M0012-Unit-05-Collaborative Planning and Repleni

e-Slm Unit Unit-05-Collaborative Planning and Replenishment in Supply Chains Structure 5.1 Introduction Objectives 5.2 Meaning of Collaborative Planning, Forecasting and Replenishment Origin of CPFR CPRF Model 5.3 Collaborative Planning Collaborative Assortment Planning for Apparel and Footwear 5.4 Forecasting and Replenishment Dynamic Replenishment 5.5 Customer Information Quality Specification Customer Service and CPFR 5.6 Summary 5.7 Terminal Questions 5.8 Answers 5.9 Case Study 5.10 Glossary 5.1 Introduction By now you must be aware how planning and designing the Supply Chain involves comprehensive analysis of the requirements with reference to business, supply, demand factors, scale of operations, location, and available facility options. In today's fast-paced changing global economies, the key to survival for any enterprise is the high quality of its product(s) and service(s). Enterprise has to focus on continuous achievement of higher standards of customer satisfaction. This can be achieved by; understanding and predicting customer needs to provide it at the least possible cost, in the least possible time, and ahead of competition. This creates the need for a pragmatic approach to streamline the system and the need to differentiate an organisation committed to the above characteristics. In order to stay ahead of competition and be better prepared for change, organisations need to incorporate Collaborative Planning, Forecasting, and Replenishment (CPFR) both internally and externally. Based on information shared among trading partners, collaborations occur on sales forecast, order forecasts, seasonality of products, pricing models, proposed promotional strategies, safety stock rules, minimum order quantities, store realignments, and order

strategy. Successful CPFR implementation leads to business growth for all trading partners. CPFR is an Internet based data-sharing business process that avoids data-entry errors, results in reduced inventory carrying costs, reduced operating expenses, and thereby ensures product availability across the Supply Chain. Learning Objectives After studying this unit, you will be able to: Define the meaning of CPFR. Explain origin of CPFR. Assessing CPFR Model. Elucidate Benefits and Scope of CPFR. Assess Customer Service and Replenishment. 5.2 Meaning of Collaborative Planning, Forecasting and Replenishment Collaborative Planning, Forecasting, and Replenishment (CPFR) is a menu-driven business process by which, we integrate the company goals throughout the supply and demand process. This is done by collaboratively forecasting and continuously replenishing inventory with the customers by offering process, collaboration, and technology solutions. According to Katz and Hannah, "CPFR tools work as metal detectors to identify business issues that need immediate attention". Traditionally, suppliers and retailers did their individual forecasts and eventually ended up blaming one another for any shortcomings from their respective forecasts. CPFR demands that the supplier and retailer collaborate by sharing information such as the Point of Sale data, inventory stocks, out of stock data, proposed promotion and pricing strategies, and planned production schedule. It also demands to subsequently evolve a shared and agreed upon forecast. This calls for a very strong commitment and a high level of trust from both the supplier and the retailer. CPFR aims to improve Supply Chain integration by supporting and assisting joint practices. CPFR seeks co-operative management of inventory through joint visibility and replenishment of products throughout the Supply Chain. Information shared between suppliers and retailers assists in planning and satisfying customer demands through a supportive system of shared information. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end Supply Chain process more efficient. Efficiency is created through the reduction of expenditures for merchandising, inventory, logistics, and transportation across all trading partners. The emergence of business as a global activity unfettered by the constraints of geographical and political boundaries has necessitated a re-adjustment of attitudes with reference to the manner of doing business. 5.2.1 Origin of CPFR CPFR began as a 1995 initiative co-led by Wal-Mart's[1] Vice President of Supply Chain,

