Collaborative Forecasting in a Supply Chain

“No one can whistle a symphony. It takes a whole orchestra to play it.”

— H.E. Luccock

Various entities in a Supply Chain are constantly seeking to enhance the value proposition of the supply chain by adopting various strategies to tackle the uncertainty in demand forecasting. The last decade has seen an escalation in the amount of information that is at the disposal of organizations. A conducive way for them to leverage this information is through the use of an approach known as collaborative forecasting, where different echelons of the supply chain share information and deduce a common demand forecast to manage consumer demand and replenishment of inventory.

Simply putting it, Collaborative Planning, Forecasting, and Replenishment (CPFR) is a holistic, cross-industry forecasting model that facilitates using mutual practices and approaches to share information and manage consumer demand efficiently.

    Here's a small video that explains this:

https://www.youtube.com/watch?v=KMrdJvX6HwM

The roots of CPFR date back to the mid 1990s when Warner-Lambert, a pharmaceutical company had problems coping up with the fluctuation in sales in Walmart stores due to Walmart’s promotional activities. The fear of losing revenue due to running out of stock caused Warner Lambert to have a large inventory, which was not feasible. Walmart and Warner-Lambert, along with SAP and Manugistics, two software companies, undertook this project to handle customer demands and inventory replenishment, which was a big success.   

Collaborating between various nodes of a supply chain leads to a more accurate forecast, since various levels of the supply chain have different insights and analysis regarding market demand. Sharing this information and developing a common forecast throughout the supply chain can result in advantages like reduced inventory, higher sales and lower logistics cost among others. It also creates a better understanding between organizations and can help tackle issues and challenges better.

The eight major tasks involved in the CPFR model are primarily divided into the following four domains of activities:

Strategy and Planning

1. Collaboration Arrangement

2. Joint Business Plan

Demand and Supply Management

3. Sales Forecasting

4. Order Planning/Forecasting

Execution

5. Order Generation

6. Order Fulfillment

Analysis

7. Exception Management

8. Performance Assessment

In my opinion, CPFR does come with its set of challenges, one of which is that of selecting the right partner to collaborate with. Different players in the supply chain may have different targets that they need to focus on and may perform their analysis based on these targets. Reaching a consensus on a forecast that is viable for all parties involved may be difficult. In addition, cultural, political and geographic differences sometimes make it difficult for traders to collaborate easily. Another issue that needs to be looked into is the sharing of information between partners in the supply chain. Sometimes, and it is critical for organizations to share data that may be confidential to them in order to accurately forecast demand, which makes collaboration challenging. However, proficient use of technology can facilitate collaboration between supply chain entities and act as an enabler for conducive growth of the CPFR initiative.

Although still in its nascent stages, CPFR has the potential to be a catalyst that transforms traditional discrete supply chains into more cohesive and interactive supply networks.

Certain questions are raised while pondering over the idea of collaborating in a supply chain:

• How easy or difficult is it for organizations to collaborate on forecasting and share possibly sensitive data with others in the supply chain?
• Can CPFR be used in every supply chain and is it always better than traditional isolated forecasting?
• Will collaborative forecasting always benefit all the parties involved, especially when the objectives of retailers and manufacturers differ?

           

  

   References:

1.   http://www.socialsupplychains.com/wp-content/uploads/2013/05/CPFR.png

2.   http://www.ukessays.com/essays/business/define-collaborative-planning-      forecasting-and-replenishment-business-essay.php

3.   http://www.businessweek.com/adsections/chain/2.1/cpfrmeans.html