The CPFR ® Reference Model by iqm86975

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									The CPFR® Reference Model

Henry C. Co
Technology and Operations Management,
California Polytechnic and State University
The Need for a Standard Process Model
   CPFR is being implemented at thousands of
    companies across the globe.
   Many companies, such as GSK, are
    implementing CPFR with multiple retailers
   A standard vision is needed to provide a
    common understanding of:
        Terminology and definitions
        The steps needed to implement CPFR
        Data and information system requirements
   Best practices last accessed 23 April 2007.

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The VICS CPFR® Guidelines
The VICS CPFR® Guidelines
   Voluntary guidelines aimed at structuring
    and guiding supply chain partners in setting
    up their relationship and processes.
       Shared plans
       Exception identification
       Resolution

   Allows visibility to trading partners’
       Critical demand
       Order forecasts
       Promotional forecasts.

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   In 2004, VICS revised the 9-step
    CPFR® reference model (see
    diagram). At the center of the model
    is the consumer. The circling arrows
    between the retailer ring and the
    manufacturing ring show the eight
    CPFR® collaboration tasks.
    Collaboration tasks are not
    numbered. No predetermined
    sequence is implied.

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The CPFR® Reference Model

                                        8 collaboration tasks
                                        form an iterative cycle
                                        of 4 activities:

                                          A. Strategy & Planning
                                          B. Demand & Supply
                                          C. Execution
                                          D. Analysis.

                                        Each activity consists of
                                        two collaboration tasks.

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CPFR® Is Consumer-Centric
   Consumer
       At the center of the model.
       Retailers, manufacturers and
        suppliers work together to satisfy the
        demand of the end consumer.
   The circling arrows between the
    retailer ring and the manufacturing
    ring show the eight CPFR®
    collaboration tasks.
       Collaboration tasks are NOT numbered;
        NO predetermined sequence is implied.

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CPFR: Key Tenets
   The consumer is the ultimate focus of all
   Buyers‖ (retailers) and ―sellers‖
    (manufacturers) collaborate at every level
   Joint forecasting and order planning reduces
    surprises in the supply chain
   The timing and quantity of physical flows is
    synchronized across all parties
   Promotions no longer serve as disturbances
    in the supply chain
   Exception management is systemized last accessed 23 April 2007.

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Collaboration Tasks Under CPFR®

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1. Strategy & Planning

         Establish the ground rules for the
         collaborative relationship.
         Determine product mix and
         placement, and develop event plans
         for the period.
1.1 Collaboration Arrangement
   Setting the business goals and
    defining the scope for the relationship
   Assigning roles, responsibilities,
    checkpoints and escalation procedures
       Participating companies identify executive
        sponsors, agree to confidentiality and
        dispute resolution processes.
       Develop a scorecard to track key supply
        chain metrics relative to success criteria,
        and establish any financial incentives or

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   Outcome – Memorandum of
       Defines the process in practical terms.
       Identifies the roles of each trading
        partner and how the performance of each
        will be measured.
       Spells out the readiness of each
        organization and the opportunities
        available to maximize the benefits from
        their relationship.
       Formalizes each party’s commitment and
        willingness to exchange knowledge and
        share in the risk.

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1.2 Joint Business Plan
   Trading partners exchange information
    on corporate strategies and business
    plans to develop a joint business plan.
   Identifies the significant events that
    affect supply and demand, such as
    promotions, inventory policy changes,
    store openings / closings, and product

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   Outcome –A mutually agreed upon
    joint business plan
       Joint calendar for promotions, inventory
        policy changes, store openings/closings,
        and product changes for each product
        category, etc.
       Clearly identifies the roles, strategies, and
        tactics for the SKUs that are to be brought
        under the umbrella of CPFR.
       Cornerstone of the forecasting process.

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2. Demand & Supply

        Sales forecasting:
        Projects demand at the point of sale

        Order planning/forecasting:
        (a) Determines future product order & delivery
            requirements based upon the sales forecast.
        (b) Takes into account inventory positions, transit
            lead times, shipment quantities, and other factors.
2-1 Sales Forecasting Overview
   Consumption data is used to create a
    sales forecast.
   This consumption data differs
    depending on the product, industry,
    and trading partners:
        Retailer POS data
        Distribution center withdrawals
        Manufacturer consumption data
   Important to incorporate information
    on any planned events (ex. –
    Promotions, plant shut downs, etc.) last accessed 23 April 2007.

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Sales Forecasting Steps
1.   Analyze current joint business plan
        Analyze the potential effects of the
         current joint business plan on future
         retail sales
2.   Analyze causal information
        Analyze the potential effect of causal
         factors on future retail sales based on
         historical events and the resulting sales
3.   Collect and analyze consumption data
        Point-of-Sale (PoS) data, warehouse
         withdrawals, manufacturing consumption

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4.   Identify planned events
        Store openings or closings, promotions,
         or new product introductions
        This comprehensive list of events will be
         used to populate a shared-event
5.   Update shared event calendar
        Align events from each trading partner,
         resulting in a common plan
        Agree upon this short-term event plan

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6.     Gather exception resolution data
          Gather sales forecast exception
           resolution data from previous iterations
7.     Generate sales forecast
          Generate the forecast for a given period
           with forecasting tools that use all
           relevant information and guidelines.
           Either partner or both partners may
           generate the sales forecast, depending
           upon the scenario last accessed 23 April 2007.

