COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT

CPFR

GRO

UP

: C2 Shreshtha Rath U111125

Budhadev nayak U111134

Parul Verma U111151

Rachna Bagaria U111154

Sampat Patnaik U111162

Manu Vats U111167

COLLABORATIVE COMMERCE

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.

Definition -

Greater sharing of data and responsibility

Common goals and metrics

Forecasts aligned, & time phased across supply chain

Managed by shared exception criteria

Committed forecast ---> frozen orders

Pre-notification of issues in meeting consumer demand

Capitalize on trading partner strengths, resources & systems

COLLABORATIVE COMMERCE : INITIAL PARADIGM SHIFTS

Manufacturer

Retailer Forecast Drivers • In stock position• Fill Rate• Consumer Demand• Price Changes• Growth Plans• Distribution Channels

Common Event Calendar

Joint Forecast

Retailer

Manufacturer Forecast Drivers

• Capacity • Order Lead time• Consumer Behaviour• Product Availability• Promotions• Raw material supply

Joint Business Planning

Generate joint forecast Generate joint forecast

Drive replenishment

Drive MRP

THE COLLABORATIVE PROCESS

CPFR

INTRODUCTION

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.

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 and service failures.

A BRIEF HISTORY

• 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

• 1996, CPFR® (Collaborative, Planning, Forecasting, and

Replenishment) pilot between Wal-Mart and Warner

Lambert

A BRIEF HISTORY (contd.)

THREE MODES OF CPFR

Basic CPFR: a limited number of business processes integrated between a

limited number of supply chain partners

Advanced CPFR goes beyond data exchanges to

synchronise forecasting information systems and

coordinate planning and replenishment processes

Developed CPFR: will typically involve a greater number of data exchanges

between two partners, and may extend to suppliers taking responsibility for

replenishment on behalf of their customer

COLLABORATIVE COMMUNITIES

One to One

Price is not primary driver

Products are branded or differentiated

Fulfillment is competitive weapon

Discontinuous innovation, integrating processes

Exception Based

TRADING EXCHANGES

Many to Many

Price is key decision factor

Products are not differentiated

Fulfillment is homogeneous

Continuous Innovation, automating old business to new business processes

Self-Service based

1. Front-End Agreement

2. Joint Business Plan

3. Create Sales Forecast4. Identify exceptions5. Resolve exceptions

6. Create Order Forecast7. Identify exceptions8. Resolve exceptions

9. Generate Order

Once

Qtr

.

Wk,

Mo

Wk,

Mo

Collaborative Planning

Collaborative Forecasting

Collaborative Replenishment

Seller

Buyer

Sales Forecast

Order Forecast

CPFR PROCESS

• 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

THE CPFR® OPPORTUNITY

8 collaboration tasks form cycle of 4 activities. Each activity consists of two collaboration tasks.

CPFR® REFERENCE MODEL

The consumer is the ultimate focus of all efforts

Buyers” (retailers) and “sellers” (manufacturers) collaborate at every level

Joint forecasting and order planning reduces surprises in the supply chain

The timing and quantity of physical flows is synchronized across all parties

Promotions no longer serve as disturbances in the supply chain

CPFR: KEY TENETS

Establish the ground rules for

the collaborative relationship.

Determine product mix and

placement, and develop event

plans for the period.

1. STRATEGY & PLANNING

• Setting the business goals and defining the scope for the relationship

• Assigning roles, responsibilities, checkpoints and escalation procedures

– 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.

1.1 COLLABORATION ARRANGEMENT

Defines the process in practical terms

Identifies the roles of each trading partner and how the performance of

each will be measured

Spells out the readiness of each organization and the opportunities

available to maximize the benefits from their relationship

Formalizes each party’s commitment and willingness to exchange

knowledge and share in the risk

OUTPUT : Memorandum of understanding

• Trading partners exchange information on corporate strategies and business

plans to develop a joint business plan.

• Identifies the significant events that affect supply and demand, such as

promotions, inventory policy changes, store openings / closings, and product

introductions.

1.2 JOINT BUSINESS PLAN

– Joint calendar for promotions, inventory policy changes, store

openings/closings, and product changes for each product category,

etc.

– Clearly identifies the roles, strategies, and tactics for the SKUs that are

to be brought under the umbrella of CPFR.

– Cornerstone of the forecasting process.

OUTPUT : joint business plan

Sales forecasting:

Projects demand at the point of sale

Order planning/forecasting:

Determines future product order &

delivery requirements based upon the

sales forecast.

Takes into account inventory positions,

transit lead times, shipment quantities,

and other factors.

2. DEMAND & SUPPLY MANAGEMENT

• Consumption data is used to create a sales forecast.

• This consumption data differs depending on the product, industry, and

trading partners:

– Retailer POS data

– Distribution center withdrawals

– Manufacturer consumption data

• Important to incorporate information on any planned events (ex. –

Promotions, plant shut downs, etc.)

