CPFR AS A SUPPLY CHAIN ​​INTEGRATION MECHANISM

The integration of the supply chain is still, for most companies, a utopia. The CPFR (Collaborative Planning, Forecasting and Replenishment) represents a strategy that promises to overcome the barriers encountered to date for integration and offer part of the benefits of a synchronized supply chain based on integrated sales planning and inventory replenishment between industry and retail .

Article published by CEL/COPPEAD in 2000 presented the 9 steps to be followed to implement a CPFR strategy. Since then, many companies have experienced the benefits and difficulties of implementing a process like this, and, currently, there are already several results available to those who preferred not to venture until then.

This article aims to present results from a significant group of companies that implemented the CPFR. In this sense, it seeks to answer questions such as:

• How has the implementation process been? What is its duration? What is your initial scope?
• What is the need for resources in its implementation?
• What are the main problems encountered?
• What are the key points of your success?
• What benefits have been achieved?

PREVIOUS CPFR INITIATIVES – DIFFUSION INHIBITORS ASPECTS

Some of the first supply chain integration initiatives occurred just over 10 years ago when movements such as ECR (Efficient Consumer Response) and VMI were created.

With the philosophy that supply chain optimization should be supported by a relationship of trust between industry and retail, based on the sharing of strategic information, ECR systems began to be developed in a number of companies.

The movement of VMI (Vendor-managed Inventory), where the supplier is responsible for managing and replenishing the customer's inventory, also began to be implemented by large companies, but the pioneering partnership was between Procter & Gamble and Wal-Mart, in the US, which ended up boosting the spread of VMI in the consumer goods sector.

However, the weak point of the VMI consisted in the lack of visibility of the chain as a whole: information from the points of sale, as well as the stock in the stores was neglected and only the variations of the stock in the main DC or in the advanced DCs were considered in the process replacement. These shortcomings have led companies to look for alternative integration techniques.

One of these alternatives was the CRP (Continuous Replenishment Programme), which takes into account both the inventory information at the points of sale and also starts to make sales forecasts based on the customer's historical sales information.

Despite the fact that CRP was already configured as an improved alternative in relation to VMI, the sales forecast made by the supplier was exclusively dependent on the training and algorithms developed by the analyst responsible for the account. As it did not take into account up-to-date customer information (such as promotions or the introduction of new products), forecast errors generated still high stock levels.

 

CPFR AND THE COMPANIES THAT HAVE IMPLEMENTED IT IN THE WORLD

The next wave after the CRP was the CPFR, which sought to cover the gaps left by previous initiatives (VMI and CRP). Some of the changes advocated by the CPFR movement were:

• Incorporation of promotion information in the sales forecast;
• Joint analysis (supplier and customer) of individual sales forecasts and resupply forecasts, identifying their viability;
• Reassessing the common practice of maintaining high levels of inventory to ensure product availability;
• Increased coordination between the store, the resupply process and the logistical planning of retailers;
• Increased coordination between supplier departments: sales, production and distribution;
• Elimination of different sales forecasts existing in the same company (Marketing, Purchasing, Logistics and Finance forecasts)

The first initiative to build systems that translated the CPFR philosophy took place in 1995 with Warner-Lambert and Wal-Mart, supported by SAP, Manugistics and Benchmark Partners. The companies agreed to produce individual sales forecasts, prepared six months in advance and detailed by week, store and SKU. The forecasts were then compared and, in the event of a significant discrepancy, the teams from each company would come together to come up with a unified forecast. Among the benefits achieved, we highlight the inventory reduction of around 25% during the pilot and an increase of US$ 8,5 million (without introducing new products) in sales at Wal-Mart.

Since then, the results have been felt by companies in various sectors of the economy. Figure 1 shows some large companies that have already gone through the CPFR implementation process in the US (survey carried out in 2001).

Several surveys have been conducted on CPFR with the intention of identifying its level of adoption, status, results and plans for the future. In general, 10 to 15% of companies in the consumer goods sector stated that they had already implemented CPFR, another 10 to 15% intended to implement it in 2002 (research carried out in 2001 in the USA), and 20% in 2003 or 20042.

Some countries with CPFR pilots in operation are: USA, England, Germany, Belgium, New Zealand, Philippines, Mexico and Brazil. However, due to the low dissemination of implementation results, it is possible that most of the experiences are not public knowledge.

 

THE IMPLEMENTATION PROCESS – MAIN INHIBITORS AND FACILITATORS

A survey carried out with 220 executive members of the CPFR VICS (Voluntary Interindustry Commerce Standards of the CPFR), most of them located in the US and 61% with experience in pilot projects or complete CPFR implementation programs, showed the main difficulties encountered in implementations.

