What is Collaborative Planning, Forecasting and

Replenishment (CPFR)?
Collaborative Planning, Forecasting and Replenishment (CFPR) is a business model that
takes a holistic approach to supply chain management and combines the intelligence of
multiple trading partners in planning and fulfilling customer demand by using common
metrics, language and firm agreements to improve efficiency for all participants. CFPR links
sales and marketing best practices category management, supply chain planning and
execution processes to increase availability while reducing inventory, merchandizing,
transportation and logistics costs.

The CPFR Model

The CPFR model provides a basic framework for the flow of information, goods and services.
The center of the model is represented as the customer, followed by middle ring of the
retailer (buyer) and the outside ring the manufacturer (seller). The consumer drives demand
for goods and services while the retailer is the provider of these goods and services. The
manufacturer supplies the retail channels/stores with the products as demand for products is
pulled through the supply chain by the end user, i.e. consumer.
The diagram below shows the relationships of the three main players along with the four
phases:

Strategy & Planning: establishes the ground rules for the collaborative relationship such
as business goals, scope of collaboration, assignment of roles, responsibilities, checkpoints
and escalation procedures.
Demand & Supply Management: consists of sales forecasting, order planning/forecasting,
inventory positions, and transit lead times.
Execution: consists of Order Generation, i.e. transitions forecasts to firm demand, and
order fulfillment, i.e. the process of producing, shipping and delivering and stocking products
for consumer purchase.
Analysis: tasks include Exception management and Performance assessment. Exception
management is actively monitoring planning and operations for out of bound conditions,
while performance assessment is evaluating the achievement of business goals to uncover
trends or develop alternative strategies.

Steps in CPFR Model

The Voluntary Interindustry Commerce Standards (VICS) developed a 9 step approach to
guideline businesses to develop agreements for collaboration.
VICS 9-Step Approach
1.

Develop the Front End Agreement

2.

Create the Joint Business Plan

3.

Create the Sales Forecast

4.

Identify Exceptions for Sales Forecast

5.

Resolve/Collaborate on Exception Items

6.

Create Order Forecast

7.

Identify Exceptions for Order Forecast

8.

Resolve/Collaborate on Exception Items

9.

Order Generation

Challenges in CPFR
CPFR may be a simple concept however turning it into practice is a difficult task. Since it
involves collaboration with several trading partners, cultural challenges with each
organization are realized and requires an across the board buy-in. A change in business
processes is required, along with an inward focus to develop a broad multi-enterprise view.
Several challenges faced by organizations implementing CPFR are:

Selection of CPFR partners trading partners who wish to collaborate with each other
need to assess the potential relationship according to anticipated, realistic benefits,
pertinent to common business goals, organizations and cultural issues.

Senior Management Buy In senior management must sponsor each of the trading
partners and get involvement from necessary resources, e.g. Human resources, technical
infrastructure, time and project budget etc.

Confidentiality Sharing sensitive data reinforces the need to define rules around
confidentiality.

Cultural Change Internal and external collaboration requires a mindset of change

and capable to be flexible in adapting a collaborative approach.

Benefits of CPFR
The key benefits of CFPR falls within five major categories:
Improved customer service trough better forecasting techniques More reliable
forecasting allows a more effective way to anticipate consumer demand across the entire
supply chain and therefore allow the business to plan production capacity accordingly. Risks
for stock-outs is reduced which improves customer fulfillment orders which thereby
increases revenue, delivery and improved customer service.
Lower Inventories for higher profits accurate predictions of demand as mentioned
before will reduce stock-outs and provide a more efficient understanding of production
needs. Safety stock inventory for over production would be reduced which decreases
carrying costs, storage space and potential spoilage/obsolescence. Additionally, there is
improved material flow and release of working capital that can be used in other areas of the
production instead of being tied up in inventory.
Improved ROI on Technology investment effective CPFR technology solutions benefit
both manufacturers and retailers from reduced overhead costs because several
inefficiencies are eliminated, i.e., antiquated manual processes, custom integrations of
different partner IT systems and information searching of multiple sources/systems.
Improved relationships between trading partners develop when collaboration takes
place. Trading partners gain a better understanding of respective businesses by regularly
exchanging information and establishing direct communication on channels and create a
win-win situation.
Cost reduction will occur when production schedule and agreed forecasts are aligned.
Costs are reduced by decreasing set-up times, effort duplication and variations. There is also
efficient production capacity utilization since planning information is more reliable.

Practical Application of CPFR

A worlds leading manufacturer of major home appliances, Whirlpool, was facing forecast
accuracy and demand variability challenges. The desired state was to have Whirlpool or
trade partners host a collaboration hub that would act as a single point of storage for all
forecast related data which is shared between both companies within a very secure
environment. A prerequisite for launching this project was executive buy-in. Two approaches
were used for both internal and external stakeholders. A cost-benefits business case with
baselines and targets for key metrics targeted for improvements was developed, in addition
to the financial gains that would be achieved. For external stakeholders, Whirlpool
recognized the value of existing collaborative processes with the trade partner.
Incremental value and benefits of sharpening the focus of existing collaborative processes
through a formal CPFR process and technology was projected. Once receiving executive buyin, a technology called i2 Supply Chain Collaborator was utilized for its simple
functionality, UI interface and strategic partnership with i2.
An example of two instances with varying forecasts methods and the utilization of CPFR to
provide flexibility are displayed in the table below:
Retail Type

Needs

Action

Retail A

Short order to deliver lead times;

Focus on store sales forecasts Wider

Responsiveness to market demand; Direct to

tolerance levels on forecasting mismatch

store delivery
Retail B

Longer order led time and direct deliverables

Retailer ordering system was tied to CPFR

from distributors to retail regional distributor

hub, allowing order quantities to default to the

centers

collaboratively set volumes

Results
Before the implementation of CPFR, the forecast error was 70% which dropped down to 11%.
Whirlpool and its trade partners saw a reduction in weekly order variability due to improved
forecasting and a less reactive stance by trade partners to take corrective action in order
variability. A forecast mismatch alert system was set up which allowed improved accuracy
by analyzing the causes and making creative action plans.

Many intangible benefits were realized such as the one-to-one relationships between
collaborating parties in both companies. A culture of collaboration was developed which put
together process improvement techniques into action. Regular CPFR process reviews were
also conducted to better understand each others problems and investigate corrective
actions

Conclusion
CPFR is a great concept that has revolutionized business practices by integrating the
organization with its trade partners more effectively to realize mutual benefits. Buyers
benefit from reduced prices, better forecasting, collaborative relationships to get better
service levels and synchronized operations. There is a longer term collaboration which the
two businesses can share risks and rewards. CPFR models require commitment, true
collaboration and executive buy-in from both sides. Additionally, concerns over the
appropriate technology that integrates with legacy systems have been an issue which has
caused many organizations to proceed cautiously.