Cpfr(1) introduction

CPFR®

Henry C. Co

Reference:
CPFR for Beginners, M. Johnson (Syncra Systems) and L.
Roth (Kimberly-Clark).

Collaborative Commerce

 Definition -
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.

Collaborative Planning, Forecasting, and Replenishment (Henry C. Co) 2

Data synchronization
Foundational
Steps
Data registration

Common Data Standards

Electronic Product Code (EPC) – physical carriers

Global Data Synchronization (GDS) – enabler for maintaining uniform,
standards-based data usable throughout the supply chain.

CPFR Drivers

Out of stocks = 3.1% loss in sales to retailer
Out of stocks = 4-5% loss in sales to manufacturer

Forecasting a key cause of out of stocks on warehouse
supplied items.

Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996

Out of Stocks Translate into 3.1% Loss in Sales to Retailer

9
8 8.2
7
6.5 3.4
6
“This does not take into
5 account other intended
purchases lost at time
4 of the visit”
3.1
3
2
1
0
% SKU's OOS % of Sales Alter Purch Lost Sales

Source: Retailer Operating Data, Prism Partner Store Audits,
Coca Cola Retail Council Independent Study, 1996

Out-of-Stocks result in 4-5% Loss in Sales to Manufacturer

9
8 8.2

7
6.5 1.5
6 “This does not take into
account other intended
5 5.0
purchases lost at time
4 of the visit”

3
2
1
0
% SKU's % of Sales Alter Purch Lost Sales
OOS

Forecasting a key Cause of Out of Stocks
on Warehouse Supplied Items


“Even children can tell you what they want
and help you assure that they get it. Imagine
your trading partners in that role … and the
benefits you could see are not child’s play.”

www.intrinsicvaluechain.com

 Sales history used as a predictor for
future demand.
 Forecasts do not include future
planning and set programs.
 Manufacturers are not building to
retailer/consumer demand.
 Forecasting of promotional, seasonal,
and new item remain a critical issue.
 Collaboration occurs most often after
the initial order is placed.

 Difficulties in forecasting
 Influence of promotions
 Changing demand patterns
 Competitive pressures
 Solutions to uncertainty
 Inventory – an expensive method of
avoidance
 Cooperative planning between trading
partners.


What is CPFR®?
 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.


A Brief History

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, service failures,…
 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.


The VMI program
 P&G makes the main inventory
replenishment decisions for Wal-Mart.
 P&G monitors Wal-Mart’s inventory
levels (physically or via electronic
messaging) and makes periodic re-
supply decisions regarding order
quantities, shipping, and timing.
 Transactions customarily initiated by
Wal-Mart (like purchase orders) are
initiated by P&G instead.


Successful VMI initiatives
 VMI is key in grocery industry’s pursuit of
“efficient consumer response” and the
garment industry’s “quick response.”
 Successful VMI initiatives
 Campbell Soup
 Johnson & Johnson
 European pasta manufacturer Barilla SpA
 Shell Chemical
 General Electric
 Intel, and
 many others.


Core elements of ECR
 Efficient assortment – Product offerings should be
rationalized to better meet customer 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 to real customer
needs, and only after the impact on supply chain
performance has been considered.
 Efficient promotions – Prices should be kept as
stable as possible. The supply chain impact of
promotions and market specials should be carefully
considered.
 Efficient replenishment – All physical and
information flows that link producers to the consumer
should be streamlined to cut costs and increase
value.
http://scm.ncsu.edu/public/cpfr/ last accessed 23 April 2007.


 CPFR extends ECR’s business
processes to include:
 Information systems for capturing and
transferring POS, inventory, and other
demand & supply information between
trading partners
 Formalized sales forecasting and order
forecasting processes
 Formalized exception handling processes
 Feedback systems to monitor and improve
supply chain performance
http://scm.ncsu.edu/public/cpfr/ last accessed 23 April 2007.


ECR Evolved into CPFR
 In 1994, Wal-Mart extended CRP by
providing its sales forecasts to the vendors.
This is called the Co-managed Inventory
Program
 CFAR, 1995/1996
 Wal-Mart initiated a co-managed inventory effort
with Warner-Lambert called CFAR.
 Wal-Mart asked Voluntary Interindustry
Commerce Standards Association (VICS) to study
and develop an industry-wide process around this
proprietary practice to create a more productive
supply chain.


