CPFR – COLLABORATIVE PLANNING: SEEKING COST REDUCTION AND INCREASING THE LEVEL OF SERVICE

Historically, the relationship pattern between customers and suppliers in supply chains has been characterized by a distant, individualistic, or even conflicting behavior, where each company focuses attention on its own activities, planning and executing its operations in isolation and not cooperative. However, the increasing pace of competition around the world, caused by trade opening processes, deregulation, and the increase in international trade, has led companies to review their old relationship practices.

As a result of their effort to cut costs, increase efficiency and gain competitive advantage, companies are being led to relate to other members of their supply chain in a different way, seeking opportunities for synergy within the Supply Chain. This new posture is characterized by cooperative behavior and the intensive exchange of information between the various members of the supply chain. Behind all this is the assumption that through greater visibility along the chain it is possible to achieve, simultaneously, substantial reductions in inventory and improvements in service levels.

In recent years, several initiatives have emerged with the aim of obtaining competitiveness gains through better management of the flow of information along the supply chains, based on intensive information technology, and the adoption of the concept of partnership by the various chain participants. Generically known as Rapid Response Programs (PRR), these initiatives encompass both operational procedures, such as CRP (Continuos Replenishement Program) and VMI (Vendor Management Inventory), and institutional programs, such as ECR (Efficient Consumer Response ) in the grocery products sector.

Both the CRP and the VMI seek, by making available information about sales and stock, a reduction in resupply time, thus creating a quick response to changes in demand from the final consumer, thus avoiding anticipatory movements based on forecasts of sales that are rarely confirmed. ECR, in turn, is a more comprehensive program that, in addition to quick response, is also aimed at managing categories, increasing the efficiency of promotions and launching new products.

The adoption of these initiatives by companies has resulted in substantial savings, as a result of both the reduction of inventories and the decrease in order processing costs. The Collaborative Planning, Forecasting and Replenishment (CPFR) is the most recent initiative in this sense, but with a specific focus on collaborative planning between companies participating in the supply chain. However, the CPFR should not be considered as a rapid response program. As the name implies, rapid response programs are intended to enable manufacturers and their retail customers to be able to react quickly to end-consumer demand, while achieving a reduction in existing inventory throughout the supply chain, and an increase in availability to the end consumer. CPFR also seeks a reduction in inventory levels combined with an improvement in service levels. However, while the PRRs seek this objective based on the flow of information on the real demand of the final consumer, the CPFR is based on the joint elaboration of sales forecasts and on a resupply planning, taking into account the existing limitations in the supply chain. supplies, whether from the industrial supplier or the retailer/distributor customer. In this way, CPFR differs from rapid response programs in that it is focused on sales forecasting and resupply / production planning processes, which makes it acquire a proactive stance in relation to final demand, in contrast to the logic reactive of PRRs.

DEFINITION AND OBJECTIVE

The CPFR can be defined as a set of norms and procedures supported by The Voluntary Interindustry Commerce Standards (VICS), a committee founded in 1986 and formed by representatives of several companies, with the objective of increasing the efficiency of Supply Chains, particularly in the retail sector, through the establishment of standards that facilitate physical and information flows.

Through this set of norms and procedures it is possible to create business processes in which manufacturers and retailers / distributors agree to establish common objectives, develop operational and sales plans and share these plans via electronic transmission, working together to generate and update forecasts. resupply sales. The intensity of communication between the companies means that, in the event of changes in final demand, caused by promotional campaigns or sales policies, joint plans can be adjusted immediately, thus minimizing the cost of correction. Through this joint planning, it becomes possible to synchronize the customer's purchasing cycle with the manufacturer's production cycle.

CPFR's central objective is to obtain, through shared planning, greater accuracy in sales forecasts and resupply plans. As a result, it becomes possible to reduce inventories along the supply chain and achieve high levels of service, which in turn tends to result in increased sales.

ADVANTAGES AND USE OF CPFR

From the suppliers' point of view, the CPFR represents a real opportunity to increase sales, reduce inventory levels and reduce operating cycles. This is due to the possibility of carrying out production and distribution planning according to final demand, and it is even possible to carry out actions together with the retailer, aiming at adapting to the restrictions identified in the production or distribution capacity. Another advantage is the possibility of working in a more stable way, since you have information on final demand, uncontaminated by speculative reactions of intermediate demands. This means that the supplier will be able to better control its production and its stock, including the security one, since it will be aware of the retailer's promotions calendar and consequently of the sales peaks, reducing the chances of shortages or excess of product. Savings from these advantages can be shared with customers by reducing
the price of the product.