For a better understanding of these difficulties, the process was mapped and segmented into 4 sub-processes:

• Elaboration of the Agreement (establishment of norms and rules of collaboration)
• Definition of the Business Plan (definition of the items to be considered in the agreement, as well as their sales and resupply strategies)
• Sales Forecast Generation (development of individual forecasts, comparison and identification of exceptions, forecast generation)
• Generation of Forecast Resupply Orders (preparation of forecast resupply orders, identification and negotiation of service feasibility, generation of resupply orders)

Within these sub-processes, 51 activities were raised. For each one of them, the respondents pointed out which ones were successfully completed and which ones whose results were not satisfactory.

The first two sub-processes are related to CPFR planning. In them, a very high success rate in the implementation of activities was found, with the exception of defining the partner's scope of action (eg stores or DCs to be considered in the process) and forecasting targets. In these cases, the success rate is around 75%.

Of the more operational and traditional activities of the process, such as the preparation of sales forecasts and resupply orders, the success rate is 92%, according to respondents.

Operational activities related to process exceptions, such as handling exceptions in sales forecasting and identifying and negotiating the feasibility of fulfilling resupply orders, have a success rate of 74% and 65%, respectively.

This research, as well as other experiences raised in the literature, point to some of the main difficulties encountered in the CPFR implementation process. Figure 2 raises some of these questions.

Other difficulties, of a more general nature, are pointed out in a survey carried out in Europe with 382 companies with plans or that have already implemented the CPFR (see figure 3) . On a scale where the value 5 (five) is attributed to the biggest problems, figure 3 shows that the incompatibility between the participating companies' systems is the main cause of difficulties in implementing the CPFR. This, as well as problems of lack of internal technical infrastructure, lack of cooperation between partners or unavailability of data can be avoided if the planning stage (the first two sub-processes) is well done.

In addition, some tips should be considered in an attempt to circumvent or minimize these problems. Figure 44 shows some of these tips, results from previous experiences.

 

THE RESOURCES THAT CAN OR SHOULD BE CONSUMED IN THE IMPLEMENTATION

In the period that precedes the implementation of an initiative like this, it is common for the company to be concerned with the need and consumption of resources. Typically, they are restricted to:

• Information Technology (IT)
• People

With regard to IT, typical implementations of CPFR programs do not point to the need for significant investments in technology. Its operation can be carried out using simple tools, such as spreadsheets and e-mails. However, support systems for processes such as this one have proven to be efficient as they enhance results and facilitate the smooth running of the operation. They are extremely recommended when the number of participants becomes significant, or even when the number of items/store to be managed is large.

As implementations become more complex, either due to the high number of items or the number of participants in the CPFR program, the need arises for tools that incorporate features such as:

1. The integration between the ERP systems of the participants;
   ii. Automatic management of events (eg Exceptions, Status Changes) and alerts for discrepancies;
   iii. Tracking and disseminating information and generating reports to evaluate program performance.

The first step in implementing a more sophisticated CPFR program is the integration of the companies' ERP systems. This is where the first difficulties begin. Research carried out with 120 companies, including manufacturers, retailers, distributors and logistics service providers, most of them operating in the consumer goods sector, showed the great diversity of existing environments (see figure 5) . In this research, it was found that, despite the prevalence of systems such as JDEdwards, SAP and Oracle, there are a number of other ERP systems in operation in companies that implement CPFR.

This is one of the reasons that led companies that implemented CPFR to use consultancy assistance or an integrator system as a way to make systems compatible.

Of these 120 companies surveyed, 20% show interest in outsourcing the management of data exchange between the companies in the program. In general, large companies are willing to outsource. The smaller ones, on the other hand, prefer to keep information and technology “at home”. In the case of medium-sized companies, there is interest in outsourcing the technology and using application providers (Application Service Provider – APS) for the data exchange management service.

Figure 6 schematically shows the role of each system in the CPFR information exchange process. Application providers with collaborative systems are replacing the need for their own web servers with collaboration tools installed.

Communication between the different ERP environments is made possible through systems that use universal languages ​​such as EDI (Enterprise Data Interchange) or XML (Extended Markup Language). The first, however, due to its heavy data structure, has not proved to be a good alternative to more complex CPFR implementations.

In recent years (starting in 1999), companies such as IBM, Microsoft, Novell, Oracle, and Sun have announced the creation of XML-based systems. These new developments will allow access and management of a large volume of transactions generated by the need for communication between companies. In addition, companies such as Manugistics, Logility, Oracle and i2 Technologies claim to have application servers that can be used to exchange information between companies participating in CPFR programs.

