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Collaborative Planning, Forecasting and Replenishment (CPFR):
CPFR is a business practice that combines the intelligence of multiple trading partners inthe planning and fulfillment of 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
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CPFR has its origins in Efficient Consumer Response (ECR).
ECR was a conscious attempt to better coordinate marketing, production, andreplenishment activities in a way that simultaneously increased value to the consumerwhile improving supply chain performance for producers and retailers.
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Typical manufacturer-retailer relationship prior to ECR
SituationArms-lengths relationships; little or no joint planningRelationships were often adversarial.The lack of information sharing made these relationships more costly than they needed
to be (unpredictable ordering patterns, excessive inventories, service failures,).
SolutionIn early 1990s, P&G and Wal-Mart developed a joint logistics processThe steps involved were:
Information sharing
Joint demand forecastingCoordinated shipments.
This partnership laid the foundation for ECR.
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CORE ELEMENTS OF ECR
Efficient assortment Product offerings should be rationalizedto better meetcustomer 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 torealcustomer needs, and only after the impact on supply chain performance has beenconsidered.Efficient promotions Prices should be kept as stable as possible. The supply chainimpact of promotions and market specials should be carefully considered.
Efficient replenishment All physical and information flows that link producers to theconsumer should be streamlined to cut costs and increase value.
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DIFFERENCES BETWEEN ECR and CPFR
ECRs core elements still applyunder CPFR.
But CPFR extendsthe business processes to include:Information systems for capturing and transferring POS, inventory, and other
demand & supply information between trading partnersFormalized sales forecasting and order forecasting processesFormalized exception handling processesFeedback systems to monitor and improve supply chain performance
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CPFR is being implemented at thousands of companies across the globe.
Many companies, such as GSK, are implementing CPFR with multiple retailers.
A standard vision is needed to provide a common understanding of:Terminology and definitions
The steps needed to implement CPFRData and information system requirementsBest practices
The process model described here is from the 18 May 2004 overview provided byVICS
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The CPFR Process Model
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CPFR: Key Tenets
The consumer is the ultimate focus of all effortsBuyers (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 partiesPromotions no longer serve as disturbances in the supply chainException management is systemized
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What Does CPFR Strategy and Planning Involve?
Establish the ground rules for the collaborative relationship. Determine product mix andplacement, and develop event plans for the period.
Collaboration arrangement
Setting the business goals and defining the scope for the relationshipAssigning roles, responsibilities, checkpoints and escalationprocedures
Joint business plan
Identifies the significant events that affect supply and demand, such aspromotions, inventory policy changes, store openings / closings, and productintroductions
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Collaboration Arrangement Output
A document that gives both partners a co-authored blueprint for beginning thecollaborative relationship.
Defines the process in practical terms.Identifies the roles of each trading partner and how the performance of each will bemeasured.Spells out the readiness of each organization and the opportunities available tomaximize the benefits from their relationship.Formalizes each partys commitment and willingness to exchange knowledge and
share in the risk.
Joint Business Plan Output
A mutually agreed upon joint business plan that 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.Should greatly reduce exceptions and the need for excessive interactions.
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What Is CPFR Demand and Supply Management?
Project POS demand and order and shipment requirements over the planning
horizon
Sales forecastingProjects demand at the point of sale
Order planning / forecastingDetermines future product order & delivery requirements based upon
the sales forecast.Takes into account inventory positions, transit lead times, shipment quantities, and
other factors.
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Sales Forecasting Overview
Consumption data is used to create a sales forecast.This consumption data differs depending on the product, industry, and trading partners
Retailer POS dataDistribution center withdrawalsManufacturer consumption data
Important to incorporate information on any planned events (ex. Promotions, plant
shut downs, etc.)
