CPFR – Collaborative Planning, Forecasting und Replenishment
CPFR stands for Collaborative Planning, Forecasting and Replenishment and is a further development of Efficient Consumer Response (ECR), known from supply chain management. CPFR requires that all information along the value chain be compiled by all participants and made available to all participating partners ‘without exception’. In this context, the forecasts and empirical values of the collective play a particularly important role. Participants are usually suppliers, manufacturers, trading partners (distribution, retailers) and marketing. As with ECR, the consumer is the focus of this collaboration.
The key difference between CPFR and ECR is that, with CPFR, all suggestions for improvement and initiated process changes regarding the information must be jointly supported by all parties involved. The goal is not just to keep data up to date and replace outdated data; rather, the improvement in data quality (see also smart data) must be measurable. Furthermore, one-sided adjustments are not allowed. In particular, strong fluctuations in demand (on the customer side – see also bullwhip effect) should be counteracted even more effectively.
Note: The Collaborative Planning, Forecasting and Replenishment network was developed by the VICS (Voluntary Interindustry Commerce Solutions) committee and is part of the GS1 network.
Supply chain collaboration using CPFR integrates not only inventory data but also planning and forecasting data into the process. This means that sales forecasts are exchanged and continuously updated between business partners as part of CPFR. This joint alignment of the planning and forecasting processes reduces the total amount of safety stock within the logistics chain, as closer cooperation reduces planning uncertainties.
GS1 Austria GmbH / ECR Austria
Cooperative data ownership: Vendor-Managed Inventory
CPFR generally relies on the integration of existing ECR approaches, in which, however, some modules (e.g. inventory management, replenishment, POS sales) are not voluntarily used by all participants or not made accessible to others across companies. CPFR tries to avoid this process isolation. One example is the inventory management measure, also known as the VMI model. Vendor Managed Inventory (see also disadvantages of CPFR) enables the supplier or manufacturer to better coordinate stocks with the customers. Suppliers or manufacturers use this data to determine stock levels, refill times and delivery, and thus have control over the inventory data of the respective customer (retailer, point of sale)*.
A VMI partnership, which requires a high degree of cooperation that goes far beyond the mere sharing of information, offers a number of advantages for both parties.
Advantages of CPFR based on the Vendor-Managed Inventory process
- Reduces redundant safety stocks (replenishment).
- Standardized ordering, order processing and other processes.
- Long-term business relationships.
- Customers do not automatically trigger a disposition by placing an order.
- Planning security in production planning for the supplier/manufacturer.
- Reduction of freight costs when optimizing batch sizes and delivery intervals.
- Reduction of the bullwhip effect and missing parts when stocks are permanently monitored.
Disadvantages of CPFR based on the vendor-managed inventory process
- Suppliers are given access to external operating data by means of the so-called ‘Vendor-Managed Inventory Process’.
- Medium to long-term partnership between all parties involved is necessary.
- Very high technical effort is required, since hardware and interface compatibility must be ensured.
- If the network of partners changes due to a change of supplier, additional costs may arise for all parties involved (additional hardware, development of new interfaces).
Summary of ‘Collaborative Planning, Forecasting and Replenishment’
CPFR requires all business partners involved to be willing to control the planning, forecasting and replenishment processes together and to disclose what is actually company-specific information to the partners. In the long term, CPFR leads to improved cooperation between manufacturers, suppliers and retailers. The decisive factor here is the linking of the strategic, tactical and operational sub-processes. Possible sources of information include internal business plans, data on past sales promotions (marketing), POS sales figures (see also key figures), inventory data (inventory management) and the respective know-how (empirical values) on assortment, product and customer. However, this kind of information transparency can weaken the individual company (see disadvantages of CPFR).
Dr. Kai Riemer, Westfälische Wilhelms-Universität Münster / Enzyklopaedie der Wirtschaftsinformatik
For more information, see also Cross-company supply chain planning and Costs of missed opportunities in supply chain management.
Teaserbild: TUP / public domain