The paper was presented at the International Logistics Conference “Logistics 2002 – Flexible supply chains – concepts, experiences, challenges”. Poznań, May 14-15, 2002.
The CPFR (Collaborative Planning, Forecasting and Replenishment) model – a response to new challenges facing the supply chain
At the beginning of the 21st century, no enterprise has any doubts about the need to compete not only with its own product but also with the services associated with it. This phenomenon intensifies with the concentration of distribution channels connecting manufacturers with consumers. At the same time, we observe increasing rivalry between participants within distribution channels. Therefore, negotiations increasingly concern not only commercial terms but also aspects aimed at ensuring that the manufacturer provides other value-added services. Observing their results over the last few years, a clear trend emerges, which we can define as “delivering more added value for a lower price”. However, since the primary task of every enterprise is to generate revenue and increase profit, the question arises – Is it possible to meet such market requirements? There can be only one answer – yes, because we care about delivering our products to as many consumers as possible.
Consequently, all enterprises have focused their attention on analyzing and improving the processes occurring within them. Many of them have succeeded and have currently met their customers’ expectations – but does such an approach guarantee success in the coming years as well? In my opinion, unfortunately not – an attempt to optimize business processes within a single enterprise must fail in the long run. Why? Because before the product we manufacture reaches the consumer, it must pass through many intermediate links of the supply chain. While maintaining the full autonomy of the entities creating it, many processes are repeated, and sometimes even mutually exclusive. The simplest example here may be the so-called bullwhip effect.
Although the sale of products at POS (Points of Sale) is relatively uniform, uncertainty related to the size of demand increases with the distance in the supply chain. To ensure the required level of service, subsequent participants in the chain build safety stocks. As a result, it is not possible to further lower prices because the so-called Total Cost of Ownership (costs of maintaining inventory, buildings, management, transport, and profit) is very high. Therefore, the only factor enabling enterprises to permanently and long-term increase process efficiency, and thus, while maintaining the required level of profit, deliver “more added value for a lower price” to customers, is the cooperation of all supply chain participants. However, I would like to clearly emphasize that this is not just about improving the flow of information and mutual communication between suppliers and recipients, but about actually creating lasting relationships enabling joint action (CPFR Collaborative Planning, Forecasting and Replenishment). The goal is for all enterprises forming the supply chain to benefit. This is possible in the case of cooperation based on trust and understanding of the needs of other partners – a synergy phenomenon then occurs, where the entire supply chain achieves greater efficiency than the sum of its individual links.
In the presented CPFR model, individual supply chain participants (let’s assume for simplicity that these are a buyer in a distribution network and a manufacturer’s representative) cooperate based on six steps:
1. Agreement to implement the CPFR model and definition of roles, establishment of confidentiality rules for shared information, agreement on parameters describing process efficiency;
2. Definition of process parameters: master data of products that the CPFR model will cover;
3. Preparation of a sales forecast based on actual consumer demand based on data from POS (points of sale) and planned promotions and advertising campaigns;
4. Definition of exceptions that are not subject to automatic sales order generation;
5. Preparation of a sales order based on the sales forecast, actual sales, and assumed cooperation efficiency indicators (e.g., service level, availability, inventory size);
6. In case of exceptions, performing additional calculations necessary to determine the sales order.
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