Chief Information Officer, Vice President of Application Development, and the Cambridge, Massachusetts software and strategy firm Benchmarking Partners. The Open Source initiative was initially called CFAR (pronounced See-Far, for Collaborative Forecasting and Replenishment). According to an October 21, 1996 Business Week article entitled Clearing the Cobwebs from the Stockroom, New Internet software may make forecasting a snap. Benchmarking developed CFAR with financial support from Wal-Mart, IBM, SAP, i2, and Manugistics[2]. The latter two are makers of accounting and Supply Chain Management software respectively. To promote CFAR as a pattern, Benchmarking has posted specifications on the web and briefed more than 250 companies including Sears, J.C. Penney, and Gillette. About 20 companies are implementing CFAR. Warner Lambert (now part of Pfizer) served as the first pilot for CFAR. The pilot's results were publicly announced at a CFAR industry session at Harvard University on July 30, 1996. This session was for executives from Wal-Mart's suppliers as well as other retailers and the Uniform Code Council. Benchmarking Partners then gave CFAR to the Board of Directors of the Voluntary Inter-industry Commerce Standards Committee (VICS). VICS established an industry committee to organise for rolling CFAR out as an international standard. The original committee was co-chaired by the Vice President of Customer Marketing from Nabisco and the Vice President of Supply Chain from Wal-Mart. Based on the suggestion of Procter and Gamble's Vice President of Supply Chain, the standard was renamed CPFR to emphasise the role of planning in the collaborative process. The first publication of the VICS and CPFR Voluntary Guidelines came out in 1998. Currently there are committees to improve business guidelines and roadmaps for various collaborative scenarios. This includes upstream suppliers, suppliers of finished goods and retailers. They integrate demand and supply planning and execution. The committee is continuing to improve the existing guidelines, tools and critical first steps that enable the implementation of CPFR. These committees gained experience from pilot studies that have occurred over the past six years. VICS continues to lead much of the research and implementation of CPFR through its procedure and project investigations. 5.2.2 CPFR Model The CPFR process model[3] represents voluntary procedures aimed at structuring and guiding Supply Chain partners in setting up their relationship and processes. Collaborative Planning, Forecasting and Replenishment (CPFR) represents a concept breaking business model that extents Vendor Managed Inventory principles by taking a holistic approach to Supply Chain Management among a network of trading partners. CPFR has the potential to deliver increased sales, organisational streamlining and alignment, administrative and operational efficiency, improved cash flow, and improved Return on Assets (ROA) performance. The VICS Association in co-operation with leading retailers, consumer packaged goods manufacturers as well as consulting software providers has developed the CPFR process model. The CPFR model presents the aspects in which industries focus. The model provides a basic framework for the flow of information, goods, and services. In the retail industry the retailer typically fills the buyer role, a manufacturer fills the seller role, and the consumer is the end customer. The centre of the model is represented as, the consumer followed by the middle ring of the retailer, and finally the outside ring being the manufacturer. Each ring of the

model represents unlike functions within the CPFR model. The consumer drives demand for goods and services while, the retailer is the provider of goods and services. The manufacturer supplies the retailer stores with product as per the demand. The product is pulled through the Supply Chain by the end user, being the consumer. Strategy and Planning, Collaboration Arrangement is the process of setting the business goals for the relationship, defining the scope of collaboration and passing on roles, responsibilities, checkpoints, and escalation procedures. The Joint Business Plan then identifies the important events that affect supply and demand in the planning period such as promotions, inventory policy changes, store openings/closings, and product introductions. Demand and Supply Management is broken into Sales Forecasting that projects consumer demand at the point of sale, and Order Planning/Forecasting, which determines future product ordering and delivery requirements based upon the sales forecast, inventory positions, transit lead times, and other factors. Execution consists of Order Generation that forecasts to firm demand and Order Fulfilment. It also consists the process of producing, shipping, delivering, and stocking products for consumer purchase. Analysis tasks include Exception Management (the lively monitoring of planning and operations for out-of-bounds conditions) and Performance Assessment (the calculation of key metrics to evaluate the achievement of business goals, uncover trends or develop alternative strategies). Most companies forecast upcoming demand based on historical customer orders or shipment levels and patterns. However, actual consumer demand may be very different from the order stream. Each member of the Supply Chain observes the demand patterns of its customers and in turn produces as set of demands on its suppliers. Nevertheless, the decisions made in forecasting, setting inventory targets, bundle sizing, and purchasing take steps to transform and distort the demand picture. The further a company is "upstream" in the Supply Chain, the more distorted is the order stream relative to consumer demand as described by the so-called Bullwhip[4] effect. This distortion of the demand picture imposes high Supply Chain costs in the form of suboptimal customer service levels, high inventories, and low returns on asset. Collaborative Planning, Forecasting and Replenishment (CPFR) is a visionary framework for aligning supply and demand across a network of trading partners. However, many companies have found it difficult to implement the full scope of the CPFR model. Most successful projects have focused on just one part of CPFR at a time i.e. the one that offers the highest Radar Intercept Officer (ROI) for the particular trading relationship. Some of the key characters of any CPFR model are: The consumer is at the centre of the model: The goal of collaboration has always been to satisfy consumers with better product availability at lower cost. The new model makes the consumer focus visually apparent. Collaboration is a continuous cycle of activities: The old model showed CPFR as a linear, numbered sequence of steps. However, everyone in a customer/supplier relationship recognises that companies are always simultaneously selling products, shipping the next order, and planning the next promotion. The new CPFR eliminates the presumption that there is a start and finish (or any predetermined order) to this process.

