Monday, February 24, 2014

CPFR – Collaborative, Planning, Forecasting and Replenishment Model

CPFR is a technique that combines intelligence of all the partners involved in a supply chain to plan and fulfill the customer demand. Main objective of is to increase the efficiency of the supply chain network by concentrating on reducing the inventory costs, transportation and logistics costs and increasing availability to the customer. It provides a framework which gives the flow of goods, services and information. CPFR aims at integrating all the players in a supply chain. In CPFR all the suppliers and retailers share their information and this information helps in forecasting the inventory in a better and more efficient way and making sure the inventory is constantly updated. It has evolved from an Open Source initiative called CFAR.

Walmart and P&G are some of the major companies using CPFR to optimize their supply chains. Some time back when one of P&G’s executives Mike Graen, who was a part of the Walmart team (P&G was among Walmart’s biggest supplier), was assigned to help the two companies become more efficient by using information technology and sharing information. The two companies shared their data and this benefited both of greatly and they made a $50 million swing in their profitability. This shows the power of collaborating and sharing information across the supply chain and how it can help all the organizations involved.

The CPFR Model
The key elements in the CPFR model are:
Strategy and Planning, Demand and Supply Management, Execution and Analysis

The steps involved in developing agreements for collaboration between the various partners
  • ·         Develop the Front End Agreement
  • ·         Create the joint business plan
  • ·         Create Sales Forecast
  • ·         Identify exceptions in the Sales Forecast
  • ·         Resolve or Collaborate on Exception Items
  • ·         Create Order Forecast
  • ·         Identify Exceptions in Order Forecast
  • ·         Resolve/Collaborate on Exception Items
  • ·         Order Generation

Challenges involved with CPFR
  • Since CPFR tries to integrate all the partners, their roles and responsibilities will have to be clearly defined. So selecting partners becomes tough.
  • As all the organizations share different goals and objectives, deciding on common goals and objectives is hard.
  • Preparing detailed plans for operations, inventory control and logistics will be a challenge.
  • Sometimes if one of the organizations is in a stronger position, that organizations might try to influence others to by applying pressure. For example Dell being a powerful company dictates its terms to the suppliers and they have to carry Dell’s inventory for them. So this also affects the CPFR.
  • When integrating all the partners in the supply chain, some of them might not be willing to share certain confidential information with the other partner and this is an additional challenge. This was the case with Herman Miller when their suppliers weren't willing to provide them with certain details which they required.
  • The change in culture required also is challenging. As the size of the supply chain increases, the harder it becomes to manage the culture changes needed.


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