Collaborative planning, forecasting and replenishment (CPFR) emerged from a relationship between Walmart and a major supplier, P&G, to better plan their Listerine mouthwash product. The steps were 1) information sharing, 2) joint demand forecasting, and 3) coordinated shipments.

It was a straightforward process with a very clear value-add but in the 1990s, as Lean methodology took hold, CPFR was ‘streamlined’ into more of pure order management process, and lost some of its essence. But the principles of CPFR are still golden and can be applied to great effect today. The transparency and collaboration it engenders with your supply chain partners can really take your planning to the next level, improving KPIs on both sides.

Internal Vs External Mindset

This ‘outside in’ type of planning where planning teams incorporate information from their customers and suppliers is the next evolution of not only demand planning, but supply chain management as well. Collaborative planning between companies is about sharing information (enabled with technology), and building relationships and trust to share information that benefits both parties’ ability to forecast and plan. In a nutshell, the goal is efficient and effective operations by enabling joint business processes across enterprise boundaries.

It takes from that inside-out thinking that most organizations are stuck in, to an outside-in thinking mindset. With inside-out thinking your view of demand and supply is based on information gleaned only from within your own four walls. We’re making decisions based on our own internal information and make a best estimate of what we think our customers will buy. There are of course a lot of demand drivers out there that are not necessarily captured in a demand forecast using historical data. Even with advanced modelling, it is driving looking in the rear view mirror.

Outside-in thinking incorporates information from the customer and the customer’s customer, the end-user. It allows us to know what they are looking for and why. Your retail partners have information about demand that you won’t get unless they tell you. Types of demand drivers include what you customers are doing in terms of pricing and promotions and other demand variables. By talking to them in a structured, cross-enterprise process like CPFR, we can get this information and update our forecasts accordingly, and subsequently manage our supply responses more efficiently.

Knowing what happening outside allows us to plan better inside. That’s what is so valuable about CPFR – visibility into demand drivers that you wouldn’t have otherwise.

Guiding Principles of CPFR

Collaboration, consensus, transparency. These are what enable the joint signal of “this is what we think is going to happen”. It means we can better serve our customer and their end users, while optimizing our supply responses. And guess what, this works with your suppliers as well. Joint collaboration with them, sharing forecasts, is valuable too. This transparency upstream allows your suppliers to plan better, which means more likelihood of getting what you need when you need it. Both sides benefit. It’s not trying to get one up on them or holding information back because you’re afraid they’re going to use it against you. Rather, the more transparency you have, the better the working relationship you’re going to end up with.

Benefits For You

• Reduce your forecast error
• Plan and manage uncertainty better
• Reduce your costs and optimize inventory
• Service customers better
• Fewer stockouts

Benefits For Your Customer

• Plan promotions better by knowing they have enough inventory
• Better commit to their end-users
• Reduce error
• Save money, do things more efficiently
• More robust supply plans

Committing to a Synergistic Relationship

You must truly believe there is value for your customer. That’s the reason why you want to share. It’s not a one-sided relationship. You both must see value in this process. Mutual benefit is the reason you’re doing the process.

However, I understand there’s a cultural mindset sometimes with executives whereby they’re scared to share information. Some people are scared that if they share information, they’re going to use it against us. And I get that. We need to start small, build a pilot, and work from there. Start with what you’re comfortable sharing and start building a relationship. It will take time to build the necessary confidence and trust on both sides because honestly that culture is you don’t trust the other company you’re not going to feel confident sharing your information and you won’t get the information you need. In essence, you’re dating – you’re getting to know each other, trying to establish long-term relationship. You can’t call someone up you’ve never met and expect them to tell you everything about them – you’ll scare them off.

An Example Of How CPFR Worked for Me 

There was one company I worked with, we were building a collaborative relationship and the first they were represented of a good chunk of our business and we wanted to work with them so we actually went to their team and spent the day with them, learned how they do some metrics and found out the way they measure our service on time was different than the way we measured. Their perception of how we were delivering was different than our perception – that was just thing we found out by talking that day. We also found some challenges they had. We found out that they were committing to their customers based on when we were going to ship into them and that what we were doing was impacting their customers and how they were trying to do workarounds for that. We understood their planning a little bit better talking with them.

