CPFR

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CPFR

• Henry C. Co
• Technology and Operations Management,
• California Polytechnic and State University
• Read Coyle, et al, Supply Chain Management A
  Logistics Perspective, pp. 249-252.

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Even children can tell you what they want and
help you assure that they get it. Imagine your
trading partners in that role and the benefits
you could see are not childs play.

• www.intrinsicvaluechain.com

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Collaborative Commerce

• Definition -
• 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.
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Data synchronization
Foundational Steps
Data registration
Common Data Standards
Electronic Product Code (EPC) physical
carriers Global Data Synchronization (GDS)
enabler for maintaining uniform, standards-based
data usable throughout the supply chain.
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CPFR Drivers

• Out of stocks 3.1 loss in sales to retailer
• Out of stocks 4-5 loss in sales to
  manufacturer
• Forecasting a key cause of out of stocks on
  warehouse supplied items.

Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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Out of Stocks Translate into 3.1 Loss in Sales
to Retailer
This does not take into account other intended
purchases lost at time of the visit
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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Out-of-Stocks result in 4-5 Loss in Sales to
Manufacturer
8.2
6.5
1.5
This does not take into account other intended
purchases lost at time of the visit
5.0
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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Forecasting a key Cause of Out of Stocks on
Warehouse Supplied Items
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
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• Sales history used as a predictor for future
  demand.
• Forecasts do not include future planning and set
  programs.
• Manufacturers are not building to
  retailer/consumer demand.
• Forecasting of promotional, seasonal, and new
  item remain a critical issue.
• Collaboration occurs most often after the initial
  order is placed.

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• Difficulties in forecasting
• Influence of promotions
• Changing demand patterns
• Competitive pressures
• Solutions to uncertainty
• Inventory an expensive method of avoidance
• Cooperative planning between trading partners.

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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.

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Collaborative Planning, Forecasting, and
Replenishment

• CPFR is recognized as a breakthrough business
  model for planning, forecasting, and
  replenishment.
• Uses available Internet-based technologies to
  collaborate from operational planning through
  execution.
• Developed by Wal-Mart and Warner-Lambert in 1995.

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History

• In 1987, PG and Wal-Mart pioneered in Continuous
  Replenishment Process (CRP). With CRP, PG makes
  the main inventory replenishment decisions for
  Wal-Mart.
• PG monitors Wal-Marts inventory levels
  (physically or via electronic messaging) and
  makes periodic resupply decisions regarding order
  quantities, shipping, and timing. Transactions
  customarily initiated by Wal-Mart (like purchase
  orders) are initiated by PG instead.
• CRP between Wal-Mart and PG is best-known as the
  vendor-managed inventory program.

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• In 1994, Wal-Mart extended CRP by providing its
  sales forecasts to the vendors. This is called.
  Co-managed Inventory Program.
• In 1995/1996, Wal-Mart initiated a co-managed
  inventory effort with Warner-Lambert called CFAR.
  
• Wal-Mart then asked VICS to study and develop an
  industry-wide process around this proprietary
  practice to create a more productive supply
  chain.
• VICS stands for Voluntary Interindustry Commerce
  Standards Association.

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CPFR

• CPFR is a set of guidelines supported and
  published by the 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.
• CPFR stands for Collaborative Planning
  Forecasting and Replenishment

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CPFR Initiative Participants
Staples
SARA LEE
JCPenney
Federated Dept. Stores
Kimberly Clark
Mead School Office
VF Corp.
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CPFR Initiative Participants
Apparel Group Benchmarking Partners Inc. Corning
Consumer Products DAMA Project Ernst Young
LLP Federated Department Stores Fieldcrest
Cannon Goodys Family Clothing Hewlett Packard JC
Penney Johnson Johnson Kimberly-Clark Kmart Levi
Strauss Co. Lucent Technologies
May Department Stores Mead School
Office Nabisco Nestle-Canada Pillsbury Procter
Gamble QRS Sara Lee Schnucks Spiegel Staples Unifo
rm Code Council Wal-Mart Warner-Lambert
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The VICS CPFR Guidelines

• http//www.gmabrands.com/industryaffairs/docs/cpfr
  .pdf
• http//www.cpfr.org/Guidelines.html

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The VICS CPFR Guidelines

• Voluntary guidelines aimed at structuring and
  guiding supply chain partners in setting up their
  relationship and processes.
• Shared plans
• Exception identification
• Resolution
• Allows visibility to trading partners
• Critical demand
• Order forecasts
• Promotional forecasts.