In addition to integrating systems, there are also some tools available on the market that support other relevant functionalities in the process, such as event management and tracking (items ii and iii mentioned above). Figure 7 presents the evaluation of some of the most commonly encountered CPFR systems. According to the survey, SAP offers the best Familiarity X Performance ratio.

In addition to ERPs, the WMS, Supply Chain Planning, Sales Forecasting, MRP, DRP and CRM systems leverage the CPFR program, although they are not necessary conditions for its implementation.

The consumption of human resources is another relevant aspect in decision-making. In this way, the implementation time is a factor that must be considered, since, in this period, the performance of a multifunctional team must be intensive.

Its duration will vary according to several factors. One of the issues that can influence the duration of implementation is the decision of companies to start “small” and gain experience to expand CPFR to all items and locations, or build all the necessary infrastructure to support the program for the entire company. Both strategies are reasonable. However, pioneers claim that it is advisable to start “small”. In this way, the duration of a pilot can be as short as 2 or 4 weeks, to more than 2 years.

However, in the post-implementation period, the need to hire personnel for this new activity has not been observed. What usually happens is the reallocation of functions, mainly those that have been destined to solve problems (which, in some organizations, corresponds to 50% of the staff). With better planning, the need for people to solve problems is significantly less.

 

CASES AND RESULTS OF IMPLEMENTATIONS IN BRAZIL AND THE WORLD

Of the US Food Producers Association member companies, 67% already have CPFR initiatives in place. Of these, 79% indicated a reduction in inventory levels, 84% indicated an improvement in the accuracy of sales forecasts, 74% indicated an improvement in the level of service and 79% indicated an increase in sales.

Below, two cases of CPFR implementation are presented, one in Europe and the other in the USA.

Johnson & Johnson & Superdrug

The initiative of the Superdrug chain (a retailer in the pharmaceutical sector with more than 650 stores in England) in looking for a supplier to carry out its CPFR pilot seems to have been very successful. They followed the 9 steps suggested by the CPFR Committee and, based on a 3-month pilot project supported by a collaborative system developed by Syncra Systems, they have already achieved a 13% reduction in Superdrug inventory levels and a 21% increase in accuracy of your sales forecast. In addition, stock availability increased by 1,6%. The positive results from the pilot's short runtime do not mean that implementation was easy. One of the biggest difficulties faced was the alignment of the criteria that would characterize an exception and, therefore, would indicate the need for manual revision of the forecast or of the integrated replenishment order. They ended up defining that those items whose differences between the retailer's and supplier's forecasts were above 20% from the 8th week onwards, or those forecasts whose error was above 20% between the 8th and 13th weeks, would be looked at in detail. As the forecast approaches the current date, this tolerance is reduced from 20% to 10%. The monthly evaluation process of these goals became a success factor in the implementation. The Syncra Systems collaborative platform was used to help the pilot. At its end, both companies opted to enhance the program by incorporating the analysis of the impact of new products.

 

Nabisco & Wegmans

Wegmans is a food chain headquartered in NY/USA. The implementation of the CPFR program with Nabisco started in February 1998 and lasted 3 months. 22 SKUS were selected and, at the end of the 3 months, stock availability increased from 92,8% to 96,6%, leading to a sales increase of 47% at Nabisco and 18% at Wegmans. Very positive results, considering the limited number of SKU's and the fact that the process still operated manually (based on spreadsheets updated weekly). The accuracy of the sales forecast increased from 65% to 81% within the implementation period from the pilot. With the automated process, an even greater increase is expected. Although automation is not a necessary condition for implementation, there is a fundamental success factor: the promotion of changes, in both companies, in the way of doing business. The initial step towards this was the mutual commitment to develop a 13-week sales and purchase plan. In addition, Nabisco was forced to anticipate its production cycle by 6 to 8 weeks so that the sales department could have information about product availability in advance and, in this way, alert Wegmans' purchase and sales department about possible service issues. Anticipation in planning promotions, despite not being promoted during the pilot, is part of Nabisco's future plans. One of the critical success factors of this initiative, according to a consultant and director of Benchmarking Partners who helped the companies in the implementation process, was the dedication of the companies to the implementation planning process, which precedes the execution of the pilot.

