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Executive Summary
Collaborative Planning, Forecasting and Replenishment (CPFR) is a business process or practice that combines the intelligence of multiple businesses or trading partners in the planning and fulfillment of consumer demand. CPFR can be applied to any industry that has a supply chain and brings about significant benefits like reducing inventory, transportation and logistics costs. While CPFR provides an innovative way for companies to manage demand and inventory optimally there is significant amount of intelligence about Supply Chain, Category Management that can be derived by using Business Intelligence in CPFR processes. This article gives an introduction to CPFR model and then dives into the sub processes where Business Intelligence can provide significant benefits to organizations and their trading partners. It also provides on overview of BI collaboration architecture that can be utilized by trading partners for information dissemination.
CPFR - Background
A common business requirement across industries like Retail, Hard Goods, Consumer Packaged goods (CPG) is to optimally manage the supply chain as well as meet the consumer demand. Collaborative Planning, Forecasting and Replenishment (CPFR) emerged as a standard based on the guidelines defined by the Voluntary Interindustry Commerce Standards (VICS). Some key facts about CPFR -
CPFR Model
The CPFR reference model provides a framework for planning, forecasting and replenishment process. Figure below represents the framework components. A buyer and a seller work as Collaboration Partners and work together to satisfy the customer demand which at the centre of the model.
Figure 1 – VICS CPFR Model (Source VICS)
1. Strategy & Planning – Establish the rules for collaborative relationship. Determine the product mix and develop event plans for the period.
2. Demand and Supply Management – Project consumer (POS) demand, as well as order and shipment requirements over the planning period.
3. Execution – Place orders, prepare and deliver shipments, receive and stock products in retail stores, record sales transactions and make payments.
4. Analysis – Monitor planning and execution activities for exception conditions. Aggregate results and calculate KPI’s. Share insights and adjust plans for better performance.
5. The CPFR model can be extended to include supplier as well. The Suppliers would be represented in the outer periphery implying that they supply to manufacturers.
CPFR Tasks in Detail CPFR Activity CPFR Task Trading Partners
To understand in greater detail what businesses and their trading partners need to plan as part of their collaboration activities we need to analyze the tasks under each of the four identified Collaboration Activities. The collaborations tasks and their mapping to collaboration activities is given in the table below –
Table A – CPFR Activity Task Mapping
Strategy & Planning Collaboration Arrangement Joint Business Plan Manufacturer, Retailer Demand & Supply Management Sales Forecasting
Order Planning/ForecastingManufacturer, Retailer Execution Order Generation
Order FulfillmentManufacturer, Retailer Analysis Exception Management
Performance AssessmentManufacturer, Retailer
Figure 2 – CPFR Model – Collaboration Tasks (Source VICS)
Each of the collaboration tasks are identified in more detail –
Collaboration Arrangement – is the process of defining business objectives & goals for the trading partners, defining the scope of collaboration with roles and responsibilities.
Joint Business Plan – identifies significant events that can impact supply and demand during the planning period. Examples of such events are introduction of new products, promotions, inventory policy changes and store openings/closing.
Sales Forecasting – Sales Forecasting deals with forecasting consumer demand at the Point of Sale.
Order Planning/Forecasting – forecasts future products orders and delivery requirements based on the Sales Forecast, inventory position, transit lead times, safety stock levels etc.
Order Generation – this transitions forecasts to actual demand.
Order Fulfillment – deals with the process of producing, shipping, delivering and stocking products for consumer purchases.
Exception Management – deals with monitoring of planning and operations for exception conditions or out of bound conditions.
Performance Assessment – deals with calculation of KPIs that evaluate performance with respect to business goals, gather insights about performance trends and develop alternate plans to counter situations.
The collaborations tasks can be further divided into Manufacturer and Retailer tasks.
Figure 3 – Manufacturer and Retailer Tasks in CPFR Model (Source VICS)
| Retailer Task | Collaboration Task | Manufacturer Task |
| Strategy & Planning | ||
| Vendor Management | Collaboration Arrangement | Account Planning |
| Category Management | Joint Business Plan | Market Planning |
| Demand & Supply Management | ||
| POS Forecasting | Sales Forecasting | Market Data Analysis |
| Replenishment Planning | Order Planning/Forecasting | Demand Planning |
| Execution | ||
| Buying/Re-buying | Order Generation | Production & Supply Planning |
| Logistics/Distribution | Order Fulfillment | Logistics/Distribution |
| Analysis | ||
| Store Execution | Exception Management | Execution Monitoring |
| Supplier Scorecard | Performance Assessment | Customer Scorecard |
Table B – Manufacturer and Retailer Tasks
The retailer’s aspects of the CPFR process are covered by Retailer Tasks and similarly the manufacturing aspects of the CPFR process are covered by Manufacturer tasks.
