CPFR® Technology

Henry C. Co
Technology and Operations Management,
California Polytechnic and State University
 Cornerstones of CPFR®

Internal Processes
Joint processes
Technology

Småros J., and Kary Främling, “Peer-to-Peer Information Systems - An

Enabler of Collaborative Planning, Forecasting and Replenishment,” available
online from http://www.cs.hut.fi/~framling/Publications/LRN2001.pdf
 Scalability through collaborative
processes that are flexible, fast to
Joint implement and easy to integrate.

processes
Technology for secure, reliable
and cost-effective information Internal processes that produce
sharing and communication. and use collaborative
information.
▲ Open System ▲ Working to a Single
▲ Internet Forecast
▲ Application ▲ Common Measures
Development Methods ▲ Planning
▲ Secure Communication ▲ Information Sharing
Technology Internal
processes

Viswanathan, R., “Systematic Collaboration in the Supply Chain Planning, Forecasting, and Replenishment,” available
online from http://www.ise.ufl.edu/Supplychain/done/Day1/Viswanathan/Viswanathan.ppt
Internal Processes

Willing to share information

Able to share information
 Willing to share information
 Trust – Fear that information (e.g., end-customer
demand, upcoming promotions, and sales
forecasts) may leak, or be used against them.
 Power – Knowledge is power. Access information
(e.g., end-customer demand), gives one power in
the supply chain – making this information
available to others could lessen this power.
 Able to share information
 Trading partners may have difficulties sharing
information because their internal processes do
not correspond and, in some cases, cannot
produce the necessary data. For example, several
grocery retailers find it impossible to produce item
level forecasts for all of their tens of thousands of
products, which obviously forms a significant
obstacle for CPFR type collaboration.

Collaborative Forecasting (Henry C. Co) 5

Joint Processes

Scalability
Interoperability
 Scalability
 Support for many trading partners,
involving large numbers of products

 Interoperability
 Common standards

Collaborative Forecasting (Henry C. Co) 7

 Scalability
 Small-scale pilots may not work be scalable.
Nabisco, for example, admits that it still does not
have a scalable enough solution despite being one
of the early companies to start CPFR piloting
(Frantz, 2000).
 Scalability, i.e. support for several users, rapid
implementation and easy integration with different
types of existing systems, need to be required of
collaborative processes and supporting tools.
 Common standards
 Lack of common standards for sharing the type of
information needed for CPFR is today slowing the
development down (Angeles, 2000).

Collaborative Forecasting (Henry C. Co) 8

Technology

Control and Security

Scalability
Standardization
Technological Infrastructure Requirements
1. Control and security – should be able to
control what information is shared, with
whom and be able to rely on the security of
the information sharing.
2. Scalability – must support collaboration
with many large or small trading partners,
and many products; should offer easy
integration with different types of existing
systems.
3. Standardization – should use open
standards in order to allow the network to
expand rapidly.

Collaborative Forecasting (Henry C. Co) 10

Centralized vs. Decentralized
Solutions

Centralized – Electronic Marketplace

Decentralized – Peer-to-peer information systems

http://www.cs.hut.fi/~framling/Publications/LRN2001.pdf
Electronic Marketplace, a.k.a.
Exchanges

1. Order matching
2. Requisition and routing approvals
3. Financial settlement of orders
4. Content management
5. Logistics fulfillment services
6. CPFR activities.
Exchanges’ Services
1. Order matching
 Catalogue orders –Fix-priced catalogue items
 Dynamic pricing – the marketplace matches
orders real-time based on bids and quotes
that come into the marketplace
 Auctioning
 Request for proposals – detailed
specifications are put online and bids are
consolidated and compared.
1. Requisition and routing approvals –
requests are routed to the right manager
for approval.
2. Financial settlement of orders

Collaborative Forecasting (Henry C. Co) 13

4. Content management – e.g., converting
and maintaining catalogue information.
5. Logistics fulfillment services.

 CPFR capabilities – forthcoming.

Morgan Stanley Dean Witter (2000), The B2B Internet Report. Collaborative Commerce.

Collaborative Forecasting (Henry C. Co) 14

CPG Industry Exchanges
 New in CPG (2000).