From the point of view of retailers, the big advantage is the supplier's commitment in terms of service level and long-term price reduction. This commitment results in a reduction in out-of-stock rates, particularly during sales periods, as the supplier will already be prepared to meet the sudden increase in demand. Another consequence is the reduction in stock levels, particularly the safety stock whose magnitude is a function of uncertainties associated with supply. It is worth mentioning that this trust deposited in the supplier does not come only from some type of contract, but from the fact that the joint sales planning takes into account the existing restrictions on both parties. It is therefore clear that the CPFR is not a model aimed only at reducing prices, but rather at dividing risks and rewards between supplier and customer.

The CPFR PROCESS

In general, the CPFR works as follows: initially, each partner company develops its own sales forecast using the standard methods and systems for each one. These predictions are then shared and, through a CPFR software, they are compared. If significant differences are identified, these are jointly reassessed. After reaching a consensus regarding the divergences, a joint sales forecast is obtained, which will serve as input for the resupply plan, whose elaboration has a similar process, that is, based on the comparison of plans and discussion on exceptions . It is noteworthy that the preparation of the resupply plan takes into account the manufacturer's restrictions, such as production capacity. Once defined, the resupply plan acts as an order placement forecast from the distributor/retailer to the manufacturer.

This process occurs periodically, not only to carry out planning for other periods, but also to reassess existing plans. This reassessment is necessary since the individual sales forecasts of each company may have changed after the joint planning. For example, the retailer may have decided to carry out a promotion that was not previously foreseen, and in this way it starts to foresee an increase in sales. As this process repeats itself, forecast orders become firm orders.

Thus, its process is divided into nine steps, described below.

Step 1: Consists of drawing up an agreement in which the partner companies establish the norms and rules for the collaboration relationship, the expectations of each party and the actions and resources necessary for success.

Step 2: Definition of a joint business plan, which describes which product categories will be included in the process, objectives outlined, strategies and tactics to be used (strategies for each category, promotional calendar, etc.). Management parameters for each category are also defined, such as: minimum or multiple orders, lead times, intervals between orders, etc. planning and controlling day-to-day activities.

Step 3: Consists of developing individual sales forecasts for each company. The difference in the CPFR for this activity is that both companies have all the necessary information for this purpose. The manufacturer uses information from the retailer's POS as well as its promotions calendar just as the retailer takes into account the manufacturer's marketing activities. There is also another type of information to be used: the history of exceptions that occurred in past comparisons between the two forecasts. These individual forecasts are important because each company makes it with different perspectives, for example the retailer makes its forecast for the sale of products at each point of sale (store), while the manufacturer/distributor makes it aiming at total retail sales , often supported by reports from institutions such as ACNielsen.

Step 4: Exceptions are identified by comparing forecasts made by the retailer and the manufacturer/distributor. As each company may have to manage thousands of items, across multiple locations, it is not feasible to expect company planners to detect the significant differences that exist between the two forecasts covering all items and locations. In this way, the comparison is carried out by online systems, in which each company enters its forecasts, so that, depending on the parameters defined in the joint work plan, exceptions are identified. The system will then alert planners only for sets of item/location forecasts for which the differences are relevant. In this way, the work of the joint planning teams is focused only on the issues that really demand analysis.

The identification of exceptions is based on the idea that if the forecasts of a certain item are similar enough, then this item does not deserve greater attention, because the small differences will cause minimal variations in the resupply planning, and can therefore be absorbed by the safety stock. A crucial issue is the determination of the thresholds after which the differences become material, which are determined in the joint business plan and which must also be periodically reassessed. These limits may vary depending on the horizon to which forecasts are being compared. For example, when comparing forecasts for the week ahead, a difference of 5% might be relevant. However, when comparing forecasts four weeks ahead, larger differences, such as 15%, can be accepted. Figure 1 illustrates how exceptions are identified over time.

Step 5: The identified exceptions are jointly analyzed by the teams of planners from the two companies, seeking the reasons why these exceptions occurred, while trying to reach a consensus on the predicted value. This joint work can be carried out through telephone, e-mail, video conferences or even physical meetings. The reasons for the emergence of exceptions may be related to changes made by one of the companies in aspects that impact sales and that for some reason were not communicated to the partner company, such as the holding of an unforeseen promotion, as well as by different expectations on the part of the two teams regarding some factors, such as the impact that a scheduled promotion will have on sales. Once the exceptions have been analyzed and consensus has been reached on them, the changes are then incorporated into the forecast plan.