Business Intelligence in CPFR
Implementing CPFR in organizations involves not only co-operation at process level across trading partners but also involves close co-operation in IT systems and information exchange standards. This throws up numerous opportunities in the Business Intelligence and Performance Management area that trading partners can leverage to plan better and monitor and analyze their performance from the multiple perspectives of Retailer and Manufactures Tasks.
As shown in the previous section implementing CPFR implies that trading partners will collaborate on strategic information that optimizes the supply chain making the inventory lean as well as helping manage and services sales demand more optimally. The CPFR model represents 4 key parts – Strategy & Planning, Demand and Supply Management, Execution and Analysis. All these parts in turn are comprised of Manufacturer and Retailer tasks and Collaborative tasks. Each of these tasks presents significant Business Intelligence and Performance Management opportunities that organization can tap to measure their Supply Chain efficiencies as well as measure of strategic plans and how well these plans are being executed and monitored.
Vendor Management – Vendor Management is the one of key focus areas for retailers. Vendor Management usually deals with analyzing Vendors/Suppliers on the following performance indicators –
- Average spend on each vendor
- Vendor SLA Performance based on timeliness and delivery accuracy
- Assortment of Products bought from different vendors.
- Vendor Consolidation opportunities.
- Average loss/wastage from each vendor
Retail organizations can gain substantial advantages both from cost as well as operational efficiency from Vendor Management KPI’s.
In a collaborative environment like CPFR it is important to understand that some of the Vendor Management performance indicators can be shared with the Manufacturers to enable them to analyze the feedback and build the corrective steps in their operations cycle.
Category Management - Category Management is crucial to measure the success of retail categories and focusing on the correct product mix in stores to ensure optimal sales and as well manage inventory. Category Management focuses on the following indicators –
Account Planning – Account Planning deals with the Manufacturers perspective of different Retail organizations/Accounts that it services by selling manufactured products. Account Planning focuses on the following indicators –
Market Planning – Market Planning deals with the Manufacturer having a good understanding of Markets that it services. For instance if a Manufacturer manufactures Fast Moving Consumer Goods it is key to understand the seasonality of certain products and the demand fluctuations across seasons. From a geographical perspective markets may vary in terms of timing of promotions, products launches etc. Market Planning focuses on the following indicators –
POS Forecasting – POS forecasting is crucial to measure the accuracy of future demand that will help Retailers in managing Demand as well as controlling Inventory levels. POS forecasting can be achieved by either buying POS data from syndicated data sources (Like AC Nielsen) or through in house POS systems. POS Forecasting focuses on the following indicators –
Replenishment Planning – Replenishment Planning is crucial to ensure that stocks of Products are replenished in order to meet the Demand as well as ensure that the Inventory carrying costs are minimal. Replenishment Planning focuses on the following indicators –
Market Data Analysis – Market Data Analysis is crucial for Manufacturers to understand the current Sales trends based on Sales data provided by external data providers. Market Data Analysis focuses on the following indicators –
Demand Planning – Demand Planning is crucial to Manufacturers in responding to orders coming from Retailers to replenish their stock which implies a good understanding of Demand forecasting. Demand Planning focuses on the following indicators –
Buying/Re-buying – Buying/Re-buying is crucial as it determines the point at which Retailers either order for new products or re-order existing products when the inventory levels are close to Safety stock levels. Retailers need to focus on the following indicators from a Buying perspective –
Logistics/Distribution – Logistics and Distribution from a Retailer’s perspective deals with ensuring that products are delivered timely from Warehouses and Distribution Centers to individual stores. Logistics and Distribution from a Retailer’s perspective focuses on the following indicators – Logistics Cost – this is important as Retailers usually outsource logistics to 3rd party providers
Production and Supply Planning – Production and Supply Planning is crucial for Manufacturers to ensure they are able to address the supply needs of Retailers generated through Purchase Orders. Production and Supply Planning focuses on the following indicators –
- Logistics Cost – this is important to Manufacturers as they outsource their logistics and distribution function to 3rd party providers
- Internal Costs – costs incurred by the Manufacturer in handling the Logistics and distribution management
- Understand Logistics/Distribution SLA’s to meet Retailer requirements and measure 3rd Party execution efficiency
- Analyze impact on Failed SLA’s on Inventory Costs at Manufacturer end.
