By Jerry Andrews
Collaborative Planning, Forecasting and Replenishment (CPFR) is an evolving business practice that seeks to reduce supply chain costs by promoting greater integration, visibility and cooperation between trading partners' supply chains.
The term trading partner can be applied to almost any combination of suppliers, manufacturers, distributors or retailers. CPFR itself is an outgrowth of earlier collaboration efforts like JIT (just in time), VMI (vendor managed inventory) and others.
The Voluntary Interindustry Commerce Solutions (VICS) Association has taken the lead role in defining a framework and guidelines for conducting CPFR. The VICS CPFR model outlines a general framework for CPFR that includes the following elements: Strategy and Planning, Demand and Supply Management, Execution, and Analysis.
Strategy and Planning encompasses the development of joint business plans and the terms of collaboration. Demand and Supply Management focuses on forecasting and order planning. Execution involves the generation and fulfillment of replenishment orders. Finally, Analysis addresses processes for exception management and scorecarding.
At present, CPFR represents the most encompassing, well-defined framework for enabling supply chain integration across organizational boundaries. Here are some of the factors that make CPFR appealing, as well as some of the reasons why it can be challenging — or in some cases, impractical — to implement and sustain.
Aligning Business Goals
The first step in initiating an effective CPFR relationship is also the most likely to derail the effort or result in suboptimal results or less-than-ideal partnership relations if not executed properly and thoroughly: Both organizations must perceive the initiative to be a win-win proposition.
Indeed, any collaborative agreements between potential trading partners must ensure that both parties share in potential cost savings and revenue enhancements. Necessary steps to ensure success for both parties include:
- Conducting joint visioning sessions to define the value proposition for both sides;
- Developing an overarching mission statement;
- Clearly defining roles, responsibilities and expectations; and,
- Preparing detailed operating plans (i.e., an established set of data, communication protocols and clearly defined business rules regarding partner roles/responsibilities, etc.)
Aligning business goals can be a challenging process, since it often means that business practices or processes that benefit one party must be discontinued or modified if they're not equally rewarding to a potential new collaborative partner. Examples include the practice of so-called "channel stuffing," wherein a retailer or distributor is persuaded to periodically absorb larger-than-needed replenishment orders to help a supplier or manufacturer achieve key business objectives, like a quarterly revenue goal. In collaborative alliances, mutually agreeable metrics and shared inventory goals/targets would make such practices impractical.
In other cases, companies that require front-end agreements, often with financial incentives and penalties tied to performance, may have trouble finding willing suppliers. Powerful organizations like big-box retailers are notorious for strong-arming trading partners by applying punitive financial measures like charge-backs or other punishments like shelf-space reductions when suppliers fail to meet agreed-upon metrics. Such requirements can leave many potential partners reluctant to engage in CPFR. Suppliers who find themselves faced with the choice of engaging in CPFR alliances burdened by such disincentives should think twice before entering such agreements.
Supply Chain Maturity
Another very important factor that will dictate a company's ability to engage in CPFR is organizational readiness. Various models exist to define the maturity of organizational supply chains. Usually these models define discrete operational stages and generalize various states of supply chain planning capabilities within an organization. Each succeeding stage is defined by increasingly higher levels of collaboration, integration, process maturity and technological sophistication.