Step 6: Consists of preparing a forecast of resupply orders, based on the sales forecast plan. From this point onwards, CPFR starts to deal with retailer resupply planning based on a common sales forecast. This order forecast takes into account not only the sales forecast but also other predetermined factors such as stock policies, order frequency and lead times for resupply.

Step 7: As with the sales forecast, a search for exceptions to the order forecast is also performed. These exceptions, however, are related to existing restrictions on the part of the manufacturer/distributor with regard to the ability to fulfill the planned orders. This service capacity may be associated with production capacity, advance necessary for production planning, obtaining inputs, among other aspects. Once again, the identification of exceptions follows predetermined parameters, that is, only restrictions that cause significant impacts on the operation will be classified as exceptions.

Step 8: The identified exceptions are analyzed and negotiated together, so that the supplier is able to meet the order forecast. During this negotiation, the retailer can, for example, postpone some promotional activity in order to allow the supplier to have time to make enough products available to meet the sudden increase in demand, thus avoiding product shortages during the promotion. Decisions taken at this stage can often affect the sales forecast plan made earlier, as in the case of postponing the promotion; if this occurs, a new prediction must be made, restarting the process. After analyzing and trading the exceptions, the order forecast plan is changed.

This step represents the great advantage of CPFR for the retailer, as at the same time it manages to reduce stock levels, it also obtains a greater degree of security in resupply. This is also the stage in which the CPFR differs from rapid response programs, since the chain is carrying out its planning based on real demand, and not just preparing to respond quickly.

Step 9: The last step of the CPFR is the transformation of forecast orders into firm orders. This process can be automated through the adoption of freezing periods, that is, a planned order is constantly reassessed and, after a certain period of time, depending on when it must be delivered, it automatically becomes a firm order. , and therefore cannot be changed.

One question that can be asked is the following: if order forecasts are automatically transformed into firm orders, how is the price established? Is there negotiation? Once the collaboration relationship is established, price negotiation ceases to be a barrier or existing process in each resupply (purchase) cycle. The commitment between the two companies through the CPFR means that price negotiation is agreed periodically, no longer being part of the day-to-day activities of the relationship between the companies. Thus, for commodity¬ type products, with many alternative suppliers, without differentiation, or where price is the main acquisition factor, the CPFR is not very suitable. The CPFR is applicable to companies that agree to give up short-term advantages, obtained through price negotiation, in order to seek the mutual benefits of a long-term relationship.

PRACTICAL RESULTS OF CPFR

CPFR is already starting to become a reality, with several companies currently actively involved in its adoption, refinement and training such as: Wal-Mart, Procter&Gamble, Nabisco, Warner Lambert, Andersen Consulting, Eastman Kodak, JC Penney, Kimberley-Clark, Kmart and NCR.

An indicator of how the CPFR is already being used is the result of a survey carried out by Syncra System, published in April of this year and available on the company's website (www.syncrasystems.com). The research was carried out in around 120 companies in the consumer goods sector, including manufacturers, retailers, wholesalers and distributors. According to the survey, around 79% of the surveyed companies are involved, to some degree, in supply chain management initiatives, and the CPFR has already emerged as the third most used management model, being less present in companies only in relation to VMI and the ECR. These results can be seen in Graph 1. It is worth noting that the use of CPFR does not necessarily lead to a decrease in the use of other Supply Chain initiatives. The ECR, for example, is a program, as already seen, which encompasses several aspects, with the CPFR focused on resupplying goods.
Still with regard to research, the companies involved in the CPFR process are already obtaining concrete benefits, many of which have already been foreseen. The main results pointed out were the following:

• Increased sales of products with collaborative planning
• Reduction in forecast error
• Reduction in the resupply cycle
• Reduction in inventory levels with a consequent increase in turnover
• Demand smoothing for suppliers
• Increased product availability for retailers
• Visibility to better determine replenishment parameters by store
• Increases in the service level of suppliers
• Reduction of production planning costs.

These results show that, despite being a recent concept, the CPFR has been gaining increasing acceptance, being implemented by many of the main consumer goods companies. This acceptance should present an even more accentuated growth as the benefits obtained become more visible, consolidating the CPFR as an extremely advantageous supply chain management model for both retailers and manufacturers.

BIBLIOGRAPHY

For a more detailed study on the CPFR, the website created by the VICS committee for the program is indicated: www.cpfr.org