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• The plan and the forecast are entered by
  suppliers and buyers into an Internet accessible
  system.
• Within established parameters, any of the
  participating partners is empowered to change the
  forecast.
• Only a few CPFR initiatives have been made
  public, but results are impressive.

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Figure 7-4, p. 253 Coyle, et al, Supply Chain
Management A Logistics Perspective
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In 2004, VICS revised the 9-step CPFR reference
model.
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The CPFR Reference Model

• 8 collaboration tasks form an iterative cycle of
  4 activities
• Strategy Planning
• Demand Supply Management
• Execution
• Analysis.
• Each activity consists of two collaboration
  tasks.

Figure 7-3, p. 250 Coyle, et al, Supply Chain
Management A Logistics Perspective
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CPFR Is Consumer-Centric

• Consumer
• 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.

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Strategy Planning Activity

• One of the two collaboration tasks under the
  Strategy Planning Activity is Collaboration
  Agreement.
• Its outcome is a memorandum of understanding
  affirming each trading partners roles and
  expectations, confidentiality of shared
  information, means of measuring success, and the
  organizations roles and responsibilities with
  respect to commitment of resources, exception
  handling and performance measurement.

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• The other collaboration task is Joint Business
  Plan. The outcome of this activity typically
  include joint calendar for promotions, inventory
  policy changes, store openings/closings, and
  product changes for each product category, etc.

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Demand Supply Management

• The two collaboration tasks under the Demand
  Supply Management activity are sales forecasting
  and order forecasting.
• The trading partners develop a single forecast of
  consumer demand based on combined promotion
  calendars and analysis of POS data and causal
  data.
• The sales forecast is eventually used as a
  baseline to create a single order forecast.

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Execution

• Under the Execution activity, the buying
  organization (order generation) place orders and
  the vendor fulfill the orders by delivery
  shipments (order fulfillment).
• The buyer receives and stocks products, records
  sales transactions and makes payments.

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Analysis

• The Analysis activity consists of two
  collaboration tasks. In performance assessment,
  the trading partners calculate key performance
  metrics (e.g., in-stock level, forecast accuracy
  targets, etc.), and share insights and adjust
  plans for continuous improvement.
• The trading partners generate and agree to a list
  of exception items for their CPFR initiative, and
  develop a process to resolve sales forecast
  exceptions.

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• In exception management, the trading partners
  monitor plan vs. execution to identify deviations
  and exceptions. The trading partners resolve
  exceptions by determining causal factors,
  adjusting plans where necessary.
• Forecast accuracy problems, overstock/stock-out
  conditions, and execution issues are to be
  identified and resolved in a timely manner.

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Collaboration Tasks Under CPFR
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CPFR Benefits

• More effective inventory management
• Improved customer service
• Improved profitability

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Typical CPFR Benefits
Source AMR Research (2001)
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CPFR Benefits Demand

• 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 fruition on business plan, base, and
  promotional forecasts.
• Continual CPFR meetings strengthen this
  relationship.
• 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.

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• Category Management
• Before 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 Offering
• Before CPFR implementation, the buyer and seller
  collaborate on a mutual product scheme that
  includes SKU evaluation and additional product
  opportunities.

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CPFR Benefits Supply

• 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 vs. either stand-alone VMI/CRP
  or other industry tools.
• Inventory Reductions
• CPFR 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.

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• Improved Technology ROI
• Through 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 ROI
• As other processes improve, the return on
  investment from CPFR can be substantial.
• Increased Customer Satisfaction
• With fewer out-of-stocks resulting from better
  planning information, higher store service levels
  will prevail, offering greater consumer
  satisfaction.