Collaborative Planning Forecasting and Replenishment (CPFR) is a business practice that aims to fulfill consumer demand by combining the knowledge of multiple trading partners. It enables partners to electronically access information about one another’s demand, order forecast, and promotional data to anticipate and satisfy future demand. “The CPFR Reference Model provides a basic framework for the flow of information, goods, and services and can be applied to many industries, where collaboration participants, namely the buyer and seller, work together to satisfy the demands of the end customer, who is at the center of the model. The consumer creates the demand for goods and services while the retailer provides these goods and services. The manufacturer supplies the products to the retail stores as product demand is pulled through the supply chain by the end-user.”(Haag, 2006). The CPFR Process involves four (4) steps namely: Strategy & Planning which involves developing a Joint Business Plan which identifies the significant events that affect supply and demand in the planning period, Demand & Supply Management which entails sales forecasting and order planning, Execution which consists of order generation and fulfillment and Analysis which involves exception management and continuous and active monitoring and evaluation.
Advantages of using CPFR include increased revenue: i.e. reduction in stock-outs thus increasing sales, flexible relationships and deeper collaboration through interdependencies, joint systems & processes, increased accuracy in forecasting demand and replenishment plans which leads to lower inventory levels and safety stocks and decreases storage and financing costs, process efficiencies such as improved accuracy in forecasting and inventory control and transportation management which could include Less than Truckload (LTL) Consolidation, capacity utilization, demurrage, and tactical rate management.
Limitations of the CPFR model are distrust amongst the partners in sharing internal corporate data such as demand forecasts, the implementation might require a lot of money upfront, or a huge investment in technology and a fair amount of work e.g. meetings, conference calls and software training, differences in internal process changes could prove difficult, technical issues, such as complexity caused by the wide range of systems used by different partners since this creates an interoperability jigsaw, and since CPFR is relatively still a new concept, benefits may be difficult to calculate.
In summary, CPFR is a concept that is catching on with a lot of players in the retailing industry, and because the concept calls for the sharing of information and knowledge, suppliers will have to adopt the concept not only to gain the cost and revenue benefits accruing from it but also to be able to keep doing business with their customers who already are using the system. According to a study conducted on 130 individuals picked from 120 different companies by Syncra Systems and Industry Directions, 68% of them were actively involved in the piloting and rolling out of the CPFR model. As technology advances and businesses continuously realize that they no longer compete as enterprise entities but as supply chains, the need to gain a competitive advantage is gearing more retailers and manufacturers to take a look at CPFR and determine if they could soon be on the disadvantaged side.
The model assumes that partners clearly see the benefits of deeper collaboration and that their relationship will remain positive and organizations will shift to a consumer-centric, inter-enterprise orientation for successful implementation.
Reference
Haag, Stephen. Cummings, Maeve. McCubbrey, Donald. Pinsonneault, Alain. Donovan, Richard. (2006). Management Information Systems – for the Information Age. Toronto, Canada. McGraw-Hill Ryerson Publishing.