 1996, CPFR®
(Collaborative, Planning, Forecasting, and
Replenishment) pilot between Wal-Mart and
Warner Lambert.
 CPFR®
 A globally interoperable commerce standard
 Value chain partners co-ordinate plans to reduce
the variance between supply and demand and
share the benefits of a more efficient and effective
supply chain (Ashcroft 2003).
 Adopted by numerous other industries
 Apparel, automotive and high tech.
 Supported by the Global Commerce
Initiative, ECR Europe, ECR Brazil, ECR Colombia
and many other international organizations.


 1998, VICS released first CPFR® guidelines
at Retail Supply Chain Business Conference.
 Guidelines provide holistic approach to
collaborative supply chain management
among a network of trading partners.
1. Begins with agreement between trading partners
to develop a market specific plan, based on sound
category management principles that
collaboratively leverage each partner’s resources,
using one of four deployment scenarios.
2. Together the trading partners develop a single
shared demand forecast plan and then a
supporting order forecast plan.
3. Finally, the order forecast plan is converted into
actual orders.


 CPFR® Premise
 Allow trading partners 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.
 Nine-step process
 Adopted by leading retail and consumer
goods Internet trading exchanges such as
 WWRE, GNX, Transora, and Novopoint
 UCCnet and ebXML have incorporated this
collaborative commerce process model into their
open standards infrastructure environment.


 CPFR® Roadmap and many research and case studies
of pilot projects published under guidance of the
VICS CPFR® Committee
 The Committee provides leadership and standards on
implementing CPFR®
 About 500 companies now active at some level of
CPFR® implementation (AMR Research)
 VICS CPFR® Matrix, 2001
 A list of firms engaged in VICS CPFR® trading
partnerships published by MoonWatch Media Inc.
 Two listings, one sorted by seller (supplier) and the
second by buyer (retailer)
 Related systems vendors and public exchanges have
been included to provide further resources that support
VICS CPFR® trading partnerships.


CPFR® Initiative Participants

Staples
SARA LEE
JCPenney
Federated Dept. Stores Kimberly Clark

Mead
School & Office
VF Corp.

CPFR® Initiative Participants

Apparel Group May Department Stores
Benchmarking Partners Inc. Mead School & Office
Corning Consumer Products Nabisco
DAMA Project Nestle-Canada
Ernst & Young LLP Pillsbury
Federated Department Stores Procter& Gamble
Fieldcrest Cannon QRS
Goody’s Family Clothing Sara Lee
Hewlett Packard Schnucks
JC Penney Spiegel
Johnson & Johnson Staples
Kimberly-Clark Uniform Code Council
Kmart Wal-Mart
Levi Strauss & Co. Warner-Lambert
Lucent Technologies

The CPFR® Opportunity
 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.


CPFR Benefits

More effective inventory management
Improved customer service
Improved profitability

Typical CPFR® Benefits
Typical
Retailer Benefits Improvement
Better Store Shelf Stock Rates 2% to 8%
Lower Inventory Levels 10% to 40%
Higher Sales 5% to 20%
Lower Logistics Costs 3% to 4%
Typical
Manufacturer Benefits Improvement
Lower Inventory Levels 10% to 40%
Faster Replenishment Cycles 12% to 30%
Higher Sales 2% to 10%
Better Customer Service 5% to 10%
Source: AMR Research (2001)

CPFR Benefits: Demand
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 fruition on business plan, base,
and promotional forecasts.
 Continual CPFR meetings strengthen this
relationship.
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.


3. Category Management
 Before beginning CPFR, both parties inspect shelf
positioning and exposure for targeted SKUs to
ensure adequate days of supply, and proper
exposure to the consumer.
 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: Supply
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 vs. either stand-alone VMI/CRP or other
industry tools.
2. Inventory Reductions
 CPFR helps reduce forecast uncertainty and
process inefficiencies.
 How much inventory does your company hold to
“cover up” for forecasting errors or a trading
partner’s inability to have the product available in
a timely manner?
 With CPFR, product can be produced to actual
order instead of storing inventory based on
forecast.


3. Improved Technology ROI
 Through the CPFR process, technology
investments for internal integration can be
enabled with higher quality forecast information.
 Your company will benefit by driving internal
processes with common, high-quality data.
4. Improved Overall ROI
 As other processes improve, the return on
investment from CPFR 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.


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