In Brazil, initiatives related to collaborative planning are still incipient, there are very few known cases and even so, most of them have not yet implemented all the steps of the program. This situation is motivated by issues such as:

• There is a high degree of informality in the Brazilian retail sector with regard to the structuring of logistical planning processes which, in general, in addition to not being formalized, are the knowledge and responsibility of one or a few people in the organization;
• History of low investment in IT, mainly in the retail sector;
• Restrictions on changing the way of operating the business to contemplate planning;
• Lack of knowledge and insecurity in the implementation of a program that is still in its infancy in Brazil.

Brazilian Case: Manufacturer CPG* & Retailer

The CPG manufacturer operates in more than 80 countries with 250 SKUs distributed in 3 segments: Hygiene & Cleaning, Food and Pharmaceuticals. In Brazil, its annual revenue is approximately US$ 300 million and its infrastructure consists of 2 factories and a central DC. The partner (retailer) that CPG selected to implement the 1st CPFR pilot is medium-sized, with 20 stores and 2 CD's, presented an informal and low quality sales forecast. However, both already had a relationship of trust and experience in implementing VMI. Its success encouraged both to include the 60 SKUs transacted in the CPFR program. Relying on an informal implementation: the retailer was unable to have a team to interact with the manufacturer in the process, all the information and responsibility for the preparation of the sales forecast were associated with a single person, making strategic and tactical realignment meetings with other areas necessary. With the implementation of CPFR, the frequency of transactions (eg joint sales forecast analysis) became weekly, sales forecasts to be carried out jointly one month in advance and the planning of strategic promotions 12 months in advance. As the exchange of information and the joint preparation of the forecast are in the testing phase, the results are still restricted to companies. However, some outputs have already been released: • Prior to implementation, 60% of sales were made in the last week of the month, resulting in higher freight rates and 8 hours of waiting for loading at factories or DC. Eighteen months after implementation, this same week now accounts for 35%, resulting in a 50% reduction in freight costs and a 1:30 hour wait for loading. * fictitious name

Due to the scarce CPFR implementation initiatives in Brazil, and even in the world, there is no sample that allows inferring the quantitative benefits of this program in Brazil given a given implementation condition (eg type of industry, scope and sophistication of implementation).

However, the types of benefits found in the implementations carried out were identified (see figure 8).

Research with European companies, mentioned earlier in this paper, pointed out the degree of fulfillment of the objectives defined at the time of implementation of the CPFR (see figure 9). In it, it is noted that the increase in the level of service and the reduction of costs, mainly in inventories, are present in most of the experiences with CPFR implementations.

CONCLUSION

Implementing CPFR means much more than sharing sales forecasts or talking more with your supplier or customer: a broader vision of the partnership is required. In this way, a deep understanding of the meaning of this word is the first step in implementing the CPFR. This is also your biggest obstacle.

In the end, a partnership is any and all efforts by two or more companies to increase the result of the chain as a whole, which includes increased sales and efficiency in the use of assets, but can also include an increase in a particular item. of cost The concern with the individual cost must, therefore, be left in the background. Difficult? Many companies have been able to…

The cases and results presented in this document raise most of the benefits found with the implementation of CPFR programs in the business environment. What has been observed, in general, is that one of the main benefits mentioned is associated with increased sales. This is probably a consequence of the shift from push philosophy (manufacturer produces what he thinks is important) to pull philosophy (customer buys what he wants).

Other benefits are related to the reduction of the cost of inventory and sales in the chain, a consequence of a better adjusted resupply process and sales forecast.

It is clear that the difficulties are not few: many adjustments are needed in the information systems and in the philosophy of the companies involved. Nothing that dedication and planning cannot solve.

 

BIBLIOGRAPHY 

Barratt, Mark; Oliver, Alexander. Exploring the Experiences of Collaborative Planning Initiatives. International Journal of Physical Distribution & Logistics Management; 2001; 31, 4; p.266.

Arozo, Rodrigo. CPFR – Collaborative Planning: Seeking to Reduce Costs and Increase Service Levels in Supply Chains. Technology, 2000.

Karolefski, John. Moving into Production. Food Logistics, Issue 51, 15/06/2002.

Karolefski, John. UK Drug Retailer Reduces Stock: Pilot. Food Logistics, Issue 54, 15/10/2002.

Parks, Liz. CPFR Programs Facilitate Inventory Management. Drug Store News, Vol. 21, Issue 2, 02/01/1999.

Vieira, Jose Geraldo; Ferreira Junior, Silas Costa; Yoshizaki, Hugo TY. Collaborative Planning, Forecasting and Replinishment: State of Art in Brazil.http://www.cpfr.org/WhitePapers.html.

Seifert, Dirk. Collaborative Planning, Forecasting, and Replenishment: How to Create a Supply Chain Advantage. amacom. 2003