CPFR - Collaborative Planning, Forecasting, and Replenishment

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Contributed by: Ilya Fedotov

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CPFR Reference ModelWhat is CPFR? Description

Collaborative Planning, Forecasting, and Replenishment (CPFR) is a collaborative business practice that enables partners to have visibility into one another's demand, order forecast and promotional data to anticipate and satisfy future demand. This is done through a systematic process of information and knowledge sharing.

CPFR links sales and marketing best practices, such as category management, to supply chain planning and execution processes. In this way product availability can be increased while reducing inventory, transportation and logistics costs.

CPFR goes beyond current internal system implementations and builds the next level of information sharing out to trading partners. The objective often is to foster a strategic partnership and establish an enabling process for all other supply chain improvement initiatives.

CPFR leverages existing investments in Warehouse Management Systems (WMS), Forecasting / APS systems, Enterprise Resource Management (ERP) systems, Materials Requirements Planning (MRP) systems, and Customer Relationship Management systems.

The CPFR Reference Model

The CPFR Reference Model (figure) can be applied to many industries. A buyer and a seller, as collaboration participants, work together to satisfy the demands of an end customer, who is at the center of the model. In the retail industry, a retailer typically fills the buyer role, a manufacturer fills the seller role, and the consumer is the end customer. In other industry segments, such as high technology, the collaboration participants may differ.

Origin of CPFR. History

CPFR was originally initiated in 1995 by Wal-Mart, Benchmarking Partners, SAP and Manugistics. The open source initiative was initially called CFAR (for Collaborative Forecasting and Replenishment, pronounced as See-Far).

Warner Lambert (now part of Pfizer) served as the first pilot for CFAR as one of Wal-Mart’s key suppliers. The results were announced in 1996 and presented to the Board of Directors of the Voluntary Interindustry Commerce Standards (VICS) Committee. VICS established an industry committee to prepare for rolling CFAR out as an international standard. Later on the standard was renamed CPFR to emphasize the role of planning in the collaborative process.

Since the publication of VICS Guidelines for CPFR in 1998, over 300 companies have implemented the process. In 2004, the VICS CPFR committee developed a major revision of the CPFR model to integrate innovations and overcome shortcomings identified in the original process.

Steps in CPFR. Process

  • Within 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 the significant events that affect supply and demand in the planning period, such as promotions, inventory policy changes, store openings/closings, and product introductions.
  • Demand & Supply Management is broken into Sales Forecasting, which projects consumer demand at the point of sale, and Order Planning/Forecasting, which determines 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.

Strengths of CPFR. Benefits

  • Partner Relationships
    • Facilitates flexible relationships
    • Facilitates deeper collaboration through interdependencies, joint systems & processes
  • Inventory
    • Decrease in inventory levels and safety stocks
    • Decrease in storage & financing costs
    • Decrease in obsolescence
  • Revenue
    • Reduction in stock-outs and opportunity costs
    • Promotion Efficiencies
    • Sales increase from improved customer service
  • Process Efficiencies
    • Improvements in forecast accuracy
    • Order Management
    • Purchasing
    • Inventory Control
    • Production Labor
  • Transportation Management
    • Strategic Rate Management
    • Tactical Rate Management
    • Less than Truckload (LTL) Consolidation
    • Capacity Utilization
    • Demurrage

Limitations of CPFR. Disadvantages

  • Applications might differ from industry to industry
  • Difficult internal process changes (executive support etc)
  • Technical issues (real-time systems integration and interoperability)
  • Lack of partner trust
  • Cost of implementation
  • Benefits difficult to calculate
  • Policy not to share internal corporate data such as forecast
  • Top management-level commitment

Assumptions of CPFR. Conditions

  • Organizational shift to a consumer-centric, inter-enterprise orientation
  • The partners clearly see the benefits of a deeper collaboration and of the need for significant investments in an upgrade of the infrastructure
  • The relations between the partners will not deteriorate in the near future

Book: - Voluntary Interindustry Commerce Standards (VICS): CPFR: An overview, 2004

Book: - Industry Directions Inc. and Syncra Systems Inc.: The Next wave of supply chain advantage: Collaborative planning, forecasting and replenishment, 2000

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