Technology And Operations Management,

CPFR®

Henry C. CoTechnology and Operations Management, California Polytechnic and State University

Read Coyle, et al, Supply Chain Management: A Logistics Perspective, pp. 249-252.

“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 child’s play.”

www.intrinsicvaluechain.com

CPFR® in a Nutshell 3

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 consumer’s wishes better, faster and at less cost by improving business process efficiency and reducing waste.


Data registration

Data synchronizationFoundational Steps

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.

CPFR Drivers

Out of stocks = 3.1% loss in sales to retailerOut 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

CPFR® in a Nutshell

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% SKU's OOS % of Sales Alter Purch Lost Sales

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“This does not take intoaccount other intended purchases lost at timeof the visit”

Out of Stocks Translate into 3.1% Loss in Sales to Retailer


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% SKU'sOOS

% of Sales Alter Purch Lost Sales

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6.5 1.5

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“This does not take intoaccount other intended purchases lost at timeof the visit”

Out-of-Stocks result in 4-5% Loss in Sales to Manufacturer


Forecasting a key Cause of Out of Stocks on Warehouse Supplied Items



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.


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.


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.


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.


History In 1987, P&G and Wal-Mart pioneered in Continuous

Replenishment Process (CRP). With CRP, P&G makes the main inventory replenishment decisions for Wal-Mart.

P&G monitors Wal-Mart’s 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 P&G instead.

CRP between Wal-Mart and P&G is best-known as the vendor-managed inventory program.


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.


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


SARA LEESARA LEE

Federated Dept. StoresFederated Dept. Stores

MeadSchool & Office

Kimberly ClarkKimberly Clark

JCPenneyJCPenney

VF Corp.

Staples

CPFR® Initiative Participants


Apparel GroupBenchmarking Partners Inc.Corning Consumer ProductsDAMA ProjectErnst & Young LLPFederated Department StoresFieldcrest CannonGoody’s Family ClothingHewlett PackardJC PenneyJohnson & JohnsonKimberly-ClarkKmartLevi Strauss & Co.Lucent Technologies

May Department StoresMead School & OfficeNabiscoNestle-CanadaPillsburyProcter& GambleQRSSara LeeSchnucksSpiegelStaplesUniform Code CouncilWal-MartWarner-Lambert

CPFR® Initiative Participants

The VICS CPFR® Guidelines

http://www.gmabrands.com/industryaffairs/docs/cpfr.pdfhttp://www.cpfr.org/Guidelines.html


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.


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.


Figure 7-4, p. 253: Coyle, et al, Supply Chain Management: A Logistics Perspective

In 2004, VICS revised the 9-step CPFR® reference model.


The CPFR® Reference Model

8 collaboration tasks form an iterative cycle of 4 activities:

A. Strategy & PlanningB. Demand & Supply

ManagementC. ExecutionD. Analysis.

Each activity consists of two collaboration tasks.

Figure 7-3, p. 250: Coyle, et al, Supply Chain Management: A Logistics Perspective


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.


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 partner’s 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.


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.


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.


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.


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.


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.


Collaboration Tasks Under CPFR®

CPFR Benefits

More effective inventory managementImproved customer serviceImproved profitability


Typical CPFR® Benefits

Retailer BenefitsTypical

ImprovementBetter Store Shelf Stock

Rates 2% to 8%Lower Inventory Levels 10% to 40%Higher Sales 5% to 20%Lower Logistics Costs 3% to 4%

Manufacturer BenefitsTypical

ImprovementLower Inventory Levels 10% to 40%Faster Replenishment

Cycles 12% to 30%Higher Sales 2% to 10%Better Customer Service 5% to 10%

Source: AMR Research (2001)


CPFR Benefits: Demand1. 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.

2. 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.


3. 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.

4. Improved Product Offering Before CPFR implementation, the buyer and seller

collaborate on a mutual product scheme that includes SKU evaluation and additional product opportunities.


CPFR Benefits: Supply1. 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.

2. 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 partner’s 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.


3. 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.

4. Improved Overall ROI As other processes improve, the return on

investment from CPFR can be substantial.

5. Increased Customer Satisfaction With fewer out-of-stocks resulting from better

planning information, higher store service levels will prevail, offering greater consumer satisfaction.

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