After that we said hey, why don’t you give us some POS data and some of your customer information sales information? That way we’re going to be able to improve your service. They started providing some sales data and their service did improve. They were a little bit vulnerable with us, we were a little bit vulnerable with them and both of us came through and helped each other.

We were then able to build on that relationship – we asked for their inventory position because if we knew their inventory position we can improve their service a little bit more. We found out they were ordering once a week. We had a truck doing deliveries by their locations twice times a week, and could easily move them to that route for a second delivery. We suggested that if they order twice a week we could meet their demand a bit better, getting closer to actual demand. In so doing we optimized our transportation and they lowered their inventory – the only thing they had to do was order twice a week instead of once a week. It was a win-win situation.

Within 18 months we were jointly launching a new product together. They had exclusivity for the first six months giving them a competitive advantage in the market while allowing us to plan demand effectively. It was the most successful launch in both organizations’ history, all because of the collaborative relationship. To get to that point took well over a year and both sides had to commit to the journey but it was well worth it.

This won’t be possible with all partners. One of the keys to success is choosing the right strategic partner, and it may not be the biggest. Rather it’s the one who shares your view of the core principles of transparency and collaboration.

We are often so busy using statistical models or trying to understand machine learning when our customers may have some of the answers already. Your customers can give you valuable data like the real sales figures, trends and promotional data that will impact future demand. Getting this treasure trove of data from your customers can really help with forecasting accuracy – so ask them for it!

The First Step In Getting Valuable Customer Data

Many of your customers may still want to keep their data close to their chests but times are changing, and more customers are willing to share data if it makes business sense. But remember, to get access to their data, you must ask for it. It is a matter of finding the right contact inside their organization. Perhaps someone in your organization is already connecting with someone on the inside. Reach out to them to investigate who holds the necessary information.

Once someone is identified, ask to set up a quick call. Don’t get discouraged if you don’t get the answers you seek right away – it may take a few weeks to find the right person. The person who has what you need may not even know it. Engaging with the customer will help identify what information is available and which data can help you.

What’s In It For The Customer?

If your customer is going to give you their data, they’ll want something in return. Most likely they will want to be given priority over other customers when it comes to order fulfilment. Also, remember that whether you are working with just a few customers or hundreds, they all utilize the same types of data and like us, try to make sense of it to predict demand. We demand planners can help with this by offering our analytical expertise.

It may take some time to establish the trust needed to make this collaboration work. Once you have that contact, remember their time is valuable so be very precise in what it is you want. Establish a monthly touchpoint meeting to see how things are going and what you can do to help improve the process.

What Customer Data To Ask For

You want to understand what data they are willing to part with. Questions to ask your customers include:

How is the product selling?

What is the trend for sales?

Do you have any promotional activity within our planning horizon?

What inventory do you have on hand?

Will fiscal period ends have an impact on orders?

Do you utilize your own forecasts and how far out do they go?

The answers to these questions are highly valuable and can improve your forecast accuracy significantly. Establishing a positive relationship is key to obtaining this data. Any and all of this can supplement your planning and help you make important demand planning decisions.

Putting The Customer Data To Work

Utilizing multiple data points is common in demand planning and the data from customers is no different. Be sure you can structure this data in a way that is easy to utilize. You do not want to miss an opportunity to understand your customer. This structure will allow you to utilize this volume data for your monthly demand reviews.

Once you have the valuable customer data, you will need to understand how to translate it to align your communication in a way that will signal the appropriate forecast to your supply and production partners. Start with supplier SKU to customer item. Selling, shipping, ordering and forecasting units may all be different. Find the common denominator. You will want to be certain you are matching up the data correctly and forecasting the correct volumes.

Pulling It All Together

Customer collaboration is the key to demand planning success. Is the customer data always right? No, but it is never wrong. As demand planning professionals, it is our job to accurately mine their data and be sure it makes sense. The beauty of establishing a collaborative relationship is that if you see something way off, you can start asking questions and protect both you and your customer from false assumptions about future demand. Or indeed, you may get true insight into demand that you weren’t expecting at all, and as a result you can plan accordingly.

Demand planning and forecasting is both an art and science. The amount of data we have available to us is growing, and strategies are changing. But building trust and establishing customer relationships are timeless, and just as important as the latest technology trend.