Execution and analysis are fundamental to success: The original CPFR model supported demand planning and forecasting in detail. It gave comparatively lesser support to no guidance on execution and analysis activities. The nine step process ended with order commitment, order fulfilment, and execution which were a footnote. The new model rebalances the CPFR tasks to encompass execution and place more emphasis on collecting and sharing the performance metrics that measure the success of the initiative. Manufacturers and retailers in highly promoted channels concentrate their efforts on coordinating events to synchronise supply and demand where the volatility (and opportunity for out of stocks or overstocks) is highest. Manufacturers and retailers in Every Day Low Price (EDLP) channels, who have access to high quality Point of Sale (POS) forecasts, have adapted their demand planning processes to support Collaborative Forecasting. Manufacturers, retailers, and suppliers who have relied on continuous replenishment program (CRP) processes in the past, are evolving to Collaborative Replenishment (CR) initiatives. CPFR scenarios convert the high-level boxes and pictures of the generic CPFR model into systematic instructions for each of these CPFR variants. By giving business partner visibility into inventory and by collaborating a single shared forecast of customer demand, Supply Chain partners can positively affect a set of key business drivers to create value across Supply Chain partners. Necessity of CPFR The whole concept of 'Supply Chain Management' has undergone a recent metamorphosis. Over the years, it has become highly integrated with the 'quality consciousness movement' starting with quality control in 1960s, quality assurance in 1970s, quality systems in 1980s, and total quality management during the 1990s. The impact of Supply Chain Management is found in such processes as Just In Time (JIT), Product Chain Partnership, and benchmarking. The Internet and subsequent growth of e-commerce over the last couple of years have revolutionised our daily life personally and business wise. The Internet has refurbished the existing business practises and it continues to evolve the new ones. CPFR is the most comprehensive and extensive model of Supply Chain Management. It integrates the entire process rather than targeting specific areas. It also ensures a higher achievement of customer satisfaction by bridging the gap between the supply and demand processes throughout the organisation. This reduces the cycle time and increases customer satisfaction. Steps in implementing CPFR There are nine steps in CPRF implementation. They are: 1. Develop front-end agreement: The parties involved establish the procedures and rules for the collaborative relationship. 2. Create joint business plan: The parties involved create a business plan that takes into account their individual corporate strategies and defined category roles, objectives, and tactics. 3. Create sales forecast: One party to create an initial sales forecast uses retailer Point of Sales data, causal information, and information on planned events. This forecast is then

communicated to the other party and it is used as a baseline for the creation of an order forecast. 4. Identify exceptions for sales forecast: Products that fall outside the sales forecast constraints, set the front-end agreement are identified. 5. Resolve/Collaborate on exception items: The parties discuss and produce an adjusted forecast. 6. Create order forecast: Causal information and inventory strategies are combined to generate a specific order forecast that supports the shared sales forecasts and joint business plan. 7. Identify exceptions for order forecast: Products that fall outside the order forecast constraints, set jointly by the parties involved are identified. 8. Resolve/Collaborate on exception items: The parties negotiate again (if necessary) to produce an adjusted order forecast. 9. Order generation: One of the parties involved will get a firm order from the order forecast. Following Table shows the roles and responsibilities of various management levels in implementing CPFR model. Table 1.1 Roles and responsibilities of various management levels in implementing CPFR model

Benefits of CPFR implementation: Some of the benefits of CPFR implementation are: Increased level of trust due to sharing of critical information among trading partners and visibility to planned and unplanned changes. Distinct increase in service levels to customers. More accurate demand and sales forecasting, enabling better production management. Near elimination of Out of Stock situations. Enhanced category management benefits. Reductions in inventory on hand, returns and allowances. Shift from Make to Stock discipline to, Make to Demand manufacturing. Double-digit increase in sales. Improved Return on Assets (ROA) performance. Enhancement of the organisation's Economic Value Added (EVA). Successful CPFR pilots have been carried out by companies like Wal-Mart, Sara Lee Corp., Warner-Lambert Co., Wegmans Food Markets, Nabisco Inc., Schnuck Markets, Food Lion, Salisbury, Meijer, Kmart Corp., Kimberly-Clark Corp., Hewlett-Packard, Lucent Technologies Inc., Circuit City Stores Inc. to name a few. According to Katz, Klaris, and Scorpio The success of a CPFR initiative depends on strong, sustained, highly visible sponsorship. In order to create and implement a successful CPFR process, the management team must be ready to commit both personnel and resources". Figure 5.1 illustrates the basis activities that lead to a complete CPFR process.

