Collaborative Planning, Forecasting and Replenishment (CPFR):

CPFR is a business practice that combines the intelligence of multiple trading partners in the planning and fulfillment of 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 has its origins in Efficient Consumer Response (ECR).

ECR was a conscious attempt to better coordinate marketing, production, and replenishment activities in a way that simultaneously increased value to the consumer while improving supply chain performance for producers and retailers.

Typical manufacturer-retailer relationship prior to ECR

Situation Arms-lengths relationships; little or no joint planning Relationships were often adversarial. The lack of information sharing made these relationships more costly than they needed to be (unpredictable ordering patterns, excessive inventories, service failures,).
Solution In early 1990s, P&G and Wal-Mart developed a joint logistics process The steps involved were: Information sharing Joint demand forecasting Coordinated shipments. This partnership laid the foundation for ECR.

CORE ELEMENTS OF ECR

Efficient assortment Product offerings should be rationalized to better meet customer needs and improve supply chain performance (ex. Why 100 different SKUs that confuse consumers when 30 SKUs would meet their needs?) Efficient product introductions New products should be introduced in response to real customer needs, and only after the impact on supply chain performance has been considered. Efficient promotions Prices should be kept as stable as possible. The supply chain impact of promotions and market specials should be carefully considered. Efficient replenishment All physical and information flows that link producers to the consumer should be streamlined to cut costs and increase value.

DIFFERENCES BETWEEN ECR and CPFR

ECRs core elements still apply under CPFR.

But CPFR extends the business processes to include: Information systems for capturing and transferring POS, inventory, and other demand & supply information between trading partners Formalized sales forecasting and order forecasting processes Formalized exception handling processes Feedback systems to monitor and improve supply chain performance

CPFR is being implemented at thousands of companies across the globe.

Many companies, such as GSK, are implementing CPFR with multiple retailers.
A standard vision is needed to provide a common understanding of: Terminology and definitions The steps needed to implement CPFR Data and information system requirements Best practices The process model described here is from the 18 May 2004 overview provided by VICS

The CPFR Process Model

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 Exception management is systemized

What Does CPFR Strategy and Planning Involve?

Establish the ground rules for the collaborative relationship. Determine product mix and placement, and develop event plans for the period.
Collaboration arrangement Setting the business goals and defining the scope for the relationship Assigning roles, responsibilities, checkpoints and escalation procedures Joint business plan

Identifies the significant events that affect supply and demand, such as promotions, inventory policy changes, store openings / closings, and product introductions

Collaboration Arrangement Output A document that gives both partners a co-authored blueprint for beginning the collaborative relationship. 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 partys commitment and willingness to exchange knowledge and share in the risk.

Joint Business Plan Output A mutually agreed upon joint business plan that 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. Should greatly reduce exceptions and the need for excessive interactions.

What Is CPFR Demand and Supply Management?

Project POS demand and order and shipment requirements over the planning horizon

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.

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 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 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 Output

A 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

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.

Order Planning / Forecasting Output A 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.

CPFR Execution Place orders, prepare and deliver shipments, receive and stock product on retail shelves, record sales transactions and make payments. Also called the order to cash cycle. Order generation Transitions order forecasts into firm demand Order fulfillment Producing, shipping, delivering, and stocking the products Order Generation Overview This step marks the transformation of the order forecast into a committed order. Either the seller or buyer can handle order generation depending on competencies, systems, and resources.

Regardless of who completes this task, the created order is expected to consume the forecast.
Order Generation Output A committed order generated directly from the frozen period of the order forecast. An order acknowledgment sent by the customer

CPFR 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. Exception management Active monitoring for pre-defined out-of-bounds conditions Performance assessment Calculation of key metrics to evaluate achievement of business goals, uncover trends, or develop alternative strategies
Exception Management Overview Exceptions need to be handled in both sales forecasts and order forecasts. The exception criteria are agreed to in the collaboration arrangement. Sales and order forecast exceptions are resolved by querying shared data, email, telephone conversations, meetings, and so on, and submitting any resulting changes to the appropriate forecast.

Identify the exceptions

1. Retrieve exception criteria Retrieve the sales/order forecast exception criteria (e.g., retail in stock percent or measures such as forecast accuracy) 2. Identify changes/updates Identify seller or buyer changes or updates to the joint business plan (e.g., a change in the number of stores) 3. Compare item values against exception criteria Compare each items value for the selected criteria to the constraint value (e.g., store instock for item X is 83% versus the criteria value of 90% 4. Identify exception items Identify items as exception items if their values fall outside the constraints

Resolve the exceptions

1. Retrieve exception items and decision support data Data elements are defined in the collaboration arrangement and include both time series data (e.g., historical sales) and non-time-series (e.g., in-stock percent) data. 2. Select desired exception criteria/values Ex., all items with a store in-stock percent less than 90 percent 3. Research exceptions Use the shared-event calendar and supporting information to look for cause 4. Heighten collaboration If research does not yield satisfactory forecast changes or resolve the exception, then either partner can heighten the collaboration 5. Submit changes to sales/order forecast If research changes the forecast and/or resolves the exception, submit the change to the sales/order forecast Exception Management Output 1. List of exceptions in the sales and order forecasts. 2. Resolution of identified exceptions. 3. Adjusted forecast.

Performance Assessment Overview

Performance assessment is essential to any understanding of collaboration benefits.

The specific measures can vary from one situation to the next, but generally fall into two categories: Operational measures: fill rates, service levels, forecast accuracy, lead times, inventory turns, etc. Financial measures: Costs, item and category profitability, etc.
In reality, partners are often reluctant to share financial measures and estimates of profitability can vary widely, depending on how one defines and assigns costs.

How Collaboration Is Built into the Model

CPFR Collaborative Roles

CPFR is always superimposed on an existing demand planning and replenishment process Compatible with either VMI or conventional ordering processes