CPFR: Collaborative Planning, Forecasting and Replenishment

Henry C. Co Sources: CPFR for Beginners, M. Johnson (Syncra Systems) and L. Roth (Kimberly-Clark). CPFR Roadmap, The Voluntary Interindustry Commerce Standards Association (VICS) CPFR Committee.

Synchronizing the Supply Chain

Synchronizing the supply chain from raw materials to the consumer offers the greatest opportunity to improve profitability and provide greater value to the consumer CPFR provides the process to link business plans and ensure synchronization. Key driver: better understanding of consumer purchases. Point-of-sale information provides the ability to track current purchases and develops more accurate sales forecasts for managing our supply chain.
Mark Jamison, Kimberly-Clark
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Kimberly Clark
SARA LEE

JCPenney
Federated Dept. Stores
School & Office

Schnuck Markets

Mead

with support from...

The CPFR Opportunity

CPFR: 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.
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CPFR Benefits
CPFR Benefits: Demand CPFR Benefits: Supply

CPFR Benefits: Demand

1.

Enhanced Relationship

2.

Greater Sales

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. 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.

Collaborative Planning, Forecasting, and Replenishment (Henry C. Co)

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

4.

Improved Product Offering

Collaborative Planning, Forecasting, and Replenishment (Henry C. Co)

CPFR Benefits: Supply

1.

Improved Order Forecast Accuracy

2.

Inventory Reductions

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. 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.

Collaborative Planning, Forecasting, and Replenishment (Henry C. Co)

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

4.

Improved Overall ROI

5.

Increased Customer Satisfaction

Collaborative Planning, Forecasting, and Replenishment (Henry C. Co)

The CPFR Process

Step 1: Step 2: Steps 3-5: Steps 6-8: Step 9: Front-end agreement Joint business plan Sales forecast collaboration Order forecast collaboration Order generation/delivery execution
Source: CPFR for Beginners, M. Johnson (Syncra Systems) and L. Roth (Kimberly-Clark)

Business Model - Scenario B

1 Distributor Business Development Activities Develop Front-End Agreement

Planning

Create Joint Business Plan

Manufacturer Business Development Activities

Create Sales Forecast 3

Exception Criteria
POS Data

Exception Criteria

Distributor Exception Triggers

Identify Exceptions for Sales Forecast 4

Exception Items

Manufacturer Exception Triggers

Distributor Decision Support Data

Resolve / Collaborate On Exception Items

Manufacturer Decision Support Data

Forecasting

Create Order Forecast 6

Order Forecast Frozen Forecast

Manufacturer Materials & Production Planning

Constraints
Manufacturer Exception Triggers

Distributor Exception Triggers

Identify Exceptions for Order Forecast 7

Exception Items

Distributor Decision Support Data

Resolve / Collaborate On Exception Items 8

Updated Data for Exception Items

Manufacturer Decision Support Data

Consumer
Long Term

Unresolved Supply Constraints

Short Term

9 Retail Store

Order Generation

Order / PO

Produce Product

Replenishment

Feedback Product

Distributor Receiving

Delivery Execution
Order filling feedback

Order Filling / Shipment Execution

Key :

Distributor Activities

Either / Joint Activities

Manufacturer Activities

Step 1: Create Front-End Agreement.

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.

Planning

Exception Criteria

Develop Front-End Agreement

Exception Criteria

Create Joint Business Plan

Key :

Distributor Activities

Either / Joint Activities

Manufacturer Activities

Distributor / Retailer VP Merchandising

Manufacturer / Supplier VP Sales

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Confidentiality Goals & Objectives Measurement of Success Discussion of Competencies, Resources, and Systems Responsible People & Departments Information Sharing Service & Ordering Commitments Resolution of Disagreements
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Step 2: Create Joint Business Plan.

The project teams develop plans for promotions, inventory policy changes, store openings/closings, and product changes for each product category.

Planning

1 Distributor Business Development Activities

Develop Front-End Agreement

Create Joint Business Plan 2

Manufacturer Business Development Activities

Create Sales Forecast 3

Key :

Distributor Activities

Either / Joint Activities

Manufacturer Activities

Distributor / Retailer Buyer

Manufacturer / Supplier Sales Manager

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Corporate Strategies Partnership Strategies Category Roles and Objectives Exception Criteria Item Management Profile
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Steps 3-5: Sales Forecasting Collaboration.

Trading partners share consumer demand forecasts, and identify exceptions that occur when partners' plans do not match, or change dramatically. They resolve exceptions by determining causal factors, adjusting plans where necessary.

Planning

Create Joint Business Plan

Create Sales Forecast

POS Data

Forecasting

Distributor Exception Triggers

Identify Exceptions for Sales Forecast

Exception Items

Manufacturer Exception Triggers

Distributor Decision Support Data

Resolve / Collaborate On Exception Items 5

Manufacturer Decision Support Data

Consumer

POS Data

Create Order Forecast 6

Key :

Distributor Activities

Either / Joint Activities

Manufacturer Activities

Distributor / Retailer forecast analyst

consumer demand exception triggers decision support data

Manufacturer / Supplier sales analyst

causal data collaboration loop event calendar
17

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Steps 6-8: Order Forecasting Collaboration.