Has your organization been struggling to deliver a consistent fill rate to your client or service level to your client’s customers? Has it been challenging for your company to keep decent inventory coverage or maintaining satisfying forecast accuracy? If you answered yes to one of these questions, it might be time for your corporation to rethink some aspects of your supply chain.

What Is CPFR?

In today’s competitive market, it is more and more difficult (if not almost impossible) to gain efficiencies and improve demand response for companies working in silos. One of the key enablers of efficiencies and improvements across supply chains is to create and use collaborative planning, forecasting and replenishment (CPFR) strategies across organizations’ boundaries. CPFR strategies allow aligning of multiple S&OP processes and jointly plan supply chain activities to ensure that the joint business plans between organizations are respected, while minimizing costs and maximizing efficiency from end-to-end of your supply chain.

Collaboration is a journey; it is built step by step. It requires a significant investment of time and resources. Each client has a different mission, organisational structure, targets, objectives and so forth. There is no “one size fits all” solution; collaboration has to be adapted and tailor made for each major customer. Hence, the first step is to identify for which customers the return on investment will be the greatest. The client needs to have a collaborative mindset, an open mind and represent a significant percentage of your total turnover.

CPFR Is Collaborative By Nature

Secondly, you need to determine which individual in your organization has the right skills and knowledge to build such an important project. This person needs outstanding client facing and PR skills while having a great and extended knowledge of internal processes, systems, business opportunities and a great sense of the “big picture”. To kick off the CPFR project, the objectives, priorities and expectations of both parties need to be discussed, defined and agreed. Furthermore, the customer’s processes, systems and operational rules have to be mapped and completely understood.

Subsequently, the collaboration project leader has to realise a quick “win-win” in order to gain the trust and build relationship with the customer’s organisation. I can’t stress enough the importance of relationship and trust for successful CPFR. Afterwards, joint key performance indicators need to be established. Collaborative companies need to agree on SMART objectives (Specific, Measurable, Attainable, Realistic or Relevant and Time based). A target for each KPI has to be determined. I highly recommend creating a weekly scorecard or dashboard displaying all the KPI to track and monitor. This dashboard has to be shared between all stakeholders of both corporations. It is very useful to monitor KPI, identify opportunities and keep everybody informed of the project’s progress. Corrective actions need to be taken to improve results and tackle the different challenges and opportunities.

If you are able find the right balance of all these ingredients, using the right resources in the right time, your organization will definitely become the best in class supplier for your customer! CPFR strategies are great tools to make your supply chain a competitive advantage in today’s market!

Cedrick Laporte-Roy
Customer Supply Chain Manager
L’Oréal

Interpreting market demand data is one of the most vital concepts in Demand Planning.  Effective management of demand greatly improves responsiveness and positively impacts consumers, inventory levels, go to market strategies, and ultimately, revenue. But this is a lot easier said than done because the consumer of today wants the same experience, availability and assortment across online, in-store, and via third party distributors.  

In addition to understanding consumer behavior and being one step ahead, we need to understand consumer sentiment and create an experience around how individual customers want to buy. We mustn’t assume we can meet consumers’ needs by only reacting and to sales orders alone – we need to understand  true demand. This true demand may not even be what the end consumer actually bought, but what the customer intended to buy.

To serve the right consumers with the right products at the right time, a good estimate of demand is crucial and it cannot be done in a functional or company silo. It requires the involvement of many parties: Finance, Marketing and Sales, and Operations, but also external parties such as key customers and channel partners. The best way to mitigate lower customer tolerance is for it to be replaced by joint value customer collaboration.

Realize You Are Part Of An Integrated Value Chain

Organizations who thrive have learned that they are part of an integrated value chain, or partners in a grand synergy that comes from collaboration in data, process, technology, and innovation. For some, it is a formalized process that enables companies to work together with their trading partners like Collaborative Planning and Forecast Replenishment (CPFR) in the structured manner defined by Voluntary Inter-industry Commerce Standards (VICS). Companies like P&G revolutionized Joint Value Creation (JVC) with their partners and set the standard for what we should achieve.

Other companies call it Demand-Driven Value Networks (DDVN) or, more up to date, Joint Value Collaborative Planning. Whatever the acronym, they all work together to better meet their customers’ needs by efficiently utilizing customer and supplier competencies and insights.

