Collaborative Planning, Forecasting and Replenishment (CPFR)

  • Collaborative planning, forecasting and replenishment (CPFR®) is a way to integrate the elements of demand management among supply chain partners.
  • CPFR is:
    • A collaborative process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. Collaboration encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods.
    • A process philosophy for facilitating collaborative communications.

CPFR Model

The VICS CPFR model is broken into four major activities comprising eight collaboration tasks, with two tasks listed under each of the four activities. The eight collaboration tasks are further associated with 16 enterprise tasks carried out either by the buyer/retailer or seller/manufacturer.

CPFR Collaboration Activities and Tasks

The enterprise tasks function as links between the collaboration tasks and the overall operation of the enterprise. These links serve to eliminate redundancies and discrepancies that occur when the manufacturer and the retailer carry out those tasks in isolation.

Strategy and Planning

  • The purpose of strategy and planning is to establish rules for the relationship, define the mix of products, and develop plans for upcoming events.
  • There are two specific collaboration tasks to be completed within this area:
    • Collaboration arrangement:

      Collaboration arrangement involves setting business goals, defining the scope of collaboration, and assigning roles, responsibilities, checkpoints and escalation procedures.

    • Joint Business Plan:
      A joint business plan identifies significant events such as promotions, inventory policy changes, store openings and closings, and product introductions. Marketing planning is the responsibility of the manufacturer, while the retailer takes care of category management.

Demand and Supply Management

  • In this area, the partners forecast consumer demand at the point-of-sale and determine order and shipment requirements. The model specifies two tasks:
    • Sales Forecasting
      The manufacturer analyzes market data, while the retailer forecasts point-of-sale (POS) numbers.
    • Order planning/forecasting
      The manufacturer conducts demand planning, while the retailer undertakes replenishment planning.

Execution

  • This area, which is also known as the order-to-cash cycle, involves placing orders, preparing and delivering shipments, receiving and stocking products at the retail site, recording transactions, and making payments.
  • The model identifies two execution tasks:
    • Order Generation
      The manufacturer does production and supply planning, while the retailer conducts the activities associated with buying.
    • Order Fulfillment
      This involves logistics and distribution management for both manufacturer and retailer.

Analysis

  • In the analysis phase, the supply chain partners monitor planning and execution activities to identify exceptions.
  • They also aggregate results and calculate key performance metrics, share insights, and adjust plan as part of continuous improvement.
  • Analysis involves the following two tasks:
    • Exception Management
      This involves execution monitoring by the manufacturer and store execution by the retailer.
    • Performance Assessment
      Manufacturer and retailer keep scorecards to access each other’s performance.

Technology

  • CPFR is at heart about developing effective business processes to synchronize supply chain operations across enterprise boundaries.
  • The success of CPFR depends upon willingness to work with shared data efficiently in real time.
  • CPFR software solutions include systems that allow enterprise partners to:
    • Share forecasts and historical data.
    • Automate the collaboration arrangement and business plan.
    • Evaluate exceptions.
    • Enable two-way, real-time conversations, revisions and commentary.

CPFR Benefits and Challenges

Instituting CPFR and realizing its benefits may require meeting several predictable challenges:

  • Increased costs
  • Resistance to data sharing
  • Bridging internal functions

When setting up a CPFR relationship, cross-functional teams might bring together marketing and sales, financial product specialist, logistics specialists, and demand planners who would collaborate among themselves and speak with a single voice to the customer.

Linkages to Match Organizational Strategy

Planning Demand (fixed high capacity strategy)

  • The organizational strategy is to meet demand to the maximum extent possible by providing the necessary capacity to meet peak demand at any time.
  • Ensuring that capacity will be available requires a focus on planning demand, especially in terms of long-term planning.
  • Such a strategy could be pursued if the costs of maintaining excess capacity are considered less than that of losing business.

Communicating Demand (highly variable capacity strategy)

  • The organizational strategy is to match supply to demand as closely as possible by being flexible enough to increase or reduce capacity spontaneously as demand changes.
  • Matching strategies such as these require a focus on communications so that the changes in supply can be proactive rather than reactive.
  • Such strategies may employ a great deal of contract work, outsourcing, and flexible work scheduling.

Influencing Demand (moderately variable capacity strategy)

  • The organizational strategy is to level production and carefully manage demand to meet optimal capacity.
  • The focus is on influencing demand so that there is little need to change capacity.
  • Sometimes this process is called demand shaping because it involves convincing customers to buy certain models based on excess inventory.
  • Demand is influenced by carefully scheduling delivery of products and services and timing promotions to operational requirements.

Managing and Prioritizing Demand (fixed average capacity strategy)

  • The organizational strategy is to control demand to the maximum extent possible through scheduling, promotions, queues, and rationing.
  • The focus is on managing and prioritizing demand because fixed average capacity will be by definition result in periods of insufficient supply.
  • This strategy could be beneficial for products or services that require development and retention of expert personnel or other expensive resources.

Linkages as a Cycle

On a conceptual level, the following picture shows how the elements are cyclical. All of these elements are necessary for long and medium term planning. However, at the short term operational level, the dotted lines show how the cycle can be shortened to reduce the need for management and prioritization and/or planning demand when the principles and technologies of demand management are implemented throughout the supply chain.

Linkages Among the Elements

Planning, communicating, influencing, and managing and prioritizing demand can be linked in several ways, including: