Okay, so what is CPFR?
Collaborative Planning Forecasting and Replenishment (abbreviated as CPFR) is a joint strategic practice amongst partners in a supply chain to utilize customer inputs and data from partners in the value chain whilst producing forecasts, planning resources and replenishment policies of stocks. It was first developed for Walmart and its partners in 1995, primarily focused on Retail and FMCG industry. Overtime, the benefits of CPFR have been recognized, for it to be utilized in supply chains beyond FMCG industry. CPFR enhances trust amongst the partners and allows the customer’s voice to be heard. Modern supply chains involve multiple silos that makes it harder to capture the customer’s demand. Depending on the company’s strategy the focus of CPFR may vary, which has made it difficult to develop a ‘on fit for all’ CPFR strategy. However, there are some guidelines published by VICS (Voluntary interindustry commerce solutions) for successful implementation of CPFR. These guidelines have compiled by Accenture in Europe for businesses in the EU and the following table illustrates the activities involved in CPFR implementation:
The preparation before the implementation of a CPFR strategy is as important as any other part of the tool. The internal readiness report needs to be prepared to assess the capabilities and requirements of the company and its partners, going forward with the strategy. There are basic capabilities that are mandatory for a business to possess before implementing this strategy. Following the capability assessment, trading partner segmentation decides the partners that are willing to collaborate with maximum benefits in the process of doing so.
On readying the readiness report, the implementation strategy needs to be selected, that will be chosen to work with. There are three main strategies that are recommended by VICS guidelines:
- Basic: adopted when the trading partners aren’t willing to collaborate, although there are significant gains to be made with the project. Basic CPFR enhances collaboration amongst the departments of your company and lays out a foundation to instil a collaborative culture within the company, before involving partners.
- Developing: this is a more sophisticated model than the basic CPFR and rightly so, since a developing CPFR is probably the first strategy implemented by businesses establishing a proof of concept for CPFR. A developing CPFR usually contains a selective number of departments involved in planning, forecasting and replenishment of minimum number of SKUs.
- Advanced: is the ideal strategy to implement when the partners are highly willing to collaborate and there are maximum gains for everyone involved. These partners are not always present, although implementing an iterative process such as CPFR will only enhance willingness to collaborate if the desired results/ gains are achieved from the project.
On implementing the appropriate CPFR plan, the results are to be analysed and improvements identified, in order to be fed back into the strategy to improvise in the future (if your company chooses to do so). This is another USP for implementing CPFR in a decentralized supply chain. The ability to learn from previous projects is embedded in the core ideas of the strategy, making it an indispensable tool for businesses and partners.
CPFR involves distinct steps in planning, forecasting and replenishment. But the common glue binding them together is data sharing. Collaborative data sharing is an essential part of every step in CPFR This is precisely what makes CPFR a unique tool. The partners aren’t working with one eye shut anymore. In the absence of CPFR partners do not exchange information about customer demand and forecasts, only because of the absence of a practice to do so.
Typically, in supply chains involving multiple partners, monthly business meetings involve briefings about business targets and KPIs. Improvements and potential collaboration strategies are seldom discussed. With CPFR in place, partners make it mandatory to work together as a system rather than independent parties. The biggest winner from a CPFR strategy is the supply chain planning and forecasting team of a company. This is also evident from the aforementioned table where the biggest process amongst CPFR is the forecasting process, that involves numerous activities in its implementation.
Forecasts are the most important drivers of planning your supply chain resources. Wrong forecasts have fatal pitfalls. In a collaborative environment, departments can exchange information that they are exposed to regarding customer demand. This greatly reduces the risks associated with supply chain since forecasts since the forecasting process is carried out with all possible data sets with respect to demand, sales or material orders.
The following figure describes a typical CPFR system in place at a company. Albeit the complexity of interaction prevalent on implementation of the strategy, it can be eased by changing the internal processes to accommodate the change in perspective.
Figure 2: CPFR framework and interactions involved in the strategy (Source: Accenture)
Sounds simple enough, but what are the limiting factors of CPFR?
The following key collaborating factors that decide the limitation of the application of CPFR.
- Senior Management Commitment – is essential in deciding the impact and extent of collaboration between companies. With the senior management’s blessings, the managers and departments involved will also be willing to go the extra mile in making this an impactful venture.
- Clearly defined roles and responsibilities – will ensure the best utilization of resources in use for the strategy. Clear definition of roles and responsibilities will prohibit the process going back and forth.
- Willingness to collaborate – can’t be emphasized enough, along with data sharing, willingness to collaborate will act as a catalyst in enhancing the results from CPFR.
- Readiness for a ‘win-win’ situation- there’s no ‘I’ in CPFR, it is all for one and one for all. Albeit this may seem rosy and philosophical, understanding this simple thought will ease the implementation of CPFR.
- Technical Infrastructure- over the years, IT solutions and ERP softwares have become an essential part of CPFR. Since lack of communication and trust seem to be the primary cause of adopting CPFR, IT solutions provide a useful helping hand in solving those issues.
- Partners’ ability to share forecasts and anticipate demand – will decide the impact of the collaboration. In fact, advanced capabilities that are assessed as part of preparedness for CPFR, analyse such capabilities which will ensure fulfilment of target KPIs.
Typical benefits from CPFR include:
- Improved responsiveness to consumer demand- through collaborative forecasts supply chains can make better forecasts with POS data. Point of sales or POS data allows the manufacturers to understand consumer behaviour and better predict changes in demand.
- Greater forecast accuracy with single shared forecast- by virtue of having access to POS data and other factors affecting customer demand, the forecasts will be able to better capture the reality.
- Improved relationship between trading partners- with various activities prompting participation collaboration of trading partners, their relationship will improve as they would understand each other better.
- Increased sales and Inventory reduction- With improved forecasts and responsiveness to customer demand, comes improved customer service level and low inventory since your supply chain will be in a position to estimate the demand accurately. CPFR allows trading partners to re-evaluate replenishment strategies and buffer levels needed to be maintained in the supply chain.
- Cost reduction – low inventory levels means savings in working capital. Revaluating supply chain planning through this strategy targets savings through agreed KPIs that results in significant monetary savings.
Got it, although what role does technology play in enhancing CPFR?
We talk so much about collaborating and sharing data, but in the absence of a technology that can enable this process, it will all be a fiasco. Collaboration could certainly made possible by communicating through simple technologies such as emails and collaborative spreadsheets. Numerous CPFR projects in the EU have actually taken this approach while implementing CPFR.
But with the emergence of big data and the potential in harnessing the capabilities of computation available to us, improved software solutions will certainly allow in harnessing the capabilities of the modern computational abilities and CPFR.
Supply chain centric softwares such as GNX have features that include e-sourcing and functionalities ranging from buyer supplier management to RFQs and bidding. Pipechain is also one such supply chain cloud-based service that provides maximum visibility and enhances connectivity in the supply chain. Pipechain offers efficient collaboration processes such as forecasting, order fulfilment and delivery while alerting the right parties to any possible delivery problems to ensure that supply meets demand.
Manugistics is one of the earliest companies to offer software solutions to collaboration activities. Walmart’s early implementation of CPFR involved SAP and manugistics taking care of the software side of things. Manugisitics offered demand management solutions that included advanced statistical modelling, demand classification, multi-level forecasting, promotional data management. Although JDA Software acquired manugistics in 2006, the original functions provided by the softwares are still retained.
In conclusion….
In conclusion, there is no ‘one fit for all’ strategy for CPFR, the basic procedure described in this piece could be altered in any way you like for your company. It is an iterative process that is certainly process driven, which in effect means that is affected by the working practices in the partner companies. There needs to be change in internal processes to adapt to the new normal on implementing CPFR.
Besides the process, the industry and the nature of partnership between the companies has great impact on the fate of CPFR. The reluctance to implement in non-FMCG industries is seeing a change. Given the threat of globalization due to the current pandemic, companies will have to relook into collaboration and consider the use of CPFR to enhance the pre-existing partnerships.
Written by:
Gokul Pankaj
Web Content Manager at SupplyTech Insights