The 6 Steps To Synergistic Collaboration

Over time, and through innovation, we have seen the alignment between the core processes of forecasting, ordering, and fulfilment between partners continue to improve. To accomplish these synergies in common areas such as Logistics, Operations, Supply Chain, and Demand Planning, there are six key areas of collaboration we need to focus on:

1 – Develop a Front-End Agreement and Purpose: This step is where trading partners establish the guidelines and joint vision to define the value proposition for all sides. For some, this is more detailed and includes confidentially agreements and the empowerment of resources to be employed throughout the process. Others are more informal rules of engagement but usually still cover key points such as scope, roles and responsibilities, and objectives.

2 – Collaborative Forecasting: Customers are developing consumer or store level forecasts and doing in-house promotional planning. At the same time, suppliers are developing their own customer forecasts and trying to interpret POS or syndicated data and incorporate market analysis. In this step, retailer Point Of Sale data, casual information, store opening and closings, and information on planned events are used to create a joint sales forecast that supports the joint business plan.

3 – Collaborative Order Plan: The retailer from their store level forecast has generated an aggregated order plan. The supplier, from their customer forecast, creates an estimated demand plan. From a collaborative sales forecast, neither side is guessing and we have a collaborative proposed order plan between partners. In this step,  inventory and delivery strategies are combined to generate a specific order forecast that supports the shared sales forecast and the joint business plan.

4 – Generating Orders and an Inventory Plan: This step marks the transformation of the order plan into a committed order. Order generation can be handled by either the retailer, supplier, manufacturer or distributor, depending on competencies, systems, and resources. Regardless of who completes the task, the created order is expected to consume the order plan which is aligned to the collaborative sales forecast and the result is a time-phased inventory plan at the retailer and supplier/distributor.

5 – Fulfilling the Order: Good collaborative planning does not stop at the order. In this step, the focus is on the efficient transfer of goods and inventory pooling for the retailer and the supplier, including third party distributors. For customers it is about receiving and optimizing inbound logistics and freight – for suppliers it is shipping and optimizing the outbound and deployment. This collaboration enables effective fulfilment strategies and optimization of total logistics between partners.

6 – Collaborative Performance Assessment: The age-old adage, what gets measured gets managed. Suppliers can measure on-time and in full (OTIF), inventory or other execution monitoring. Customers drive performance with supplier scorecards. In this step, aligning on a structured, disciplined, feedback performance assessment helps both sides meet the front-end agreement and objectives of the joint business plan.

Process flow to achieve the goal of a collaborative plan.

Bottom Line: Win Together Or Die Alone

Even if trading partners do not implement a formal CPFR process, any environment of trust and a collaborative interaction can greatly benefit each one of them. Those who struggling to survive in the volatile and demanding business of today can attribute their difficulty to acting as an autonomous element in their supply chain. Those who are thriving today, and those who will be able to keep pace with the consumer of tomorrow, do so by working together towards a joint vision, collaborating on demand and supply plans, and driving collective innovation. In boils down to optimal customer response, and you cannot serve your customer without collaborating with your partners.

I will be discussing the topic of CPFR and external collaboration in IBF’s Online Education Series, held on May 10th 2018. There are multiple dates throughout May dealing with a range of topics to help you plan and forecast better – you can see further details and register here. It’s a great series of seminars and I encourage you to join me. 

Constance Korol

Last night I had the pleasure of previewing the International Auto Show at the Jacob Javitz Center courtesy of Ford and the Social Media Club of New York City/ SMCNYC.

Scott Monty at the International Auto Show in New York City

We were certainly warmly welcomed as we were treated to a cocktail reception and a great networking opportunity with not only social media mavens but Ford executives such as Scott Monty, Head of Social Media at Ford, as well. I have seen Scott speak before at last year’s BlogWorld show but the event was overwhelmingly huge making  it quite difficult to approach him with so many people vying for his attention. This time it was much easier to get a moment to speak with him

We discussed Ford’s success over the past couple of years due in no small part to the company’s focus on profitability and staying true to the brand  but more importantly, their focus on relationships. He seemed extremely proud to be able to say “We didn’t take a dime from the government”. Ford leveraged social media by aggregating consumer ideas, collaborating with others with one goal, to make the best vehicle….”Together we arrive at a better decision”.  While social media played a role in developing and improving Ford’s relationships with consumers, Scott also mentioned in his short talk that the company also made it a priority to maintain a healthy relationship with its employees. This meant that even during the suffering economy, Ford employee morale remained stable.  I asked Scott if Ford has been struggling with supply chain issues and/or facing out of stock situations as a result of the crises in Japan. He replied on a similar theme, crediting great relationships with their suppliers for the fact that  they are doing OK.