 Founded by supplier
 Transora
(www.transora.com)
 CPGmarket.com (www.CPGmarket.com)

 Founded by retailers
 WorldWide Retail Exchange (
www.worldwideretailexchange.org)
 GeneralNetXchange (www.gnx.com)

Collaborative Forecasting (Henry C. Co) 15

Advantages
 Efficient matching of demand and supply – Easier to
involve many (even anonymous) players in the
trading process.
 Expands customers base; lowers barriers for sellers to
participate in bidding.
 Expands supplier base; allows buyers to get better
price.
 Only investment is the communication link to the
exchanges – Low entry barrier (allows small players
to participate in CPFR).
 ONE link (to the exchange), rather than several links
to several trading partners.
 Standardization – Exchanges impose communication
standards (open or proprietary).
 Value-added services – translation services when
trading partners use different message formats.

Collaborative Forecasting (Henry C. Co) 16

Disadvantages
 Reduced control – once information is
uploaded to the exchanges, must rely on the
exchange to deliver it to the right recipient
(and only the right recipient);
 Power – Exchanges are likely develop
features and capabilities to cater to the
needs of large customers;
 Exchanges offer standardized solutions,
companies have different needs in
collaboration.
 Transaction and service fees.

Collaborative Forecasting (Henry C. Co) 17

Disadvantages
 Information has to be explicitly
communicated to the administrator of
the marketplace, thus making it more
difficult to keep catalog information
(product info, prices) up to date.

Collaborative Forecasting (Henry C. Co) 18

Peer-to-Peer System

Instead of passing through centralized databases and

servers, data is exchanged directly between systems.

No need for a 3rd party for setting-up and governing the

network.
 Shared Process and Data Model

RETAILER MANUFACTURER

Item Item
Internet
APPLICATION

Table Table

APPLICATION
Inte Inte
Forecast Shared Forecast
r- r-
Table Data Table
face face

Promotions Promotions
Table Table
ITEM RTLR’S MFR.. DELTA TOLERANCE OK?
NUMBER FORECAST FORECAST

1234567890001 1200 1150 50 100 

1234567890002 14000 9000 5000 2000 
1234567890003 330 350 20 50 
…

Viswanathan, R., “Systematic Collaboration in the Supply Chain Planning, Forecasting, and Replenishment,” available
online from http://www.ise.ufl.edu/Supplychain/done/Day1/Viswanathan/Viswanathan.ppt
 Peer to Peer Scenario Architecture

Workstation Retailer
Manufacturer Workstation

CPFR Server SMTP CPFR Server

www.supplier.cpfr.com S/MIME, SIL www.retailer.cpfr.com

Backend Server Apps Backend Server Apps

Data Data

Viswanathan, R., “Systematic Collaboration in the Supply Chain Planning, Forecasting, and Replenishment,” available
online from http://www.ise.ufl.edu/Supplychain/done/Day1/Viswanathan/Viswanathan.ppt
Example of Retailer-Supplier Setup
 Supplier configures three connections to access
forecast data from three retailers
 Each retailer configures the connection to the
supplier, permitting the supplier access to their
forecasting information.

http://www.cs.hut.fi/~framling/Publications/LRN2001.pdf

Collaborative Forecasting (Henry C. Co) 22

Information Sharing Connections
 Connections set up by mutual agreement;
configure what database to use, setup the
database tables, and eventually add new
database users with appropriate access
rights.
 Three pieces of information
 Identifier of the partner
 Internet address of the partner computer to
connect to/receive connections from
 Public RSA encryption key that uniquely identifies
and authenticates the partner.
See PowerPoint on Cryptography

http://www.cs.hut.fi/~framling/Publications/LRN2001.pdf

Collaborative Forecasting (Henry C. Co) 23

Advantages and Disadvantages
 Advantages
 Control and power
 No need for a 3rd party for setting-up and

governing the network.

 All parties have equal status regardless of their

size and can independently choose how to

collaborate with other network parties.
 Scalability
 Network setup as needed; no limit on number of

parties, products or product groups.