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Sales Forecasting Steps
1. Analyze current joint business planAnalyze the potential effects of the current joint business plan on future retail sales2. Analyze causal informationAnalyze the potential effect of causal factors on future retail sales based on historicalevents and the resulting sales impact3. Collect and analyze consumption dataPoint-of-Sale (PoS) data, warehouse withdrawals, manufacturing consumption4. Identify planned events
Store openings or closings, promotions, or new product introductionsThis comprehensive list of events will be used to populate a shared-event calendar5. Update shared event calendarAlign events from each trading partner, resulting in a common planAgree upon this short-term event plan6. Gather exception resolution data
Gather sales forecast exception resolution data from previous iterations7. Generate sales forecastGenerate the forecast for a given period with forecasting tools that use all relevantinformation and guidelines. Either partner or both partners may generate the salesforecast, depending upon the scenario
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Sales Forecasting Output
A 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 chainactivities
Order Planning / Forecasting Overview
Sales forecast, causal information, inventory policies, etc. are used to generate aspecific order forecast.Actual volume numbers are time-phased and reflect inventory objectives by product andreceiving location.The short-termportion of the forecast is used for order generation.The longer-termportion is used for planning.
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Order Planning / Forecasting Output
A time-phased, netted order forecast.The order forecast allows the seller to allocate production capacity against demandwhile minimizing safety stock.
The real-time collaboration reduces uncertainty between trading partners and leads toconsolidated supply chain inventories.Inventory levels are decreased, and customer service responsiveness is increased. Aplatform for continual improvement among trading partners is established.
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CPFR Execution
Place orders, prepare and deliver shipments, receive and stock product on retailshelves, record sales transactions and make payments. Also called the order to cashcycle.
Order generationTransitions order forecasts into firm demand
Order fulfillmentProducing, shipping, delivering, and stocking the products
Order Generation OverviewThis step marks the transformation of the order forecast into a committed order.
Either the seller or buyer can handle order generation depending on competencies,systems, and resources.
Regardless of who completes this task, the created order is expected to consumethe forecast.
Order Generation OutputA committed order generated directly from the frozen period of the order forecast.
An order acknowledgment sent by the customer
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CPFR AnalysisMonitor planning and execution activities for exception conditions.Aggregate results, and calculate key performance metrics.
Share insights and adjust plans for continuously improved results.Exception managementActive monitoring for pre-defined out-of-bounds conditions
Performance assessmentCalculation of key metrics to evaluate achievement of business goals, uncovertrends, or develop alternative strategies
Exception Management Overview
Exceptions need to be handled in bothsales forecasts and order forecasts.The exception criteria are agreed to in the collaboration arrangement.Sales and order forecast exceptions are resolved by querying shared data, email,
telephone conversations, meetings, and so on, and submitting any resulting changes tothe appropriate forecast.
Id tif th ti
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Identify the exceptions
1. Retrieve exception criteriaRetrieve the sales/order forecast exception criteria (e.g., retail in stock percent ormeasures such as forecast accuracy)
2. Identify changes/updatesIdentify seller or buyer changes or updates to the joint business plan (e.g., a change inthe number of stores)3. Compare item values against exception criteriaCompare each items value for the selected criteria to the constraint value (e.g., store in-stock for item X is 83% versus the criteria value of 90%
4. Identify exception itemsIdentify items as exception items if their values fall outside the constraints
R l th ti
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Resolve the exceptions
1. Retrieve exception items and decision support dataData elements are defined in the collaboration arrangement and include both time series
data (e.g., historical sales) and non-time-series (e.g., in-stock percent) data.
2. Select desired exception criteria/valuesEx., all items with a store in-stock percent less than 90 percent3. Research exceptionsUse the shared-event calendar and supporting information to look for cause4. Heighten collaborationIf research does not yield satisfactory forecast changes or resolve the exception, then
either partner can heighten the collaboration5. Submit changes to sales/order forecastIf research changes the forecast and/or resolves the exception, submit the change to the
sales/order forecastException Management Output
1. List of exceptions in the sales and order forecasts.
2. Resolution of identified exceptions.3. Adjusted forecast.
Performance Assessment Overview
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Performance Assessment Overview
Performance assessment is essential to any understanding of collaborationbenefits.
The specific measures can vary from one situation to the next, but generally fallinto two categories:
Operational measures: fill rates, service levels, forecast accuracy, leadtimes, inventory turns, etc.
Financial measures: Costs, item and category profitability, etc.
In reality, partners are often reluctant to share financial measures and estimatesof profitability can vary widely, depending on how one defines and assigns
costs.
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How Collaboration Is Built into the Model
CPFR Collaborative Roles
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CPFR Collaborative Roles
CPFR is always superimposed on an existing demand planning and replenishmentprocessCompatible with either VMI or conventional ordering processes
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