CPFR stands for Collaborative Planning, Forecasting and Replenishment and is a further development of Efficient Consumer Response (ECR), known from supply chain management. CPFR requires that all information along the value chain is brought together by all participants and is available to all participating partners ‘without exception’. The collective’s forecasts and empirical values play a particularly important role here. Participants are usually suppliers, manufacturers, trading partners (distribution, dealers) and marketing. As with ECR, the consumer is the focus of this cooperation.

The decisive difference between CPFR and ECR is that with CPFR, all suggestions for improvement and initiated process changes, in terms of information, must be shared by all those involved. The aim is not only to keep data up to date and replace outdated data; rather, the improvement in data quality (see also Smart Data) must be measurable. Unilateral adjustments are also not permitted. Especially strong fluctuations in demand (on the customer side – see also Bullwhip Effect) should be counteracted even more effectively by this means.

Note: The Collaborative Planning, Forecasting and Replenishment network was developed by the VICS (Voluntary Interindustry Commerce Solutions) committee and is part of the GS1 network.

In supply chain interaction using CPFR, not only inventory data, but also planning and forecast data are integrated into the process. This means that within the framework of CPFR, sales forecasts are exchanged between business partners and continuously updated. This joint alignment of the planning and forecasting processes reduces the total amount of safety stock within the logistics chain, as the closer cooperation reduces planning uncertainties.

GS1 Austria GmbH / ECR Austria

Cooperative Data Sovereignty: Vendor-Managed-Inventory

CPFR generally relies on the integration of existing ECR approaches. However, some modules (e.g. inventory management, replenishment, POS sales) are not used voluntarily by all participants or are not made accessible to others across companies. CPFR tries to avoid this process of isolation. An example is the inventory management measure, also called VMI model. Vendor Managed Inventory (see also Disadvantages CPFR) enables the supplier or manufacturer to better coordinate inventories with customers. Based on this data, suppliers or manufacturers determine the stock quantity, replenishment time and delivery and thus have control over the inventory data of the respective customer (dealer, point of sale)*.

A VMI partnership, which requires a high degree of cooperation far beyond mere information sharing, results in a number of advantages for both parties.

Advantages of CPFR based on the Vendor-Managed Inventory process

  • Double safety stocks (replenishment) are reduced.
  • Standardized ordering procedures, order handling and processes.
  • Long-term business relationships.
  • Customers do not automatically trigger a disposition by placing an order.
  • Planning reliability in the production planning of the supplier/manufacturer.
  • Reduction of freight costs while optimizing batch sizes and delivery intervals.
  • Reduction of the bullwhip effect and of missing parts with permanent monitoring of the stocks.

Disadvantages of CPFR based on the vendor-managed inventory process

  • Suppliers are given access to external operating data by means of the so-called ‘Vendor-Managed Inventory Process’.
  • Medium to long-term partnerships between all parties involved are necessary.
  • A great technical effort is required since hardware and interface compatibility must be ensured.
  • If the partnership network is altered by a change of suppliers, additional costs may arise for all parties involved (additional hardware, development of new interfaces).

Summary of ‘Collaborative Planning, Forecasting and Replenishment’

CPFR requires the willingness of all business partners involved to jointly control the planning, forecasting and stockholding processes and to disclose the actual company-specific information to the partners. In the long term, CPFR leads to improved cooperation between manufacturers, suppliers and vendors. Crucial to this is the linking of strategic, tactical and operational sub-processes. Possible sources of information are internal business plans, data on past sales campaigns (marketing), POS sales figures (see also key figures), inventory data (inventory management) and the respective know-how (empirical values) on assortment, product and customer. However, this type of information transparency can weaken the individual company (see disadvantages CPFR).

*Dr. Kai Riemer, Westphalian Wilhelm University of Münster / Encyclopaedia of Business Informatics

For more information, see also ‘Cross-company Supply Chain Planning‘ and ‘Costs of Unused Opportunities in Supply Chain Management‘.

Teaserimage: TUP / Public domain

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