CPFR

Collaborative Planning,
Forecasting, and
Replenishment

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.

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.

Three modes of CPFR

Basic CPFR: a limited number of business processes
integrated between a limited number of supply chain
partners
Developed CPFR: will typically involve a greater
number of data exchanges between two partners,
and may extend to suppliers taking responsibility for
replenishment on behalf of their customer
Advanced CPFR goes beyond data exchanges to
synchronise forecasting information systems and
coordinate planning and replenishment processes

A Brief History
CPFR evolved from Efficient Consumer Response (ECR).
ECR: Improve supply chain performance through better
coordination of marketing, production, and replenishment
activities.

 Prior to ECR
Relationships often adversarial.
Little or no joint planning
Lack of information sharing results in unpredictable ordering
patterns, excessive inventories, service failures,

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

Replenishment Process (CRP)
Information sharing
Joint demand forecasting
Coordinated shipments.

CRP is best-known as the Vendor-Managed

Inventory (VMI) program. This partnership laid the
foundation for ECR.

 1996, CPFR (Collaborative, Planning, Forecasting, and

Replenishment) pilot between Wal-Mart and Warner Lambert.
CPFR
Value chain partners co-ordinate plans to reduce the variance between
supply and demand and share the benefits of a more efficient and
effective supply chain .
Allow trading partners time to react
A supplier can build inventory well in advance of receiving a promotional
order and carry less safety stock at other times.
A retailer can alter the product mix to reduce the impact of supply
problems.

Adopted by numerous other industries

Apparel, automotive and high tech.

CPFR Initiative Participants

Staples
SARA LEE

JCPenney

Federated Dept. Stores

VF Corp.

Kimberly Clark

Mead

School & Office

Collaborative Planning, Forecasting, &

Replenishment
The Collaborative Process

Joint Business Planning

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Retailer Forecast
Manufacturer Forecast
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Drivers
Drivers
In stock position
Capacity
Fill Rate
Order Lead time
Consumer Demand
Consumer Behaviour
Joint Forecast
Price Changes
Product Availability
Growth Plans
Promotions
Distribution Channels
Raw material supply

The CPFR Opportunity

A set of guidelines supported and published by the

Voluntary Inter-industry Commerce Standards (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.
A supplier can build inventory well in advance of receiving a
promotional order and carry less safety stock at other times.
A retailer can alter the product mix to reduce the impact of
supply problems.

CPFR Benefits
More effective inventory
management
Improved customer service
Improved profitability

Typical CPFR Benefits

Retailer Benefits
Better Store Shelf Stock
Rates
Lower Inventory Levels
Higher Sales
Lower Logistics Costs
Manufacturer Benefits
Lower Inventory Levels
Faster Replenishment
Cycles
Higher Sales
Better Customer Service

Typical
Improvement
2% to 8%
10% to 40%
5% to 20%
3% to 4%
Typical
Improvement
10% to 40%
12% to 30%
2% to 10%
5% to 10%

Source: AMR Research (2009)

CPFR Benefits: Demand

1. 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
the actual result 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: Supply

1. 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 standalone 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 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.

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.

The CPFR Reference Model

8 collaboration tasks form

cycle of 4 activities:
A. Strategy & Planning
B. Demand & Supply
Management
C. Execution
D. Analysis.
Each activity consists of
two collaboration tasks.

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.

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

http://scm.ncsu.edu/public/cpfr/ .

Collaboration Tasks Under

CPFR

1. Strategy & Planning

Establish the ground
rules for the
collaborative
relationship.
Determine product mix
and placement, and
develop event plans for
the period.

1.1 Collaboration Arrangement

Setting the business goals and defining the
scope for the relationship
Assigning roles, responsibilities, checkpoints
and escalation procedures
Participating companies identify executive
sponsors, agree to confidentiality and dispute
resolution processes.
Develop a scorecard to track key supply chain
metrics relative to success criteria, and establish
any financial incentives or penalties.

 Outcome Memorandum of understanding

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.

1.2 Joint Business Plan

Trading partners exchange information on
corporate strategies and business plans to
develop a joint business plan.
Identifies the significant events that affect
supply and demand, such as promotions,
inventory policy changes, store openings /
closings, and product introductions.

 Outcome A mutually agreed upon joint

business plan
Joint calendar for promotions, inventory policy
changes, store openings/closings, and
product changes for each product category,
etc.
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.

2. Demand & Supply

Management
Sales forecasting:
Projects demand at the point of sale
Order planning/forecasting:
(a)Determines future product order &
delivery requirements based upon the
sales forecast.
(b)Takes into account inventory
positions, transit lead times, shipment
quantities, and other factors.

2-1 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.)
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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

Output
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.

2-2 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.

How Sales Forecasts Drive Order Forecasts

Using POS forecast and inventory policy information, we can calculate

when each store needs to release an order to the Retailer DC
Example:

...and this information is then used to generate a replenishment forecast

for the DC.
http://scm.ncsu.edu/public/cpfr/

The same process can be used to develop an order forecast for the
manufacturer.

Output: 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.

Execution
Place orders, prepare and deliver
shipments, receive and stock product
on retail shelves, record sales
transactions and make payments.
Order generation Transitions
order forecasts into firm demand
Order fulfillment Producing,
shipping, delivering, and stocking the
products

Order Generation Output

Committed orders by the buying organization
(the retailer) and delivery shipments from the
vendor.
The buyer receives and stocks products, records
sales transactions, sends order acknowledgment
and makes payments.

Buyer and seller agree on a time fence

where forecasts are frozen.
Near-term orders are fixed; Long-term ones are
used for planning.

4. 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.

Performance assessment
Trading partners calculate key performance metrics
(e.g., in-stock level, forecast accuracy targets, etc.)
To evaluate achievement of business goals, uncover trends,
or develop alternative strategies;
To share insights and adjust plans for continuous
improvement.

Generate and agree to a list of exception items for

your CPFR initiative.
Develop a process to resolve sales forecast exceptions.

Exception management
Monitor plan vs. execution to identify
deviations and exceptions.
Trading partners resolve exceptions by
determining causal factors, adjusting plans
where necessary.
Forecast accuracy problems, overstock/stockout conditions, and execution issues must be
identified and resolved in a timely manner.

CPFR BENEFITS
(Wal-Marts Report)
Level of
Participation

In-Stock
Rate

Weeks of
Supply

Inventory
Turnover

(Improvement)

(Improvement)

(Improvement)

Active

7.85%

5.3 weeks

3.72

Less

3.10%

n/a

n/a

Thank you

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