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   Single sales forecast generated by one
    or both parties
   Used as a baseline for the creation of
    an order forecast, as well as other
    supply chain activities.

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2-2 Order Planning/Forecasting Overview
   Sales forecast, causal information,
    inventory policies, etc. are used to
    generate a specific order forecast.
   Actual volume numbers are time-
    phased and reflect inventory
    objectives by product and receiving
   The short-term portion of the forecast
    is used for order generation.
   The longer-term portion is used for

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How Sales Forecasts Drive Order Forecasts
   Using POS forecast and inventory policy information, we
    can calculate when each store needs to release an order to
    the Retailer DC …

   ...and this information is then used to generate a
    replenishment forecast for the DC. last accessed 23 April 2007.

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   The same process can be used to develop an order
    forecast for the manufacturer.

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Output: Time-phased, netted order forecast
   The order forecast allows the seller to
    allocate production capacity against demand
    while minimizing safety stock.
   The real-time collaboration reduces
    uncertainty between trading partners and
    leads to consolidated supply chain
   Inventory levels are decreased, and
    customer service responsiveness is
    increased. A platform for continual
    improvement among trading partners is

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            Place orders, prepare and deliver shipments, receive
            and stock product on retail shelves, record sales
            transactions and make payments.
            Order generation— Transitions order forecasts into
            firm demand
            Order fulfillment — Producing, shipping, delivering,
            and stocking the products
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Order Generation Output
   Committed orders by the buying
    organization (the retailer) and delivery
    shipments from the vendor.
       The buyer receives and stocks products,
        records sales transactions, sends order
        acknowledgment and makes payments.
   Buyer and seller agree on a ―time
    fence‖ where forecasts are frozen.
       Near-term orders are fixed; Long-term
        ones are used for planning.

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4. Analysis

         Monitor planning and execution activities for
         exception conditions.
         Aggregate results, and calculate key
         performance metrics.
         Share insights and adjust plans for
         continuously improved results.
Performance assessment
   Trading partners calculate key performance
    metrics (e.g., in-stock level, forecast
    accuracy targets, etc.)
       To evaluate achievement of business goals,
        uncover trends, or develop alternative strategies;
       To share insights and adjust plans for continuous
   Generate and agree to a list of exception
    items for your CPFR initiative.
       Develop a process to resolve sales forecast

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Exception management
   Monitor plan vs. execution to identify
    deviations and exceptions.
       Trading partners resolve exceptions by
        determining causal factors, adjusting
        plans where necessary.
       Forecast accuracy problems,
        overstock/stock-out conditions, and
        execution issues must be identified and
        resolved in a timely manner.

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4-1 Performance Assessment Overview
   Performance assessment is essential to any
    understanding of collaboration benefits.
   The specific measures can vary from one
    situation to the next, but generally fall into
    two categories:
       Operational measures: fill rates, service levels,
        forecast accuracy, lead times, inventory turns,
       Financial measures: Costs, item and category
        profitability, etc.
   In reality, partners are often reluctant to
    share financial measures and estimates of
    ―profitability‖ can vary widely, depending on
    how one defines and assigns costs.

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4-2 Exception Management Overview
   Exceptions need to be handled in both
    sales forecasts and order forecasts.
   The exception criteria are agreed to in
    the collaboration arrangement.
   Sales and order forecast exceptions
    are resolved by querying shared data,
    email, telephone conversations,
    meetings, and so on, and submitting
    any resulting changes to the
    appropriate forecast.

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Identify forecast exceptions

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1.   Retrieve exception criteria – Retrieve the sales/order
     forecast exception criteria (e.g., retail in stock
     percent or measures such as forecast accuracy)
2.   Identify changes/updates – Identify seller or buyer
     changes or updates to the joint business plan (e.g.,
     a change in the number of stores)
3.   Compare item values against exception criteria –
     Compare each item’s value for the selected criteria
     to the constraint value (e.g., store in-stock for item
     X is 83% versus the criteria value of 90%
4.   Identify exception items – Identify items as
     exception items if their values fall outside the

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Resolve the exceptions

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1.   Retrieve exception items and decision support data
     (e.g., historical sales, in-stock percent).
2.   Select desired exception criteria/values (e.g., ―all
     items with a store in-stock percent less than 90
3.   Research exceptions – Use the shared-event
     calendar and supporting information to look for
4.   Heighten collaboration – If research does not yield
     satisfactory forecast changes or resolve the
     exception, then either partner can heighten the
5.   Submit changes to sales/order forecast – If research
     changes the forecast and/or resolves the exception,
     submit the change to the sales/order forecast

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Exception Management Output
   List of exceptions in the sales and
    order forecasts.
   Resolution of identified exceptions.
   Adjusted forecast.

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