Collaborative Planning, Forecasting and Replenishment (CPFR) is defined as a business practice that combines the intelligence of multiple trading partners in the planning and fulfillment of customer demand. Since the 1998 publication of the Voluntary Interindustry Commerce Solutions' VICS CPFR guidelines, over 300 companies have implemented the process. These projects have documented in-stock percentage improvements between 2% to 8% for products in stores. Inventory reductions have been reported between 10% and 40% across the supply chain.
The release of 2004 VICS CPFR guidelines introduced a set of scenarios intended to further guide participants in the design of VICS CPFR programs:
1. Retail Event Collaboration: Trading partners develop a collaboration strategy and a joint business plan for promotions, typically on an annual or quarterly basis. The trading partners then work together to determine the impact of planned events on consumer demand and retail distribution. As events occur, promotional orders are made, and delivery takes place. Then the event is executed in stores. Along the way, exceptions related to event planning or execution may be identified and resolved. The process concludes with an evaluation of event performance.
2. DC Replenishment Collaboration: Conventional replenishment typically calculate order requirement in a short lead-time horizon. A single trading partner entity manages the entire process. By contrast, DC Replenishment Collaboration offers a joint order commitment process at multiple horizons beyond a single lead-time. DC Replenishment Collaboration enables manufacturers to adopt a make-to-demand policy, while allowing retailers to minimize their inventory liability and stock-out risks. Trading partners typically collaborate on DC withdrawal forecasts, manufacturer-to-retailer DC forecasts, or both. The outputs of collaboration is an order or series of orders that are committed over a time period. The buyer and seller support order generation with their buying/re-buying and production and supply planning organizations respectively. DC replenishment collaboration extends the replenishment process beyond the buyer's DC and seller's finished goods warehouse to encompass all the nodes in the supply chain. The benefits include: greater visibility to improve replenishment accuracy; out-of-stock reduction; overstock reduction; production capacity aligned to meet customer demand. DC replenishment collaboration also seeks to increase the efficiency of the flow of products between trading partners, especially in supply chains that have long supply cycles; heavy, bulky or regulated goods; or complex transportation requirements. Product flow benefits include optimized order quantities that minimize the operations cost of picking, loading, and unloading and product put-away.
3. Store Replenishment Collaboration: This scenario leverages the insights of both the retailer and manufacturer to drive an optimal replenishment plan. Trading partners typically collaborate on store point of sale (POS) forecasts. Other collaboration points that influence replenishment include: (i) store clustering; (ii) replenishment parameters; (iii) presentation stock; (iv) assortment optimization. The outputs of collaboration is an order or series of orders that are
committed over a time period. The buyer and seller support order
generation with their buying/re-buying and production and supply
planning organizations respectively. Store collaboration is focused on the closest link to the consumer and consequently directly influences shelf availability. The benefits attributed to the Store Replenishment Collaboration include greater visibility to consumer take-away, improved replenishment accuracy, improved instocks, overstock reduction, and improved promotional execution. Trading partners have a direct view of how consumers are responding to new products, existing shelf distribution, and promotional take-away. Manufacturers and upstream suppliers leverage this information throughout the supply chain for improved operational execution.
4. Collaborative Assortment Planning: This is a process that allows retailers and suppliers to better coordinate their merchandising decisions to drive maximum profitability for both constituencies. Trading partners jointly develop an assortment plan, which contains both visual representation of the product and financial models. The output of this collaboration process is a planned purchase order containing item commitments at the Universal Product Code (UPC) style/color/size level for each delivery point in the retailer's enterprise. The planned order is electronically shared in advance of a market or show, where sample products are viewed by the buyer and seller and final merchandising decisions are made.
Source: Andraski, J. C.; Smith, L., "Implementing Successful Large Scale VICS CPFR," CSCMP Explores...Volume 5, Fall 2008