Figure 5.1: Illustration of a Successful CPFR Implementation Scope of future work on CPFR At present, over sixty leading manufacturers, retailers, system integrators, and software solution providers actively participate in the VICS CPFR Committee. This represents a very small percentage of the entire business community, and of the scope of CPFR. Every industry, every business has at least one supplier and one retailer and therefore, the scope of CPFR opportunities is unlimited. With the emergence of 'Trading Exchanges' across industries, buyers and sellers are coming together more than ever before. In addition, the trading partner relationship is shifting from a 'win/lose' adversarial interaction to a 'win/win' collaborative interaction. The corporate and value-chain focus is shifting from, market-area specific planning to customer specific planning. According to Harrington, True collaboration requires a strategic change in the nature of both, the relationships and transactions between trading partners. By collaborating collectively in real time on such things as sales forecasts, production plans, inventory management, and procurement, companies can begin to eliminate uncertainty from the Supply Chain. Self Assessment Questions 1. _______________ aims to enhance Supply Chain integration by supporting and assisting joint practices. 2. The first publication of the VICS CPFR ____________________came out in 1998. 3. The CPFR model provides a basic framework for the ______________ goods, and services. 4. The impact of Supply Chain Management is found in such processes as ______________ product-chain-partnership, and benchmarking. 5. The corporate and value-chain focus is shifting from market-area specific planning to _________________________ 5.3 Collaborative Planning Collaborative Planning is an approach to Supply Chain planning, which aims to co-ordinate planning tasks of independent Supply Chain partners while, respecting their local authority decisions. It introduces collaborative planning, shows how it is embedded in the broader subject matter of Supply Chain Management and reviews findings of related literature. At its core, it provides a systematic description of a negotiation-based, practice-oriented approach to collaborative planning. This is observed at the medium-term level of master planning between two supply-chain partners, a supplier, and a single customer. Subsequently, this basic concept is extended to cover Supply Chains with multiple partners and planning on a rolling basis. Implications of collaborative planning on supply contracts are outlined out. In addition, incentives for co-operative behaviour by the supply-chain partners are analysed by applying concepts of game theory. The second edition is completely reworked, updated and has become even more accessible.

5.3.1 Collaborative Assortment Planning for Apparel and Footwear The assortment planning process for apparel and footwear retailers and vendors is the activity of determining product placement by location and by delivery. Retailers and vendors must work together to build and modify assortment plans based upon financial plans, historical sell-thru data, market trends, and production schedules. The co-ordination and sharing of this information both internally and among trading partners is critical to deliver the right products to the right place at the right time. Both retailers and vendors financial and assortment planning procedures affect inventory management. Yet the business processes and underlying systems are often not integrated or synchronised between parties. This lack of integration and synchronisation creates inefficiencies in the supply and demand chains. This leads to missed sales, inaccurate inventory, excessive markdowns, unnecessary operating costs, and extended response times. The purpose of this document, Collaborative Assortment Planning for Apparel and Footwear, is to outline best practices that effectively address these challenges and advanced assortment planning collaboration and execution. The goal of CPFR is to change the relationship paradigm and create significantly more accurate information that can drive the value chain to greater sales and profits. When implemented in a proper co-ordinated manner, CPFR takes quick response from Vendor Managed Inventory (VMI) and Efficient Consumer Response (ECR) to the next level by ensuring increased sales. Sales are increased through improved in-stock positions, better store-level customer service, and better asset utilisation. At present, it can be stated that CPFR is still in its embryonic stage. Much more can be achieved through detailed analysis and careful systematic implementation of the process. CPFR is the division of forecasts and related business information among business partners in the Supply Chain. It enables automatic product replenishment. CPFR, a set of guidelines supported and published by the VICS Association changes the rules so that companies throughout the Supply Chain can simultaneously lower costs and improve customer services. The CPFR solution itself does not have to be deployed by each trading partner. Instead, several companies offer hosting services that run CPFR solutions for a trading community. The cost to participants will be substantially lesser than what it would be, if individual participants were to develop their own systems. It has noted increased promotional service levels, reduced inventory across the distribution network, improved sales, operational, and forecast efficiencies. It has topped the list of the biggest expected benefits. Other anticipated benefits include lower inventories, improved partnerships, reduced product returns, operational efficiency improvements, and sales increases. In many Supply Chains, promotional product sales volumes dwarf those during nonpromotional periods. In Europe, nearly 35% of retail sales are on promotion. In some countries, the number is even higher. Spanish retailers sell 50% of their goods on promotion. Collaborating on promotions is essential in these channels. Yet projects till dates have been limited in scale because there has not been a viable process and data standard for sharing information about them. Some companies share spreadsheets, but these are different for each partner. It is impossible to integrate them with the systems at each end, so as to plan promotion tactics and volumes.