Trading partners share replenishment plans, identifying and resolving exceptions.

Create Sales Forecast 3

POS Data

Forecasting

Create Order Forecast 6

Order Forecast Frozen Forecast

Manufacturer Materials & Production Planning

Constraints

Identify Exceptions for Order Forecast 7

Exception Items Distributor Decision Support Data

Resolve / Collaborate On Exception Items 8

Updated Data for Exception Items

Manufacturer Decision Support Data

Consumer
Long Term

Unresolved Supply Constraints

Replenishment

Short Term

Order Generation

Key :

Distributor / Retailer inventory planner

Distributor Activities

Either / Joint Activities

Manufacturer / Supplier sales / forecast analyst

Manufacturer Activities

--------------------------------------------------------------------------------------------------------------------------------

order building algorithms exception triggers collaboration loop decision support data event calendar
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Step 9: Order Generation.

Results data (POS, orders, shipments, on-hand inventory) is shared, and forecast accuracy problems, overstock/understock conditions, and execution issues are identified and resolved.

Order Generation
Forecasting
POS Data

Create Order Forecast 6

Consumer
Short Term

Frozen Forecast

Replenishment

9 Retail Store

Order Generation

Order / PO

Produce Product

Feedback Product

Distributor Receiving

Delivery Execution
Order filling feedback

Order Filling / Shipment Execution

Key :

Distributor Activities

Either / Joint Activities

Manufacturer Activities

Distributor / Retailer inventory planner

Manufacturer / Supplier inventory planner

--------------------------------------------------------------------------------------------------------------------------------

Frozen Forecast based on time fence

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The VICS CPFR Roadmap

How do I get started?

The VICS CPFR Roadmap provides ready-touse templates that can be customized for different partnerships. The Roadmap also provides a checklist for each step to ensure all critical items have been completed.
Step Step Step Step Step 1: 2: 3: 4: 5: Evaluate Your Current State Define Scope and Objectives Prepare for Collaboration Execute Assess Results/Identify Improvements

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Step 1
Evaluate Your Current State.

Where does your company stand today?

Does your company have a culture that values cooperation and communication between its departments and with its trading partners? Has your company implemented other industry best practices? Is using information technology to solve business challenges a company priority?

Develop Your Companys CPFR Vision Are Your Trading Partners Ready for CPFR? Develop a Business Case to take to your Partners

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Develop Your Companys CPFR Vision

What are your companys objectives for CPFR? What areas of the organization will be impacted, and how? How will success be measured? What will be the scope of the project? Which product lines will be included? How many stores and DCs will be included? How many trading partners will you bring on board in order to have a significant impact? What is the level of technical sophistication of your company and your trading partners? What is the long-term market position of your trading partners? What corporate stance will you develop for press releases? How will you document the vision?

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Are Your Trading Partners Ready for CPFR?

Can your trading partner relationships be characterized as open and trusting? Do you and your trading partner have complementary strengths and weaknesses? Does your trading partner have the appropriate commitment and resources required to make CPFR successful? Does your trading partner have experience with CPFR with another partner? Can your trading partner quantify the potential internal and external benefits?

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Step 2
Define Scope and Objectives.

1.

2.

3.

4.

5.

Gaining commitment from your trading partner. Assigning team members and establishing their roles. Selecting products and locations that will be included in the process. Deciding which part(s) of the ninestep CPFR process to test. Establishing key performance metrics to measure the initiatives success.
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Team Members, Roles and Responsibilities

Role Responsibilities Typical Position Buyer
Category , Manager Buyer, Replenishment Analyst

Typical Position Seller

Sales Representati ve (Account Relationship Owner) Customer Service Manager, Forecast Analyst, Order Management Analyst IT Coordinator, Project Manager, Systems Manager

Sales Collaboration

The sales collaboration team is responsible for establishing sales forecasts, promotion plans, collecting and reporting sales results. The team is also responsible for recommending and implementing changes to the replenishment system. The replenishment team determines the order forecast, and collects actual order and inventory information.

Replenishment

Inventory Analyst (Re-) Buyer

Collaboration Technology

The collaboration technology team sets up the collaboration environment, monitors technology effectiveness, and evaluates technical rollout requirements.

IT Coordinator, Project Manager, Systems Manager

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Step 3
Prepare for Collaboration.

In Step 3, the project team studies the details of the CPFR business process, and identifies the technology and additional resources required to support it. Sales and replenishment team members develop ground rules for managing exceptions and changes. Collaboration technology team members install and configure the information systems (purchased, developed, or simple spreadsheets and e-mails) used to support collaboration between partner pilot teams. At the end of this step, collaboration is ready to begin.

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Step 4
Execute: Performing the Pilot.

In Step 4, the sales and replenishment collaboration teams begin to exchange forecasts with each other, modifying them to respond to changing conditions. The collaboration technology team gains experience managing the environment, and prepares for rollout to a large number of locations and projects after the pilot is complete.
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Step 5
Assess Results and Identify Improvements.

In Step 5, the team and its management review its progress, report results to their respective organizations, and make preparations for broader CPFR rollout.

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