2.1 SALES FORECASTING OVERVIEW

1. Analyze current joint business plan

– Analyze the potential effects of the current joint business plan on

future retail sales

2. Analyze causal information

– Analyze the potential effect of causal factors on future retail sales

based on historical events and the resulting sales impact

3. Collect and analyze consumption data

– Point-of-Sale (PoS) data, warehouse withdrawals, manufacturing

consumption

SALES FORECASTING STEPS

4. Identify planned events

– Store openings or closings, promotions, or new product

introductions

– This comprehensive list of events will be used to populate a shared-

event calendar

5. Update shared event calendar

– Align events from each trading partner, resulting in a common plan

– Agree upon this short-term event plan

SALES FORECASTING STEPS

6. Gather exception resolution data

– Gather sales forecast exception resolution data from previous

iterations

7. Generate sales forecast

– Generate the forecast for a given period with forecasting tools that

use all relevant information and guidelines. Either partner or both

partners may generate the sales forecast, depending upon the

scenario

SALES FORECASTING STEPS

• Single sales forecast generated by one or both parties

• Used as a baseline for the creation of an order forecast, as well as other

supply chain activities.

OUTPUT

• Sales forecast, causal information, inventory policies, etc. are used to

generate a specific order forecast

• Actual volume numbers are time-phased and reflect inventory objectives

by product and receiving location

• The short-term portion of the forecast is used for order generation.

• The longer-term portion is used for planning

2.2 ORDER PLANNING/FORECASTING OVERVIEW

• The order forecast allows the seller to allocate production capacity against

demand while minimizing safety stock.

• The real-time collaboration reduces uncertainty between trading partners

and leads to consolidated supply chain inventories.

• Inventory levels are decreased, and customer service responsiveness is

increased. A platform for continual improvement among trading partners

is established.

OUTPUT : Time-phased, netted order forecast

• Place orders, prepare and deliver shipments, receive and stock product on retail shelves, record sales transactions and make payments.

• Order generation— Transitions order forecasts into firm demand

• Order fulfillment — Producing, shipping, delivering, and stocking the products

3. EXECUTION

• Committed orders by the buying organization (the retailer) and delivery

shipments from the vendor

– The buyer receives and stocks products, records sales transactions,

sends order acknowledgment and makes payments

• Buyer and seller agree on a “time fence” where forecasts are frozen

– Near-term orders are fixed; Long-term ones are used for planning

ORDER GENERATION OUTPUT

• Monitor planning and execution

activities for exception conditions

• Aggregate results, and calculate key

performance metrics

• Share insights and adjust plans for

continuously improved results

4. ANALYSIS

• Trading partners calculate key performance metrics (e.g., in-stock level,

forecast accuracy targets, etc.)

– To evaluate achievement of business goals, uncover trends, or develop

alternative strategies;

– To share insights and adjust plans for continuous improvement.

• Generate and agree to a list of exception items for your CPFR initiative.

– Develop a process to resolve sales forecast exceptions.

PERFORMANCE ASSESSMENT

• Monitor plan vs. execution to identify deviations and exceptions.

– Trading partners resolve exceptions by determining causal factors,

adjusting plans where necessary.

– Forecast accuracy problems, overstock/stock-out conditions, and

execution issues must be identified and resolved in a timely manner.

EXCEPTION MANAGEMENT

Internal Alignment

Silo Mentality

Silo Compensation

Not Invented here mentality

Business Practices Out of Sync With Reality

Legacy Systems

Personal Comfort Zones

Lack of Leadership

Uninformed Opinions

BARRIERS TO COLLABORATION

CPFR BENEFITS

1. 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 the actual result

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

CPFR BENEFITS: DEMAND

3. Category Management

– Before beginning CPFR, both parties should scrutinize and inspect

shelf positioning activities

– 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: DEMAND

1. 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

2. Inventory Reductions

– CPFR helps reduce forecast uncertainty and process inefficiencies

– With CPFR, product can be produced to actual order instead of storing

inventory based on forecast

CPFR BENEFITS: SUPPLY

3. Improved Technology ROI

– Technology investments for internal integration can be enabled with

higher quality forecast information

– Driving internal processes with common, high-quality data.

4. Improved Overall ROI

– As other processes improve, the return on investment 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

CPFR BENEFITS: SUPPLY

CPFR® BENEFITS

Improved customer

service

More effective inventory

management

Improved profitability

CPFR® ROI BENEFIT CATEGORIESStorage Costs

22%Inventory Expense

17%Intransit inventory for Rail

>1%Reduced 3’rd Party Storage 13%

Increased Sales 25%Improved Margin 1%Customer Retention 8%

Transportation 19%• C

arrier Management >1%

• Load Planning >1%

• Truck Tendering/Carrier Selection 1%

• Truck Cycle Time 6%

• Rail Cycle Time 10%

• Demurrage >1%

• Excess Freight Charges 2%

Process Efficiencies 6%• I

nventory Control 1%

• Logistics 2%

• Order Management / CSR 2%

• Purchasing >1%

Total Benefit 100%

SARA LEE

Federated Dept. Stores

MeadSchool & Office

Kimberly Clark

JCPenney

VF Corp.

Staples

CPFR® Initiative Participants

GRO

UP

: C2 Shrestha Rath U111125

Budhadev nayak U111134

Parul Verma U111151

Rachna Bagaria U111154

Sampat Patnaik U111162

Manu Vats U111167