Collaborative planning forecasting and replenishment

From Supply Chain Management Encyclopedia

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Russian: Совместное планирование, прогнозирование и пополнение запасов

Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept and a business practice that aims to enhance supply chain integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information. CPFR is a strategy for improving supply chain efficiency and effectiveness by making demand transparency drive the execution of the supply chain participants to maximize value for the end-customer. Fundamentally, the aim of CPFR is to convert the supply chain from a disjointed, ineffective and inefficient “push” system to a coordinated “pull” system based upon end customer demand. Trading partners move to selling through their customer firms (to their end-customers) rather than to their customer firms. CPFR aims to enhance supply chain integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end supply chain process more efficient. Efficiency is created through the decrease expenditures for merchandising, inventory, logistics, and transportation across all trading partners^[1].

CPFR Model

CPFR Model was originally presented by VICS in their VICS CPFR Guidelines in 1998 as a 9 step process (VICS 1999):

Develop Front End Agreement
Create the Joint Business Plan
Create the Sales Forecast
Identify Exceptions for Sales Forecast
Resolve/Collaborate on Exception Items
Create Order Forecast
Identify Exceptions for Order Forecast
Resolve/Collaborate on Exception Items
Order Generation

The CPFR reference model provides a general framework for the collaborative aspects of planning, forecasting and replenishment processes.

The main processes shown in the model have four stages that are performed in circle. Each stage will be described in detail below ^[2]:

Strategy & Planning, Collaboration Arrangement is the process of setting the business goals for the relationship, defining the scope of collaboration and assigning roles, responsibilities, checkpoints and escalation procedures. The Joint Business Plan then identifies significant events affecting supply and demand during the planning period, such as promotions, inventory policy changes, store openings/closings, and product introductions.
Demand & Supply Management is divided into Sales Forecasting aimed at predicting consumer demand in a point of sale, and Order Planning/Forecasting aimed at predicting future product ordering and delivery requirements based upon the sales forecast, inventory positions, transit lead times, and other factors.
Execution consists of Order Generation, which transitions forecasts to firm demand, and Order Fulfillment, the process of producing, shipping, delivering, and stocking products for consumer purchase.
Analysis tasks include Exception Management, the active monitoring of planning and operations for out-of-bounds conditions, and Performance Assessment, the calculation of key metrics to evaluate the achievement of business goals, uncover trends or develop alternative strategies

CPFR Benefits

CPFR benefits from demand point of view:

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.
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 the seller collaborate on a joint product offer that includes SKU evaluation and additional product opportunities.

CPFR benefits from supply point of view:

Improved Order Forecast Accuracy
- CPFR enables a time-phased order forecast that provides additional information, a longer lead time for production planning, and improved forecast accuracy vs. either stand-alone VMI/CRP or other industry tools.
Inventory Reductions
- CPFR helps to reduce forecasting uncertainty and process inefficiencies.
- How much inventory does your company hold to “cover up” forecasting errors or a trading partner’s inability to provide a product available in a timely manner?
- With CPFR, the product can be made-to-order instead of made-to-store on the basis of forecasting.
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 in 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.