Self Assessment Questions 6. _____________ is an approach to Supply Chain planning which aims to co-ordinate planning tasks of independent Supply Chain partners. 7. Both retailers and vendors financial and assortment planning processes affect __________________. 8. The goal of CPFR is to change the relationship __________and create significantly more accurate information. 5.4 Forecasting and replenishment In recent past, the concept of inter-company collaboration, especially in the area of planning and forecasting, has received significant attention. By developing processes that make it possible to adjust plans and forecasts in a collaborative fashion. Supply Chain parties aim to make it easier to take events into account such as promotions, new product introductions or assortment changes that affect demand throughout the Supply Chain. Collaborative forecasting makes it possible to take benefit of the expertise of all or at least several Supply Chain members. One benefit that is suggested to follow from this is a reduced reliance on historical records. Time series methods that build on historical data can forecast changes that follow continuous or recurring patterns. However, it cannot accurately forecast the impact of events such as, price changes that happen irregularly. Through collaborative forecasting, a company can get access to better information on important demand drivers such as promotions. This makes it possible to complement time series forecasting. Either with regression analysis that examines the relationship between sales, and other variables such as advertising or with subjective forecasting that relies on expert opinion. Furthermore, working based on one shared forecast reduces the problems related to "islands of analysis" phenomenon where, different groups, departments or companies develop their own forecasts independently to each other. This forecast is done according to their own specific needs and risk ending up acting based on conflicting plans. Collaborative Forecasting: Letting Consumers Drive Supply The consolidation of demand among a small number of ever-growing retailers has increased the importance of individual accounts. Increasingly, high-quality POS data and POS forecasts are available from these retailers. The challenge for manufacturers has been, how to leverage these key customer forecasts in the corporate demand planning process. Manufacturers have not previously had an account-specific demand forecast that they could use as a basis for collaboration. As a result, many early CPFR projects were not integrated with enterprise planning, yielding little inventory benefit for the manufacturer. Leading manufacturers are adapting their Sales and Operations Planning (S&OP) processes,

to accommodate retailer-specific forecasts. Instead of driving future-plans of historical shipments data, they are feeding customer-provided POS. In addition, POS forecasts data for key accounts into their demand plans using statistical forecasting and replenishment planning tools. These tools are used to align the data with the shipment plans used for the rest of the customers (which remain market-based, rather than account-specific). Collaborative forecasting allows manufacturers to build demand plans that consider their customers plans and that reflect inventory in the customers Supply Chain. Collaborative demand planning is less vulnerable to overstating demand when, forward buying or diversion has taken place. The process also yields true account-specific forecasts (the basis for contributing meaningful feedback on customer plans). Collaborative Replenishment: Continuous Replenishment Programs Come of Age Continuous Replenishment Program (CRP) solutions have grown in popularity over the past 10 years, particularly in Europe. Typically, CRP delegates the responsibility for calculating replenishment requirements to the supplier. The customer simply provides inventory or DC withdrawal information and the supplier calculates required order quantities to keep the customer in stock. In the U.S., this process is sometimes called Vendor Managed Inventory (VMI). Many Direct Store Delivery (DSD) programs operate as a continuous replenishment program as well. The CRP process is intended to isolate the replenishment calculation from other enterprise processes. The supplier takes on new responsibilities but, does not have to change the order handling or shipment processes used to satisfy demand through other customer channels. In spite of its popularity, CRP has many flaws. By delegating the responsibility for supply, the customer also gives up control of the process. Customers have little or no visibility to planned shipments. Suppliers meanwhile can be caught unprepared by promotions, assortment changes, and other major shifts in demand due to the short planning possibility that CRP typically uses. Many organisations have turned to Collaborative Replenishment, as a more balanced approach to CRP initiatives. In Collaborative Replenishment both the customer and the supplier have visibility to demand. Longer-term forecasts are used to highlight upcoming surges and pauses that call for advanced planning. For example, Procter and Gamble and Reckitt-Benckiser have both reported major benefits from Collaborative Replenishment initiatives. Working with 11 suppliers, Procter and Gamble reported a Supply Chain Wide inventory reduction of 33%; Reckitt-Benckiser reported a 37% reduction working with one of its key suppliers. In the retail arena, Super drug (a U.K. based health and beauty chain) has experienced improvements in forecast accuracy, in-stock positions, and store-level inventory by using Collaborative Replenishment. 5.4.1 Dynamic Replenishment Dynamic Replenishment is a process that enables suppliers to compare customer forecast or planning data with their own production plans, to better match supply and demand. It also allows suppliers to compare a customers firm commitments or orders with the suppliers orders. This approach enhances the visibility of normal Material Requirements Planning

