CPFR as a Strategy

CPFR is not a technical standard. It is actually an initiative that facilitates the reengineering of the relationships between trading partners and thus transactions. This initiative is based on an industry-recognized set of standards which are not proprietary. “True collaboration is something that completely reengineers the relationship or the transaction between trading partners,” notes Andrew White, vice president of product strategy for Logility, an Atlanta-based company that offers a CPFR-based supply chain management application. Although the Internet has enabled more self-service and faster service, as in the examples of Dell.com and Amazon.com, up to this point transaction methods have not really changed much. This kind of collaboration is all about doing things differently. CPFR provides templates for supply chain partner collaboration. The process model at below is segmented into three stages. The planning stage establishes and updates the relationship; the sales forecasting and order replenishment stages occur more frequently. CPFR Process Model

CPFR processes depend on the comparison of data: comparing one organization’s plans with another; comparing a new version of one organization’s plans with a previous plan; or comparing a plan to actual results. In other words, CPFR manages by exception—it addresses variances, whether plan-to-plan or plan-to-actual. An important premise of this model is that accuracies in the forecast can be improved by having the customer and supplier participate in the forecast. A retailer can compare its demand or sales forecast with the manufacturer’s order forecast. If a discrepancy occurs, the two trading partners can react—they can get together and decide on the replenishment quantity to recify any such discrepancies. Hence, a supplier can build inventory well in advance of receiving a promotional order, and carry less safety stock at other times. A customer can alter the product mix to reduce the impact of supply problems. CPFR creates a win–win scenario, tying the buyer and seller together so that their goals are compatible. By competing as one, the buyer and seller form a value chain that will come out ahead of other buyers and sellers who are still caught up in price negotiations.

CPFR Has Evolved from a Heritage of Supply Chain Solutions
CPFR is considered to be the next stage in the evolution of supply chain initiatives. Older supply chain operations had gaps in their practices, including financial plans taking precedence over forecasts and non-integrated supply planning. This resulted in higher inventory levels, lower order fill rates, and increased expedited activity. Companies were not realizing the benefits that they expected. Only later did companies start focusing on process integration—managing the supply chain from raw materials through delivery to the end user. The difference between CPFR and other business process tools, such as Efficient Consumer Response, is that the other models require critical mass before any benefits are realized. With CPFR, a customer can improve performance by just having a collaborative relationship with one vendor. The story began in 1995 when retailer Wal-Mart found that consumer products and pharmaceutical company Warner-Lambert’s in-stock averages were not up to par with Wal-Mart’s vendor performance standards.

Wal-Mart, along with Warner-Lambert, Surgency, (formerly Benchmarking Partners), and two software companies, SAP and Manugistics, spearheaded an effort to define a process that would link customer demand with replenishment needs through the entire supply chain. The pilot focused on stock of Listerine mouthwash kept in stores. The group actually first tested the collaborative concept on paper, and then demonstrated in a computer lab that the Internet could be used for the information exchange. Here’s what happened: Warner-Lambert’s in-stock averages rose from 87% to 98%. Lead times dropped from 21 to 11 days. And sales increased $8.5 million over the test period—even though the pilot was limited to one Warner-Lambert manufacturing plant and three Wal-Mart distribution centers.