Automated CPFR Will Help Balance Supply and Demand

No supply chain management system is complete without some form of collaborative planning, forecasting and replenishment -- also known as CPFR. It's only a matter of time before CPFR becomes completely automated. A recent survey finds that more than two-thirds -- 68 percent -- of manufacturers, distributors, and retailers have some type of CPFR effort under way. Just under a quarter of this group -- 23 percent -- have a working pilot in place or about to launch.

The study, conducted by Syncra Systems Inc. (www.syncrasystems.com) and Industry Directions Inc. (www.industrydirections.com), confirms that pilot projects have reported strong return on investment, including increases in sales with a CPFR partner and inventory reductions of at least 10 percent. In the study, more than half of the participating retailers said they expected to roll out CPFR to more than 25 partners.

Early CPFR efforts employed the sharing of spreadsheets between partners. Much of the process, however, is still informal. "People do forecasting today by a lot of guesswork, rather than sharing information," says Chris Sellers, president of Syncra Systems. Only 18 percent of survey respondents report forecast accuracy of 90 percent or better. Inaccurate forecasts result in higher inventory levels for manufacturers and shortages among retailers.

By electronically linking the inventory supply chain, CPFR technologies can relieve manufacturers from overproducing inventories to meet unpredictable demand, only to be followed by forced markdowns of excess items. CPFR employs Web-based standards to enable trading partners to share forecast and inventory data. Automated CPFR technologies also enable partners to quickly spot discrepancies and exceptions in orders or invoicing, which tend to trip up electronic exchanges. Partners then can use lower-tech communications -- such as telephone or e-mail -- to resolve any differences.

This kind of tight collaboration will "align trading partners so that the right product gets to the right place at the right time in the right quantity," Sellers says. "You've got to know in advance who's going to need what, when, and where."

Along with Syncra Systems, other vendors in the CPFR field include Manugistics Group Inc. (www.manugistics.com) and i2 Technologies Inc. (www.i2.com).

The survey finds that the most prevalent supply-chain collaboration initiative is vendor-managed inventory, prevalent at 47 percent of those companies surveyed. Of these, almost none have taken it to the next stage of shared responsibility: joint-managed inventory. CPFR communication may be able to facilitate this process.

The challenges in getting a CPFR initiative off the ground are numerous, the study cautions. These include changing the organizational culture to be more receptive to intra-enterprise initiatives -- 60 percent-- and a lack of partner trust -- 42 percent. Almost half of the respondents -- 47 percent -- are uncomfortable with the costs of CPFR, and 39 percent say the benefits are difficult to calculate.

The survey, however, shows some quantifiable returns from companies piloting CPFR programs. "As it turns out, CPFR is enabling a very positive return on investment in terms of increased sales and more efficient inventory practices," says Julie Fraser, director of market strategies at Industry Directions. Those companies that already have high performance thresholds have high expectations for CPFR, once implemented. Half of respondents whose forecast accuracy is more than 90 percent predict CPFR will improve their trading partners' forecasts by at least 20 percent. Likewise, 66 percent of those respondents with the lowest inventory values believe they would gain more than 10 percent in additional savings.

"Generally, the upstream party closer to the source of demand knows more than the downstream, which is getting the requests often with a short lead time to replenish," Syncra's Sellers explains.

BAR CHART:
Supply Chain Initiatives Under Way

Vendor-managed inventory 47%
ECR 25%
CPFR 23%
Just-in-time 18%
Every day lowest price (EDLP) 9%
Joint-managed inventory 2%

Source: Industry Directions Inc. and Syncra Systems Inc.

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BAR CHART:
Ripe for CPFR: Information Regularly Shared with Partners

Promotional plans 56%
Business goals 48%
Order/replenishment plans 47%
Sales forecast 38%
Inventory status 38%
POS data 25%
Product/design 21%
Other 6%

Source: Industry Directions Inc. and Syncra Systems Inc.