(MRP) driven execution processes such as, purchase order processing or release processing. It allows suppliers to flexibly adjust to shifts in customer requirements or supply shortages. The approach increases order fill rates and reduces raw materials, finished-goods inventory, and expediting costs. This approach helps in: Creating time fence profiles. Managing multiple forecast streams. Converting multiple units of measure. Providing performance optimisation and benchmarking. Incorporating business rules agreed upon by trading partners. Managing by exception with alerting capabilities. Working within flexible planning horizons.

Store Replenishment Collaboration Working within the framework of CPFR, Store Replenishment Collaboration aims to link manufacturers and retailers to plan store sales and promotion volumes, calculate store inventory requirements, and respond to on-going operational issues. The goal is to increase sales and reduce out-of-stocks at the most significant point of the Supply Chain where, the consumer purchases the product. The profits attributed to store-level collaboration include greater visibility to consumer takeaway and overstock reduction. Replenishment accuracy, in-stocks, and promotional execution also develop. Trading partners have a direct view of how consumers are responding to new products, existing shelf distribution, and promotional take-away. The Store Replenishment Business Process Guide[5] will assists retailers and manufacturers planning or executing storelevel initiatives by, implementing consistent vocabulary and industry guidelines. Distribution Centre Replenishment Collaboration Distribution Centre (DC) Replenishment Collaboration has been the most common starting point for trading partners, to improve the replenishment and forecasting processes between their organisations. Executed within the framework of CPFR suppliers and buyers work together to optimise the flow of inventory into the retail distribution centre and out to the stores. In this system, trading partners collaborate to develop the accuracy of DC to Store and Supplier to Retail DC forecasts. In addition, optimal inventory levels are analysed as transportation and operational efficiencies are maximised. The Distribution Centre (DC) Replenishment Collaboration Business Process Guide[6] outlines the methods to attain

targeted service levels to the stored and increase profitability. Self Assessment Questions State whether following statement are true or false 9. Collaborative forecasting makes it possible to take advantage of the expertise of all, or at least several, Supply Chain members. 10. The consolidation of demand among a small number of ever-growing retailers has increased the importance of partnership accounts. 11. The CRP process is intended to integrate the replenishment calculation from other enterprise processes. 12. Dynamic replenishment is a process that enables suppliers to compare customer forecast or planning data with their own production plans to better match supply and demand. 13. Optimal inventory levels are analysed as transportation and operational efficiencies are maximised. 5.5 Customer Information Quality Specification Customer Collaboration is gaining traction in many industries that are pushing to become more demand driven. Customer Collaboration embraces the ability to sense demand signals and automatically replenish the customers inventory based on actual demand. This is most commonly seen in consumer products and other industries that operate downstream distribution structures that extend to retailers. This approach supports the following benefits: Enables the shift from a manufacturer push to a balanced, demand-driven push-pull Supply Chain. Merges forecast and demand-driven Supply Chain strategies. Ensures intelligent short-term demand management for baseline and promotion processes and automates the response to changing demand. Helps manufacturing companies fulfil store-level-based replenishment requirements such as cross docking. Unlike traditional forecast-driven replenishment with a customer collaboration strategy, replenishment processes become more responsive. These processes are triggered primarily by actual customer demand information. POS and Electronic Product Code (EPC) data also adds to visibility across the entire Supply Chain and enhances the process. It allows manufacturers and retailers to manage and execute joint promotions that can take into account last-minute changes. This also provides the visibility needed to effectively receive or calculate out of stock information automatically and use the resulting information for sales forecasting and promotion planning. Exception reporting also needs to be part of this business process. By resolving missing data and exception situations, you can execute forecasting, replenishment, and fulfilment planning more expeditiously.

