A brief review of CPFR – Collaborative Planning, Forecasting and Replenishment

One of the aspects that make it most difficult to increase efficiency in supply chains based on information flow management concerns the format of relationships between commercial partners. With each company trying to maximize its results individually, there are several frictions in the relationship between suppliers and customers, who seek in the negotiation process to guarantee the best possible result for their shareholders. The problem is that by doing this, companies place themselves as opponents of their trading partners and create barriers to sharing demand information, which are omitted to increase their relative bargaining power in the negotiation process.

Despite the existing difficulties, companies have realized the countless opportunities for more efficient demand management and are starting to look for alternatives to put into practice integrated planning processes that guarantee mutual benefits. The main one is the Collaborative Planning, Forecasting and Replenishment (CPFR – Collaborative Planning, Forecasting and Resupplying), which appeared in 1995, in an initiative between WalMart and Warner Lambert. At the moment, according to a survey on Planning in the Supply Chain – 2015, a large number of US companies have CPFR initiatives.

The CPFR, as described by Rodrigo Arozo in his article “The CPFR as a supply chain integration mechanism”, is a structured collaborative planning process that provides not only for the exchange of demand information, but also for the joint allocation of resources to meet it. We can, in a simplified way, separate the functioning of the CPFR into four parts:

• Collaboration: fundamental basis of the process that deals with the elaboration of a contract between the commercial partners, defining the objectives, metrics and performance indicators, shared information, resources used by each company involved and a governance policy to solve possible divergences during the process. In general, contracts are long-term (3 to 5 years) with annual reviews;
• Planning: consists of the temporal analysis of events that may influence market service, such as new product launches, product withdrawals, promotions calendars, decision windows and major changes in the process. The time horizon considered is usually the budget period (1 year) and the review meetings take place quarterly;
• Forecasting: consideration and statistical analysis of historical sales, detailed promotions calendar, competitor actions and pricing. Calculated for the next 12 months, focusing on the next three months and monthly review;
• Resupply: based on forecasts, the need for resources is calculated and resupply orders are generated for the next 12 weeks (3 months), focusing on orders for the first 4 weeks. In this step, performance indicators are monitored and occurrences and exception events are recorded.

Table 1 details each of these steps a little more:

Table 1 - Summary of CPFR components

Source: ILOS

To overcome obstacles to the exchange of information and joint planning between companies, it is necessary to observe some points highlighted by executives of companies that have been using the CPFR for some time. The first is the need for organizational restructuring to support the process of collaboration and information exchange. In the traditional process, formal communication between companies is carried out by the supplier's commercial area with the customer's purchasing area, which in general have antagonistic evaluation metrics, as both seek in the negotiation process to guarantee the greatest possible margin for their companies. This creates personal friction between those involved, who are unlikely to act as partners and collaborators. Relationships are not created suddenly with the signing of a contract, but with living together and with common goals.

For this, the companies involved must create a “paired” structure, where areas with similar interests and metrics can coexist and create bonds of trust, such as, for example, bringing the supplier's operations area closer to the customer's operations area, which they probably have similar indicators and can easily find synergies in their activities. In some cases, where scale exists, it is possible to create organizational structures dedicated to a specific customer/supplier.

Another point that should be noted is the “phased” implementation, that is, as the construction of a collaborative process needs time for relationships to be built, the opening of information must be staggered over time. At the beginning, consolidated information is opened and unambitious short/medium term objectives are established. With this, the first benefits are soon recognized by the participants and the first relationships of trust are established. The second step can then be taken, with the detailing of information and the establishment of new, more ambitious objectives. After verifying the new results, consolidating the mutual benefits and increasing confidence among the participants, companies can make a wide disclosure of information and share assets. At this stage, the reduction in stock can reach about 30% in the companies involved and the increase in sales can reach 20%.

It seems good? And is! Two decades ago, without the mechanisms for coordinating the flows of information and products available today, perhaps the best alternative would have been to concentrate efforts on the negotiation process. Today, there is little doubt that the benefits derived from a more collaborative relationship between trading partners far outweigh the potential gains obtained in specific negotiations.