Store Execution – Store Execution is crucial to measure the success of a Retailer in selling the product assortment, have optimal inventory to prevent Stock outs as well as ensure that the wastage is minimal and labor force is used optimally. Store Execution analysis is the key to success for any Retailer. Some of the key performance indicators from a Store perspective are -
- Sales per Square Feet
- Sales compared to Last Year
- Wage Cost as % of Sales
- Average Sale Per Customer/Transaction
- Sales Per Hour (per store) – for selling hours only
- Sales Per Hour (per store) – for Labor hours only
- Average Time spend in store
- Average Waste per SKU
- Waste as a % of Sales
Supplier Scorecard – Supplier Scorecard is crucial to Retailers to measure and analyze Supplier/Vendor performance. It is also important from a CPFR perspective that Retailers provide the timely feedback to Suppliers (Manufacturers and Logistics providers) to ensure that the collaboration works well for both the trading partners. Supplier Scorecard focuses on the following indicators – Supplier Scores and criteria can be published via Scorecards and Dashboards not only for Internal Management consumption but also can be published to Suppliers and Vendors through Corporate Portals.
Execution Monitoring – Execution Monitoring is crucial to Manufacturers to analyze their operational performance from different perspectives like Inventory Management, Production Planning and Execution, Labor Productivity, Manufacturing Efficiency and Plant Utilization. Category Management focuses on the following indicators –
- Revenue per employee
- Revenue per square foot
- Cash to Cash Cycle Time in days
- Inventory Lost due to Wastage %
- Capacity Utilization %
- Inventory Costs
- Manufacturing cycle time
- Average Days Total Inventory
- On Time Delivery to Purchase Order
- Average Hours Overtime Per Week
- Stock Out Ratio
- Average Order Execution Time
- Planned versus Emergency Maintenance
Manufacturers can in turn share some of the metrics like Average Order Execution Time, Manufacturing Cycle time that can help Retailers plan their collaborative process based on better understanding of the entire supply chain metrics.
Customer Scorecard – Customer Scorecard is crucial to Manufacturers measure the customer satisfaction (Retailers) as well as average turnover and order frequency from Retailers. Some of the key performance indicators for Customer Scorecard would be -
It can help is understanding Customer needs by segment and modify plans based on the insights.
BI Architecture for CPFR Implementations
While Business Intelligence can bring significant value to trading partners implementing Collaborative, Planning and Forecasting supply chains it is also important to understand how a scalable BI Architecture can help trading partners in leveraging BI solutions to maximize business performance and take timely decisions based on analytics. The architecture is generic and can be applied to both Manufacturer as well as Retailer.
Figure 4 - Architecture for Operational and Analytical Reporting
The key components of the Architecture are ODS which can be used for Operational Analytics and Reporting while the Data Mart/Reporting Layer is involved in Analytical reporting. This represents the different components of the Technical Architecture but it is also important to understand the collaboration aspects in the BI Architecture which is represented below in terms of the trading partners (Retailer and Manufacturer).
Figure 5 – BI Collaboration Architecture (assuming Microsoft as the BI Suite)
BI vendors that provide end to end capabilities can serve as good implementation choices for collaboration architectures as in CPFR. This helps in technology standardization between the trading partners as well as ensures the total cost of ownership is manageable.
Collaboration BI Architecture needs to have a de-militarized zone to ensure that users accessing across the internet and outside the company network are authenticated and authorized before accessing information.
Conclusions
In concluding we observe the following trends
- With global supply chains Collaborative, Planning and Forecasting is fast catching up among Retailers and Manufacturers.
- Business Intelligence can bring about significant benefits in every part of the supply chain in a CPFR model and can help both trading partners (Retailers and Manufacturers) in analyzing information and deriving process efficiencies and cost optimization.
- Business Intelligence implementations in CPFR implementations need to take care of data security issues as both partners would need access to common data stores and BI implementation architecture has to take into account the points of collaboration.
References:
VICS CPFR – Committee http://www.vics.org/committees/cpfr/
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