<< Chapter < Page Chapter >> Page >

Some of the benefits of VMI include:

  • lower customer inventories
  • better forecasts
  • reduced costs
  • improved services
  • strengthening competitive advantage
  • strengthening buyer-supplier relationships

Similar to SCM and VMI, Collaborative Planning, Forecasting, and Replenishment (CPFR) was developed to allow better communication of control information, which enables coordination and optimization of shared business processes. CPFR is defined as an initiative among all participants in the supply chain intended to improve the relationship among them through jointly managed planning processes and shared information (Seifert, 2003). When successful, it also improves relationships between producers and retailers.

One of the first CPFR projects was initiated by Wal-Mart and Warner-Lambert, which merged with Pfizer in 2000. This project was intended to reduce inventories across the supply chain. It provided comparisons of sales and order forecasts of each trading partner and highlighted any visible forecast differences early enough for the partners to resolve any potential issues. Warner-Lambert applied CPFR to the Listerine mouthwash products by sharing of forecasts and responding to inconsistencies between the collaboration partners’ forecasts. In Warner-Lambert’s case, Wal-Mart’s promotions created large swings in consumer demand, which Warner-Lambert was unaware of prior to CPFR. Warner-Lambert maintained substantial inventory as a hedge in order to prevent supplies from running out of stock. Wal-Mart and Warner-Lambert independently calculated the demand they expected six months in advance. The partners shared this information, as well as the weekly forecast, and they worked together to resolve variations between their forecasts on a weekly basis. Wal-Mart began placing orders six months in advance, instead of nine days, so that Warner-Lambert was able to construct a smoother production plan. This allowed Warner-Lambert to maintain production based on consumer demand for Listerine rather than maintaining sufficient stock. Wal-Mart’s in-stock position improved and sales increased, while inventories dropped. Additionally, Warner-Lambert’s supply management improved substantially. Optimal applications of CPFR occur when, for example, many other retailers join Wal-Mart in sharing their projected demand with Warner-Lambert. Combining demand forecasts from many retail customers makes it possible for Warner-Lambert’s production plans to be much better aligned with total market demands.

Benefits of using CPFR are:

  • drastically improved reaction times to consumer demand
  • higher precision of sales forecasts
  • direct and lasting communication
  • improved sales
  • inventory reduction
  • reduced costs

The CPFR process model is divided into three phases: planning, forecasting, and replenishment. The exhibit below provides an overview of the phases and activities in the CPFR model.

The original CPFR process model. Down a chart is the front end agreement, then the joint business plan, then the create sales forecast, then identify exceptions, then resolve expectations, then create order forecast, then identify exceptions, then resolve expectations, and finally, generate order.
PFR Process Model
Source: (External Link) . Accessed 30 December 2008

Planning consists of identifying an opportunity for collaboration, then developing an agreement to collaborate, as well as forming a collaborative business plan. Forecasting is the most important part of the model. It provides the mechanism through which needs are determined. It is improvement of this aspect of the supply chain through which all of these strategies provide advantages over more traditional methods. Replenishment involves making and delivering the product consistent with the needs schedule developed by the forecast. More accurate forecasts lead to production of only the needed products, which smooths the production schedule and results in price stability. This allows for existing capacity to be used to enable other products or to develop markets for additional production.

Questions & Answers

how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
Privacy Information Security Software Version 1.1a
Good
what is business?
Nayram Reply
what is business
Ofori Reply
i thought this was about making books accessable?
Cecelia Reply
different types of company
Jamshaid Reply
how to write research title on lean?
GUTU Reply
what is business plan
Sthembiso Reply
how to write a business plan
ELIHLE
how to startup business
Mahesh Reply
A canal is more of a need then a cavity
Commander Reply
what is electronic banking
Segun Reply
what does it mean business eco system?
Mohammed Reply
what is business
Abdul Reply
how can i know my business best resources, cheap and good quality
cabdi Reply
vikash rawat
jagvir Reply
entrepreneurial mobility
Manish Reply

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now




Source:  OpenStax, Business fundamentals. OpenStax CNX. Oct 08, 2010 Download for free at http://cnx.org/content/col11227/1.4
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Business fundamentals' conversation and receive update notifications?

Ask