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
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
- 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
- Decrease in inventory levels and safety stocks
- Decrease in storage & financing costs
- Decrease in obsolescence
- Reduction in stock-outs and opportunity costs
- Promotion Efficiencies
- Sales increase from improved customer service
- Process Efficiencies
- Improvements in forecast accuracy
- Order Management
- Inventory Control
- Production Labor
- Transportation Management
- Strategic Rate Management
- Tactical Rate Management
- Less than Truckload (LTL) Consolidation
- Capacity Utilization
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
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
Supply Chain Planning (CPFR) Special Interest Group.
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