by 2004 the collaborative applications market will reach US$540m.  

Companies have so far been reluctant to move forward more aggressively with CPFR because of the following factors:

·  Companies devoted time and resources to prepare their systems to deal with the ‘millennium bug’, and consequently they were reluctant to make major investments in new initiatives until the Y2K threat had passed.

·  Retailers, wholesalers, manufacturers and sales and marketing agencies have been consolidating through mergers or acquisitions.  In either case, the emphasis was on the seamless integration of the business, not on exploiting new opportunities.

·  Concern and perhaps uncertainity about e-business and trading exchanges, that is, to go public or private.

·  Systems have been significantly modified and are not capable of moving to an e-business mode because they weren’t up to the current release of the software provider.

·  Leadership had to be focused on realising the expectations of the financial community, stakeholders and stockholders.

According to the CPFR Survey Findings & Analysis carried out by Syncra systems in April 2000, the main challenge for CPFR implementation is making the organisational shift to a consumer-centric, inter-enterprise orientation, with 60 per cent of respondents to the survey indicating that internal process changes are difficult.  The top three issues are internal process change, lack of trust with partners and cost of implementation.

Date article published: 31/01/2002