logisties

9 Steps

tqo Success
with CPFR
If you're considering CPFR but aren't sure how to do it,

here's some advice from the experts.

In

By Lisa H. Harrington
2002, the'WorldWide Retail Exchange

(WWtRE), a business-to-business Internet exchange for retailers, conducted a Collaborative

Planning, Forecasting and Replenishment
(CPFR) test involving 480 SKUs in general
merchandise, food, drug, electronics and apparel in
12 trading partnerships. The test, which deployed a
collaborative planning module powered by i2
Technologies, produced impressive results. According to the WWRE...
* Forecast accuracy increased 25%. By collaborating on sales, order and promotional forecasts, participants developed a mutually agreed upon forecast based on the best data available to both
parties. These improved joint forecasts formed
the basis for other supply chain efficiencies such
as service level improvements, inventory reductions and increased sales.
* Excess inventory reduced 32%. Visibility and!
confidence in the collaborative forecast enabled
the trading partners to more closely match replenishment plans to consumer demand, reducing costly safety stock.
* Lead time reduced 25%. Trading partners
worked together to jointly establish business
goals. Existing business processes were then examined to determine methods to meet these
goals. By jointly developing a more efficient
process, and better aligning supply chains, participants reduced delivery time.
50 April 2003

In-stock levels improved 10%. Avoiding empty

shelves resulted in increased sales levels as well
as long-term gains such as increased customer
satisfaction and loyalty. Shared plans, better demand visibility and more reliable forecasts improved product availability.

What and How

Since its inception about eight years ago, CPFR
'has received considerable publicity-with promises
of huge savings and other benefits. But just what is
CPFR and how do you go about implementing it?
The first question is easy to answer; the second one
is not.
In plain English, explains Arvind Bhambri, Associate Professor in management and organization at
the Marshall School of Business, University of
Southem California, Los Angeles, "CPFRis a standard methodology for two companies (or more) in
the same supply chain to work together to reduce
costs while increasing revenue and customer satisfaction for each company. In its simplest form, it is a
way to synchronize the ideas that both companies
have about how much product is demanded at any
given time. It is the method to arrive at an alignment
of these two demand forecasts into a singleplan."
How does a company go about implementing
CPFR? The Voluntary Interindustry Commerce
Standards (VICS) Association, which manages the
industry organization (CPFR.org) that develops

www.totals up p lyc hai n.com

Transportation & Distribution

standards for the CPFR process, suggests that participating companies first formally commit to a program of demand forecast collaboration, including
an agreement on sponsors within each organization
and key metrics.
Each organization then creates a plan internally.
A retailer's plan commonly incorporates weekly
(or even daily) store-level demand per SKU from
its point-of-sale (POS) system as well as information from the organization's merchandise planning
system, distribution and warehousing systems and
store operations system. A supplier's plan often incorporates data related to promotions from its customer relationship management applications, optimal replenishment plans from its advanced
planning and scheduling applications, and relevant
data from enterprise resource planning applications. The two trading partners then compare their
plans and address any discrepancies.
After this, the two participants can create a joint
plan that incorporates seasonal and promotional activity, or other pertinent data. The participants can
define the parameters with which they want to monitor actual activity. They can also decide what kinds
of exceptions and deviations-such as forecast accuracy problems, overstock/under stock conditions,
and execution issues-they want to understand in
more depth.
Finally, the joint demand forecast can be used as a
replenishment plan. Real-time data about POs, shipments and inventory can be compared to the plan as
it is followed. Using agreed-upon thresholds, participants can identify and resolve exceptions.
Drilling down to a more granular level, VICS has
reduced CPFR to nine basic steps that support the
overall plan-ship-sell-replenish lifecycle of a consumer goods item. These nine steps are:

1. Establish a collaborabve relationship

The buyer and seller establish the guidelines and
rules for the collaborative relationship. The
"'collaboration arrangement" addresses each
party's expectations and the actions and resources necessary for success. To accomplish
this, the buyer and seller co-develop a general
business arrangement that includes the overall
understanding and the objective of collaboration, confidentiality agreements, data to be
shared, and the empowerment of resources to be
applied throughout the CPFR process. This published agreement serves as a blueprint for the
collaborative relationship.
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logistics

2. Develop ajoint business plan

The seller and buyer exchange informatioowl
about their corporate strategies and business
plans in order to develop a joint business plan.
The CPFR team establishes item management
profiles - e.g., order minimums and multiples,
lead times, order intervals - for items on which
the partners will collaborate. Development of a
joint business plan improves the overall quality
of forecasting by including data from both parties. The business plan identifies the roles, strategies and tactics for the items being handled. It
is the comerstone of the forecasting process.

3. Create a sales forecast

Using consumption data, the team creates a
sales forecast to support the joint business plan.
Consumption data varies depending on product,
industry and trading partners. It may be retailer
point-of-sale (POS) data, retailer distribution
center withdrawals or manufacturer consumption data.

4. Identty exceptons
The team identifies the items that fall outside the
sales forecast constraints set jointly by the seller
and buyer. The exception criteria for each item
are agreed to in the collaboration agreement.

5. Resolve/colaboPate on exception items

In this step, partners resolve sales forecast exceptions. Any resulting changes are submitted to
the sales forecasting group which then produces
an adjusted forecast.

6. Create an order forecast

In step 6, the CPFR team combines the sales
forecast, causal information and inventory strategies to generate a specific order forecast that
supports the shared sales forecast and the joint
business plan. Actual volume numbers are timephased to reflect inventory objectives by product and receiving location. The new order forecast allows the seller to allocate production
capacity against demand while minimizing
safety stock. The resulting reduction in uncertainty enables trading partners to cut excess inventories across the supply chain.

7. Identity exceptions
The CPFR team determines what items fall outside the order forecast constraints set jointly by
the seller and buyer. The result is a list of exception items identified based on the predetermined
criteria established in the collaboration arrangement.

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April 2003 51

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.-, = $. Resolve exceptions

><.

Team members investigate order forecast exceptions, and submit any results to the order
forecast to create a new adjusted forecast.

1. !Geneatethe order
'

JJii's final step marks the transformation of the

order forecast into a committed order.
Few companies are doing all nine steps, according
<;-- to Janet Suleski, an analyst with AMR Research.
lNevertheless, according to a recent Grocery Manu-

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turers ofAmerica survey, 67% of consumerprodupts goods (CPG) companies have implemented
qome-form of CPFR.

ASignificant Commitment
Mostpeople think of CPFR as primarily a technology issue, believing that the effort centers on implementation of new IT capabilities to make collaboration possible. While CPFR may require some
enhancement of IT infrastructure, "technology is the
easy part," say Robert Bruce and Ron Ireland of consulting firm VCC Associates Inc.

"The process is what's difficult," Bruce and Ireland assert. "It is the business process supported by
the internal culture that makes [CPFR] successful.
Laying down the core competencies and foundations are the first two steps to successful implementation. Defining and implementing.the basic collaborative processes create the structure needed to
support the transition from piloting to scalable implementation. Not addressing the organizational aspects of collaboration wiUlliniit the over-all success
and bottom line financial results from CPFR."
For example, both trading partners need to
change internal processes to support linking the demand plan and forecasts to internal production systems. For the retailer, forecast quantities need to be
tied into forecasting, replenishment and order management systems. And for manufacturers, forecast
quantities should be part of their internal demand
planning and advanced planning and scheduling
processes.
With these elements in place, benefits should fol-

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TITLE: 9 Steps to Success with CPFR

SOURCE: Transp Distrib 44 no4 Ap 2003
WN: 0309100327007
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