Responsive customer replenishment processes allow you to respond more rapidly and efficiently to short-term demand fluctuations in the baseline and promotion business processes. Thus, you realise increased sales and fewer lost sales from stock-outs. Other forms of customer collaboration functionalities include more traditional Vendor Managed Inventory (VMI) functionalities, including replenishment logic based on minimum and maximum stock balance limits. By using your customers consumption data, running a forecast, and conducting replenishment order planning you can fully manage the inventories at the customers site. 5.5.1 Customer Service and CPFR Over the years, we have seen many of our customer's Supply Chains that operate with significant issues and under unnecessary constraints due to poorly defined and managed customer service policies. Some examples of these are: Customers abusing the service policy, with up to 4 small orders per day that make it impossible for the supplier to make a profit margin, once distribution costs are taken into account. Service level policies that are the benchmark across a business for all customers regardless of their service requirements, leading to excessive distribution costs. A total lack of accepting cost to serve and total cost of ownership when, setting contracts and service agreements in place. Self Assessment Questions State whether the following statements are true or false 14. Customer collaboration is gaining traction in many industries that are pushing to become more demand driven. 15. Customer collaboration combines forecast and demand driven Supply Chain strategies, 16. By resolving missing data and exception situations, you cannot execute forecasting and replenishment. 17. Responsive customer replenishment processes allow you to respond slowly and less efficiently. 18. Customer collaboration functionalities include more traditional vendor-managed inventory (VMI) functionalities, including replenishment logic based on minimum and maximum stock balance limits, 5.6 Summary Large scale assignments like the Efficient Consumer Response (ECR) in the fast moving consumer goods sector or Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR) initiatives more generally provide a rich range of strategies for collaborating amongst Supply Chain partners. While individual victories

implementations of the latter have already been reported, there has not yet been the widespread adoption that was originally hoped for. In our research, we looked at implementations across several organisations and countries and our findings show that the slow progress to date may be due to a lack of common understanding of these concepts and the difficulty of integrating external collaboration with internal production and inventory control. 5.7 Terminal Questions 1. Discuss origin of CPFR. 2. How CPFR model helps guiding Supply Chain partners in setting up their relationship and processes. 3. Elaborate the concept of Supply Chain Management and its integration with the 'quality consciousness movement'. 4. Discuss continuous replenishment program (CRP) solutions its impact in European countries. 5. What is meant by Dynamic Replenishment explain its process. 5.8 Answers Answers for Self Assessment Questions 1. CPFR 2. Voluntary guide lines 3. Flow of Information 4. Just-in-Time (JIT) 5. Customer Specific Planning 6. Collaborative Planning 7. Inventory Management 8. Paradigm 9. True 10. False 11. False 12. False 13. True 14. True 15. True 16. False

17. False 18. True Answers for Terminal Questions 1. Refer section 5.1.1 2. Refer section 5.1.2 3. Refer section 5.1.3 4. Refer section 5.3.2 5. Refer section 5.3.3 5.9 Case Study

5.10 Glossary

References 1. Collaborative Planning, Forecasting, and Replenishment: How to Create a Supply Chain Advantage by Dirk Seifert 2. Collaborative Planning, Forecasting, and Replenishment (CPFR) by Dipl.-Betriebsw. Markus Diederichs 3. Supply Chain Collaboration: How to implement CPFR by Ronald Ireland, Colleen Crum 4. Supply Chain Management: strategy, planning, and operation by Sunil Chopra, Peter Meindl [1] http://en.wikipedia.org/wiki/Collaborative_planning,_forecasting,_and_replenishment [2] Case-studies on ERP technology for IT decision-makers [3] http://www.triz-journal.com/library/graphics/2007-01-gaodwf01.gif [4] Chen, Y. F., Z. Drezner, J. K. Ryan and D. Simchi-Levi (2000), Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times and Information. Management Science, 46 pp. 436 443. [5] http://www.vics.org/committees/cpfr/#f4 [6] http://www.vics.org/committees/cpfr/#f5