CPFR

1
CPFR

• Henry C. Co
• Reference
• CPFR for Beginners, M. Johnson (Syncra Systems)
  and L. Roth (Kimberly-Clark).

2
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 consumers wishes
better, faster and at less cost by improving
business process efficiency and reducing waste.
3
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.
4
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
5
Out of Stocks Translate into 3.1 Loss in Sales
to Retailer
This does not take into account other intended
purchases lost at time of the visit
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
6
Out-of-Stocks result in 4-5 Loss in Sales to
Manufacturer
8.2
6.5
1.5
This does not take into account other intended
purchases lost at time of the visit
5.0
Source Retailer Operating Data, Prism Partner
Store Audits, Coca Cola Retail Council
Independent Study, 1996
7
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
8
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 childs play.

• www.intrinsicvaluechain.com

9

• 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.

10

• 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.

11
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.

12
A Brief History

• CPFR evolved from Efficient Consumer Response
  (ECR).
• ECR Improve supply chain performance through
  better coordination of marketing, production, and
  replenishment activities.

13

• 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, PG 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.

14
The VMI program

• PG makes the main inventory replenishment
  decisions for Wal-Mart.
• PG monitors Wal-Marts 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 PG
  instead.

15
Successful VMI initiatives

• VMI is key in grocery industrys pursuit of
  efficient consumer response and the garment
  industrys quick response.
• Successful VMI initiatives
• Campbell Soup
• Johnson Johnson
• European pasta manufacturer Barilla SpA
• Shell Chemical
• General Electric
• Intel, and
• many others.

16
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.
17

• CPFR extends ECRs 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.
18
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.

19

• 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.

20

• 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.
• Begins with agreement between trading partners to
  develop a market specific plan, based on sound
  category management principles that
  collaboratively leverage each partners
  resources, using one of four deployment
  scenarios.
• Together the trading partners develop a single
  shared demand forecast plan and then a supporting
  order forecast plan.
• Finally, the order forecast plan is converted
  into actual orders.

21

• 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.

22

• 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.

23
CPFR Initiative Participants
Staples
SARA LEE
JCPenney
Federated Dept. Stores
Kimberly Clark
Mead School Office
VF Corp.
24
CPFR Initiative Participants
Apparel Group Benchmarking Partners Inc. Corning
Consumer Products DAMA Project Ernst Young
LLP Federated Department Stores Fieldcrest
Cannon Goodys Family Clothing Hewlett Packard JC
Penney Johnson Johnson Kimberly-Clark Kmart Levi
Strauss Co. Lucent Technologies
May Department Stores Mead School
Office Nabisco Nestle-Canada Pillsbury Procter
Gamble QRS Sara Lee Schnucks Spiegel Staples Unifo
rm Code Council Wal-Mart Warner-Lambert
25
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.

26
CPFR Benefits

• More effective inventory management
• Improved customer service
• Improved profitability

27
Typical CPFR Benefits
Source AMR Research (2001)
28
CPFR Benefits Demand

• 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.
• 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.

29

• 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.
• Improved Product Offering
• Before CPFR implementation, the buyer and seller
  collaborate on a mutual product scheme that
  includes SKU evaluation and additional product
  opportunities.

30
CPFR Benefits Supply

• 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.
• 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
  partners 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.

31

• 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.
• Improved Overall ROI
• As other processes improve, the return on
  investment from CPFR can be substantial.
• Increased Customer Satisfaction
• With fewer out-of-stocks resulting from better
  planning information, higher store service levels
  will prevail, offering greater consumer
  satisfaction.