Cpfr

CPFR®

Henry C. Co

Reference: CPFR for Beginners, M. Johnson (Syncra Systems) and L. Roth (Kimberly-Clark).

Collaborative Planning, Forecasting, and Replenishment (Henry C. Co) 2

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

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

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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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“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


“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

http://www.intrinsicvaluechain.com/


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.

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.


The VMI program 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 re-supply decisions regarding order quantities, shipping, and timing.

Transactions customarily initiated by Wal-Mart (like purchase orders) are initiated by P&G instead.


Successful VMI initiatives VMI is key in grocery industry’s pursuit of

“efficient consumer response” and the garment industry’s “quick response.”

Successful VMI initiatives Campbell Soup Johnson & Johnson European pasta manufacturer Barilla SpA Shell Chemical General Electric Intel, and many others.


Core elements of ECR Efficient assortment – Product offerings should be

rationalized to better meet customer needs and improve supply chain performance (ex. – Why 100 different SKUs that confuse consumers when 30 SKUs would meet their needs?)

Efficient product introductions – New products should be introduced in response to real customer needs, and only after the impact on supply chain performance has been considered.

Efficient promotions – Prices should be kept as stable as possible. The supply chain impact of promotions and market specials should be carefully considered.

Efficient replenishment – All physical and information flows that link producers to the consumer should be streamlined to cut costs and increase value. http://scm.ncsu.edu/public/cpfr/ last accessed 23 April 2007.

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


CPFR extends ECR’s business processes to include: Information systems for capturing and

transferring POS, inventory, and other demand & supply information between trading partners

Formalized sales forecasting and order forecasting processes

Formalized exception handling processes Feedback systems to monitor and improve

supply chain performance

http://scm.ncsu.edu/public/cpfr/ last accessed 23 April 2007.

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


In 1994, Wal-Mart extended CRP by providing its sales forecasts to the vendors. This is called the Co-managed Inventory Program

CFAR, 1995/1996 Wal-Mart initiated a co-managed inventory effort

with Warner-Lambert called CFAR. Wal-Mart asked Voluntary Interindustry Commerce

Standards Association (VICS) to study and develop an industry-wide process around this proprietary practice to create a more productive supply chain.

ECR Evolved into CPFR


1996, CPFR® (Collaborative, Planning, Forecasting, and Replenishment) pilot between Wal-Mart and Warner Lambert.

CPFR® A globally interoperable commerce standard 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 (Ashcroft 2003).

Adopted by numerous other industries Apparel, automotive and high tech. Supported by the Global Commerce Initiative, ECR

Europe, ECR Brazil, ECR Colombia and many other international organizations.


1998, VICS released first CPFR® guidelines at Retail Supply Chain Business Conference.

Guidelines provide holistic approach to collaborative supply chain management among a network of trading partners. 1. Begins with agreement between trading partners

to develop a market specific plan, based on sound category management principles that collaboratively leverage each partner’s resources, using one of four deployment scenarios.

2. Together the trading partners develop a single shared demand forecast plan and then a supporting order forecast plan.

3. Finally, the order forecast plan is converted into actual orders.


CPFR® Premise 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.

Nine-step process Adopted by leading retail and consumer

goods Internet trading exchanges such as WWRE, GNX, Transora, and Novopoint UCCnet and ebXML have incorporated this

collaborative commerce process model into their open standards infrastructure environment.


CPFR® Roadmap and many research and case studies of pilot projects published under guidance of the VICS CPFR® Committee

The Committee provides leadership and standards on implementing CPFR®

About 500 companies now active at some level of CPFR® implementation (AMR Research)

VICS CPFR® Matrix, 2001 A list of firms engaged in VICS CPFR® trading

partnerships published by MoonWatch Media Inc. Two listings, one sorted by seller (supplier) and the

second by buyer (retailer) Related systems vendors and public exchanges have

been included to provide further resources that support VICS CPFR® trading partnerships.

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 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 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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