CPFR: The countdown begins

Retailers and manufacturers are gearing up to roll out a practice known as Collaborative Planning Forecasting and Replenishment. And that could spell big changes for logistics managers.

By James Aaron Cooke -- Logistics Management, 11/1/1999

It's ready to roll. After a year's worth of testing, the advocates of Collaborative Planning Forecasting and Replenishment (CPFR) say that companies worldwide are taking steps to implement this strategy with their trading partners. "The pilots have proven the business process," says Joe Andraski, chairman of the CPFR committee overseeing those tests. "We're now ready for implementation."

Under a CPFR program, the retailer compares its demand or sales forecast with the manufacturer's own order forecast. When a discrepancy occurs, the two trading partners get together and decide on the replenishment quantity. Manufacturers like the practice because obtaining information on true demand allows them to either produce to plan or redeploy existing stocks, says Chris Sellers, president of Syncra Software, which

makes a Java computer language-based CPFR application. Retailers like CPFR because it reduces inventory while at the same time increasing store sales and company profits through targeted replenishment.

In fact, both parties can cut back on safety stocks in their respective distribution centers. "You can reduce safety stock because you have better visibility of requirements," Sellers explains. "The industry is so used to nonperformance that a retailer that needs 1,000 items assumes it won't get 20 percent, so it orders 1,200. The manufacturer then has a contractual obligation to produce 1,200 even though only 1,000 are really needed. Both are perpetuating [this practice] and that costs lots of money."

If CPFR lives up to its billing, it could well change the way many logistics departments stock and ship goods to their customers. Indeed, the start of the millennium could mark the beginning of the era of CPFR. "Many retailers are making this a core strategy, and they are big enough to drive other manufacturers and retailers in this direction," says Gerry Cantwell, director of customer service at Nabisco.

The Trailblazers

The CPFR movement dates back to a 1995 initiative by five companies: retailer Wal-Mart Stores, consumer-products and pharmaceutical company Warner-Lambert, the consulting firm Benchmarking Partners, and two software companies, SAP and Manugistics. "We wanted to create a business model in which we collaboratively forecast replenished inventory," recalls Jay Nearnberg, director of global demand management at Warner Lambert.

The initial pilot between Warner Lambert and Wal-Mart involved a forecast for Listerine mouthwash, focusing on the stock kept in stores. After testing the concept by exchanging pieces of paper, the two companies later demonstrated in a computer lab that the Internet could be used as a conduit for information exchange. Today, several software companies offer programs that facilitate this process.

The CPFR movement took a big stride forward in 1998 when the Voluntary Interindustry Commerce Standards Committee (VICS) got involved. Formed by retailers, textile suppliers, and apparel makers in 1986, VICS was established to develop bar-code and electronic data interchange (EDI) standards for the retail industry. VICS' involvement meant that other companies could participate in testing and validating the CPFR concept. Under the aegis of VICS, a number of companies--Procter & Gamble, Kmart, and Kimberly Clark, to name a few--undertook pilots to test the idea of sharing information to improve inventory handling.

One of those pilots was a test launched in July 1998 using products shipped from a Nabisco distribution center in Mechanicsburg, Pa., to stores in the Wegmans grocery chain in the Northeast. The two companies shared quarterly forecast data on 22 items, according to Nabisco's Gerry Cantwell. The data exchanged by the two companies resided on a secure server hosted by software company Manugistics, which furnished the application used in the test.

The sales force at Nabisco would develop a forecast for those items, which was then compared electronically with Wegmans' own forecasts for its stores. The Manugistics software used in the test sent an e-mail alert to both parties whenever any major variance occurred.

Overall, the Wegmans and Nabisco pilot proved successful, Cantwell reports. "We've had sales growth, better execution, and increased service levels," he says. Although the test validated the business concept's value, Cantwell says that the pilot also indicated that enhancements to the software application were needed to improve the speed and reliability of data exchange over the Internet. Resolution of those problems could be close at hand. "The software coming out now is greatly upgraded from the original beta stuff," he notes, "so we're getting close."

CPFR Roadmap

Other VICS-sponsored pilots also were successful, demonstrating that comparing sales and production forecasts could result in more accurate stock replenishment. "The pilots were proof of concept," says Andraski.

This fall, VICS announced that it would publish a tutorial for CPFR implementation both in hard-copy form and on its Web site, www.cpfr.org. The guidelines will define a common language and method for communicating essential information between trading partners in a supply network. The step-by-step instructions will be based on the experiences of the companies involved in the half-dozen pilots that have been completed to date.

But most companies aren't waiting for the "roadmap;" they're starting to implement the process themselves with their trading partners. "There are a number of programs [under way] that are not being publicized, and they are actual working models," Andraski reports. "There are companies this month that will take proposals to senior management, and once they get approval, they'll move forward with greater speed."

As of this fall, Syncra Software said it was involved in the first stages of implementation with more than 20 companies. "The retailers have picked this up as a key process for driving change," says Sellers. "When the retailers are interested, the manufacturers are right behind them."

Having demonstrated that the CPFR concept can have a bottom-line impact on their businesses, companies are looking to expand the programs from the handful of items involved in the pilots to the hundreds or thousands of items covered in most trading relationships. "Most pilots have involved a limited number of SKUs (stock-keeping units)," notes Andrew Love, a project manager at the Uniform Code Council, which is publishing and distributing CPFR guidelines for VICS. "We're looking for ways we can implement this on a large scale."

As companies look to broaden the scope of their programs, the VICS group is also looking at ways to include carriers and third-party logistics companies in the process. Andrew White, a vice president of product strategy at the CPFR software maker Logility, reports that a group called Collaborative Transportation Planning and Management is examining the role of carriers in the delivery aspect of CPFR.

Changes Ahead

The movement toward CPFR could usher in some profound changes for distribution centers. If it's successful, distribution centers could find themselves storing less inventory or making more frequent shipments.

Although CPFR is built on the idea of joint planning for sales and orders, the strategy's success ultimately will depend on logistics operations. That's because distribution departments and the carriers that handle delivery will be called upon to execute the replenishment part of the plan. "Collaboration in execution will be the next step," predicts Rich Sherman of supply chain software vendor EXE Technologies. "If you've got all this planning integration and you're communicating changes in the plan, you'll have to have a convergence of planning and execution."

Logistics managers had better hold onto their hats if predictions prove true. Many believe that CPFR will profoundly transform business practices in such industries as retailing and the grocery business when the year 2000 dawns. "The CPFR process is arguably one of the more influential changes to business processes that we'll see over the next five to eight years," notes Manugistics Senior Vice President Jeff Holmes. "It's really just catching on."