 Up-to-date information
 No participation fees
 Disadvantage: Slow standardization

Collaborative Forecasting (Henry C. Co) 24

CPFR Interoperability

In Peer-to-Peer Collaboration, trading partners use CPFR

applications
 A Client-Server Architecture

Sun
Ultra
Netscape
Netscape Enterprise
Enterprise Web
Web
LiveWire
LiveWire Server
Server 3.0
3.0 Browser
Browser
Informix
Informix 7.2
7.2

HTTP

Server Client

Viswanathan, R., “Systematic Collaboration in the Supply Chain Planning, Forecasting, and Replenishment,” available
online from http://www.ise.ufl.edu/Supplychain/done/Day1/Viswanathan/Viswanathan.ppt
Prototype Process/Functionality
 Authenticates users
 Stores exceptions data
 Allows selective retrieval of data
 Displays time-variant data such as supplier
forecast, retailer forecast, POS for 52 weeks
 Displays detail time-invariant data such as
On-hand, Fill-rate, store information etc for
a specific forecast
 Displays information in both tabular and
graphical form
 Displays calendar of events for both sides,
for each item
 Shows how a level 1 (corporate)
forecast can be drilled down to DC and
store levels
 Shows how a forecast update can take
place interactively
 Shows how messages associated with
an exception can be created, stored
and sent.
Next Steps for CPFR and the industry
 Refinement and publication of process models
 Define/establish prerequisite EDI feeds if non-
existent
 Define/establish other feeds (manual initially) -
forecast drivers (promotions, price changes,
replenishment strategies etc)
 Define/establish business rules for exception
generation
 Develop exception processes based on forecast
comparisons
 Define/establish procedures for use of CPFR system
 Develop measurements/business cases
 Refine technology infrastructure
 Introduce security - S/HTTP and/or S/MIME
 Investigate use of open data model
Challenges
 Organizational readiness
 Process confirmation
 Integration of supply chain
collaboration tools with backend
applications
 data models
 architecture (hub-hub, hub-spoke, hub-
web)
 Change management
Capabilities Assessment
 Process Readiness
 Forecasting and Replenishment
 Scorecard Solution

 Change Management

 Inter & Intra organization communication

channel readiness
 Technology Readiness
 Data availability
 Internet Enablement

 Electronic Commerce
SAP APO Collaborative
Planning (CP) and CPFR

APO is the acronym for Advanced Planner and Optimizer

ERP
 ERP breaks functional silos within the 4 walls
of an enterprise
 Integrates
 Streamlines

… Intraorganization Processes
“One number for business planning across all
departments”

 Next step
 Streamlines
 Collaborates

… Interorganization Processes
“One number for supply planning across the entire
supply chain.”

Collaborative Forecasting (Henry C. Co) 33

 ERP promises concurrent, real time
planning, information sharing and
value added services for
intraorganization processes.
 Next step – collaborative commerce to
break division barriers separating the
distinct links in the supply chain:
procurement companies, production
companies, … low inventory levels,
high inventory turns, improved cash
flow … drastic reduction of the
dreaded bullwhip effect.

Collaborative Forecasting (Henry C. Co) 34

Before Internet
 Businesses exchange information by
 Meetings

 Phone

 Mail (slow)
 Fax

 EDI (costly and rigid)

 The Internet enable businesses to
establish low cost, secure, scalable,
and dynamic collaborative commerce.

Collaborative Forecasting (Henry C. Co) 35

SAP APO Collaborative Planning
 Exchange planning information
 Browse and update data via a browser
 Multiple partner access, but restricting
access to authorized data and
activities
 Consensus planning process
 Exception-based management
 One number for supply planning
across the entire supply chain.

Collaborative Forecasting (Henry C. Co) 36

Internet-Based Functionalities
1. Consensus-based forecasting
2. CPFR compliant collaborative
forecasting
3. Vendor managed inventory
4. Supplier collaboration.

Collaborative Forecasting (Henry C. Co) 37

SAP APO CP Functionality 1

Consensus-Based Forecasting
 Pyramid Forecasting
 SAP APO Demand Planning allows you to create
plans for different business goals (strategic
business plan, tactical sales plan, operational
supply chain plan, etc.) and integrates them into
one consensus plan that drives your business.
 Joint Business Planning Across Supply Chain
using SAP APO CP’s tools
 Planning Books (Internet-compatible demand
planning/supply network planning books in SAP)
 Enhanced Macros

Collaborative Forecasting (Henry C. Co) 39

Pyramid Forecasting
 Parties Involved
 Central planning department which creates a
consolidated forecast for ALL products
 Key account manager who creates a forecast for a
specific retailer or wholesaler
 Sales department which forecasts its own demand
 Each party bases its forecast on specific
information.

 GOAL – to consolidate the various forecasts

into a common time series to be used for
planning.