Scott summed up his talk with the words that any good company would want to hear from their consumers, employees, suppliers or simply those that like them on Facebook…… “They built a relationship with me, I trust Ford”

How are relationships benefiting your business/company?  Take our poll on Linkedin and let us know your feedback in the comments.

Lora Cecere: Supply Chain Shaman

Go to any supply chain conference, and you will hear it.  Yes, the term collaboration is bandied about. It is over-used and often over-hyped in discussions largely without meaning.  So, what does it mean?  And, what happened to the supply chain collaboration initiatives of the 1990s?

Let’s start with the definition.  The greatest success in supply chain relationships is when true collaboration happens.  What does it look like? It is a when a sustainable win/win value proposition.   Six elements are required:  resources, skills, joint vision, leadership, a plan and aligned incentives.

The problem is that the so-called “collaborative programs” of the 1990s focused solely on process missing the mark on these six elements.  The tenants of VMI and CPFR were well-intended, but they fell short in building true collaborative relationships.  Let’s take a closer look.

Why did CPFR not gain wider adoption?

Many tout success, and many conference presentations expound on benefits; but back home at the office, the teams are confounded.  In the late 1990’s it was all the rage.  Yes, CPFR (Collaborative Planning Forecasting and Replenishment), over-hyped by many, has fallen short in delivering the promise

The results are clear.  After ten years of active projects, collaborative planning forecasting and replenishment failed to reach its promise for three reasons:

• Laborious. Just too much work for the benefit.  The added costs did not measure up to the benefit and the programs were not grounded in the six essential elements of collaboration.  Instead, it was a process implemented in the absence of the core elements of what drives collaborative relationships.
• Retail forecasts not up to the task. For CPFR to work, retail forecast accuracy needs to be high and with sufficient granularity to ensure analysis.  The dirty little secret with CPFR is that only three retailer forecasts—Best Buy, Food Lion and Wal-Mart—were up to the task.  In addition, the gap in retailer data for perpetual inventories and accurate on-hand data could not give the teams a good starting point.
• Lack of integration into Enterprise Systems. For most Advanced Planning System (APS)/Enterprise Resource Planning (ERP) deployments, there was no logical connection for the data.  As a result, it failed to make a systemic impact on supply chain excellence.

So, as a result, most CPFR initiatives became 20-year old pilot projects.  They were isolated—lacking integration into corporate demand planning architectures—and only as effective as the strength of the relationship and the quality of available data.

When does it make sense?

However, let’s not throw the baby out with the bathwater.  It would be incorrect to say that CPFR never makes sense. It was over-hyped and over-promised, and applied to situations where there was not a good fit.  So, you might be saying, where does it fit?   When a company has these five stars to align, CPFR can be used to reap great benefit:

• Significant channel presence. The account needs to be significant—at least 10% of the channel-for the investment to warrant the expense.  The greater the channel presence, the greater potential benefit. It must matter and make a difference.
• High Demand Volatility: CPFR makes more sense for products with short life cycles, seasonal patterns, strong dependence on weather, and in competitive categories.  It makes less of an impact for products that have stable demand.  Companies benefit from advance warning signals.
• Strong Retail Partnership. The data is clean, available and meaningful to both parties’ business objectives.  Both companies have strong planning skills and a passion for forecast accuracy.  It is tied and closely coupled to the business.
• The Tie to Replenishment can make a Difference: Many companies forget the “R” in CPFR.  If he advanced notification from forecast sensing can make a difference in improving replenishment and the other conditions can be satisfied, go for it!  However, not all replenishment cycles can be shifted in concert with the CPFR signals
• Right Stuff: It makes sense when there is demand architecture to support close coupling of the demand signal.  The architecture must allow integration at the account, ship-to level. 

What now?

The key is to be judicious.  CPFR has a place in driving supply chain excellence; just not the over-hyped promise of ten years ago.  Be more judicious.  Be more realistic.  Make smarter decisions.

See Lora Speak at IBF’s
First Ever:

Supply Chain Forecasting & Planning Conference: Asia