Collaborative Forecasting (Henry C. Co) 40

Pyramid Forecasting Process
1. Department-specific forecasts
 Sales
 For a combination of product and customer
 Goals are tactical – maximize sales
 Focus on promotions, orders, POS data,
competitive info, customer info.
 Logistics
 For a combination of product/item and
location
 Goals are operational – minimize costs,
fulfill orders
 Focus on shipments, material and capacity
constraints.

Collaborative Forecasting (Henry C. Co) 41

 Marketing
 For a combination of product family/market
zone
 Goals are strategic – increase demand,
reduce stock
 Focus on promotions and events, causal
relationships, and syndicated POS data.

Collaborative Forecasting (Henry C. Co) 42

2. Team meeting held to reach consensus
3. Manual adjustments made
4. Accuracy of forecast checked against sales
data.

 SAP APO CP allows access to SAP APO

Planning books through an Internet
browser.
 Trading partners can view each other’s forecasts,
make changes and agree on a consensus-based
forecast.

Collaborative Forecasting (Henry C. Co) 43

SAP APO Functionality 2

Collaborative Planning, Forecasting and Replenishment

(CPFR®)
The CPFR® Reference Model

 8 collaboration tasks
form an iterative cycle
of 4 activities:

A. Strategy & Planning

B. Demand & Supply
Management
C. Execution
D. Analysis.

 Each activity consists of

two collaboration tasks.

Collaborative Forecasting (Henry C. Co) 45

CPFR in SAP APO Collaborative Planning

Collaborative Forecasting (Henry C. Co) 46

Collaborative Forecasting (Henry C. Co) 47
SAP APO Collaborative Demand Planning
SAP APO CP Functionality 3

VMI over the Internet

Vendor-Managed Inventory
 Supplier takes the task of
requirements planning for its own
products within the retail company.
 Supplier monitors the buyer’s inventory
levels, physically or via electronic
messaging.
 Supplier decides on when and how much
to replenish inventory.
 Supplier sends an advance shipping notice
to inform the buyer of materials in transit.

Collaborative Forecasting (Henry C. Co) 50

SAP APO CP Enables VMI over Internet
 VMI requires supplier to be able to track the
amount of its products stocked at the retailer side,
and access to the retailer’s sales forecasts.
 SAP APO CP enables VMI over the Internet
 Internet planning book allows users to access the
Supply Network Planning data
 Business Connector allows users to transmit VMI data
from SAP APO Collaborative Planning to partners’
systems that can receive and process XML messages.
 VMI over the Internet
 Affordable – small retailers can participate in supply
chain planning.
 Allows retailer to maintain control over the data it is
sending to the supplier and change it if necessary.

Collaborative Forecasting (Henry C. Co) 51

 SAP APO Business Connector
 The Business Connector translates EDI messages to XML
messages that can be transmitted over the Internet.
 Retailer can transmit, via the Business Connector, VMI
data from SAP APO Collaborative Planning to suppliers’
systems.
 Partners’ systems must have the capability to receive and
process XML messages
 Making VMI possible via Internet provides small
retailers with an
 economical alternative to participating in supply chain
planning. It also allows the retailer to maintain control
over the data it is sending to the supplier and change it
if necessary.
 To achieve their goals, participants will be able to
access the Supply Network Planning data through
Internet planning books.

Collaborative Forecasting (Henry C. Co) 52

SAP APO CP Functionality 4

Supplier Collaboration
 EDI in automotive industry
 Suppliers connected to auto
manufacturers by EDI;
 Exchange dependent requirements (MRP)

 Requires large investments.

 The Web
 Low cost
 Allows smaller companies to participate

 The only requirement is that partners’

systems must have the capability to
receive and process XML messages.

Collaborative Forecasting (Henry C. Co) 54

SAP APO Collaborative Planning
 The dependent requirements in Supply Network
Planning are displayed in supplier specific planning
books.
 A supplier can have access to those aspects of the
planning situation that affect him/her.
 Users can have access to production plans as well as
dependent requirements.
 Internet enabled planning books allow users to have an
interactive role; for example, if the delivery of the
dependent requirements cannot be made in time, an
alternative date can be suggested.
 Using the Business Connector, SAP APO Collaborative
Planning can directly communicate with partners’
system using XML messages over the Internet.
 Allows system-to-system communication enabling users
to be involved only in exception situations.
 Thus, SAP APO Collaborative Planning enables
synchronized planning across business partners.

Collaborative Forecasting (Henry C. Co) 55