The CPFR activity is as continuous as it is collaborative. Sounds good, you say. But it also sounds very theoretical. How can CPFR actually enhance your supply chain?
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Higher order fill rates Decrease in coupling inventory levels i. SCOR is a helpful framework for identifying best practices, designing supply chain processes and selecting appropriate software solutions. SCOR can also be used to provide a roadmap for continuous improvement by helping you benchmark how your own supply chain practices and processes measure up along the maturity continuum.
Decision-makers with early-stage supply chain organizations will face an uphill climb if they hope to engage in CPFR.
Success typically requires advanced planning systems, proven ability to manage internal collaboration and similar characteristics of late-stage supply chains.
To save time, money and resources, all these attributes should be in place and entrenched within your organization before you begin pursuing or considering external collaboration opportunities. Scale or Critical Mass Despite the infrastructure requirements needed to sustain partner operations, CPFR offers the promise of distinct, measurable financial returns that can be quite appealing. Tightly woven supply chains reduce the need for safety stock, also called coupling inventory, which is used to hedge against variability in both demand and supply.
There are also intangible benefits to be gained from effective CPFR alliances, principally improvements in relations between trading partners. For example, partners that can prove their capabilities to consistently meet mutually agreed goals for their CPFR customers are likely to receive preferences in terms of shelf space allocation or distribution. Many business leaders presume incorrectly that they can overcome the requirement of CPFR to provide scalable savings simply by replicating their CPFR process among numerous trading partners.
This expectation will likely fail — in part because of one-time start-up costs, but more likely because of customizations that are necessary to accommodate each additional trading partner. For this reason, CPFR is most likely viable only for your top-tier trading partners. For your smaller customers or suppliers, it makes better economic sense to manage relationships based on more conventional, order-based transactional processes. Other Considerations While CPFR may seem to be a good bet, based on the size of your business and the strength of your existing infrastructure, it may not be well-suited to your industry.
Highly promoted products, new products and high-fashion products seasonal items or those with a very short lifecycle are all good candidates for CPFR.
On the other hand, products with inherently short lead times, that are not highly promoted, or those with future demand patterns that can be easily extrapolated from past demand provide less of a financial payback using CPFR. Technology In real-world applications, supply chain managers use a variety of technologies to support their CPFR operations.
These tools generally fall into one of two camps: shared applications that are hosted either by a third party or one of the trading partners, or peer-to-peer communications processes in which each partner operates its own system. In the latter example, both parties typically agree to use a common data-transfer protocol like electronic data interchange EDI or file transfer protocol FTP to exchange data.
The key to making technology decisions regarding CPFR is agreement on the use of acceptable data standards and protocols, particularly when there are multiple trading partners in your CPFR marketplace. Be advised that integrating partner data into your own planning systems and databases carries a significant change management risk that, if underestimated, can result in mistakes that may trigger delays in system design, development and deployment, as well as significant, unexpected expenses.
Exception Management The sheer volume of data required to evaluate and execute supply chain decisions makes exception management an essential part of any CPFR solution. Since CPFR collaboration efforts typically occur on a weekly or monthly basis and not in real time, quick follow-up is necessary to prevent exception-management processes from going off track.
In situations where trading partner agreements include financial penalties, exception management is especially vital to controlling costs. Organizational Change Management and Education One of the most difficult things to manage when engaging in CPFR is the organizational change necessary to support and enable the process.
Even in organizations with well-developed supply chain processes and technologies, existing roles and responsibilities will need to be realigned to effectively support CPFR. On the supplier side, supply chain, sales and customer service roles will need to be reorganized into virtual CPFR teams. On the customer side i. This necessary realignment of traditional organizational roles can be quite disruptive, with strategic, tactical and "political" implications that extend far beyond the realm of supply chain operations.
Self-interest is deeply ingrained in human nature, and as with any change-management initiative, very few companies will find it easy to overcome resistance to the change that is necessary to accommodate an effective CPFR business process.
One of the challenges of transforming from an early-stage supply chain operation to a more mature model is breaking down the functional silos that exist internally within organizations to enable cross-functional collaboration.
Bear this in mind as a point of reference as you consider the implications of collaborating with external partners. CPFR initiatives require buy-in at every level of an organization. Education is another key to helping personnel — at all levels of an organization — understand CPFR processes, the implications of change, potential benefits of CPFR and the importance of supporting such initiatives.
Making a positive impression on the human resources involved on both sides of a CPFR alliance is a vital step in laying a solid foundation for success, but it requires focused attention as well as an educational investment: to set goals and objectives, to resolve conflicts, to establish a shared sense of fundamental supply chain concepts, and to provide training on day-to-day processes and tools — the nuts and bolts required to operate the system.
When it comes to new system rollouts or new operational ventures like CPFR, education and training are typically overlooked, underestimated or under-funded, but it is a critical component to ensuring the success of such endeavors. Conclusions There are many case studies detailing the effectiveness of CPFR relationships and many examples of positive financial and intangible benefits to be gained by both trading partners.
Many overly ambitious projects have had to be abandoned or scaled back — to co-managed inventory alliances or joint forecast projects — because one or both trading partners did not fully understand the obligations. Even when two partners seem ideally suited and share similar cultural values, unforeseen circumstances like organizational and market changes can disrupt CPFR relationships. Choosing your partners wisely and carefully evaluating the compatibility of people, process and technology are all keys to success.
About the Author: With nearly 20 years of experience working the supply chain domain as both an industry practitioner and a consultant, including leadership roles on number of CPFR and VMI initiatives for Fortune corporations, Jerry Andrews is a senior manager with Plan4Demand Solutions, a consulting services firm specializing in global supply chain planning. More information at www. Latest in Home.
CPFR: an emerging supply chain tool
Success attributable to JIT is due in part to the practice of externally synchronizing the production planning, operations scheduling, purchasing, and shipping activities of the various trading partners comprising the supply chain. The fabrication and assembly supply chain depicted in Figure 1 is representative of the supply chain found in the automotive industry. Through early communication of production planning information originating with the original equipment manufacturers OEMs and sequentially proceeding upstream through the supply chain, operating schedules, purchase plans, and shipping activities of the trading partners have been synchronized. Synchronization of inbound OEM materials management activities has resulted in reduced inventories, improved capacity utilization, higher customer service levels, and a host of additional reported benefits for all participants.
CPFR: Considering the Options, Advantages and Pitfalls
Akirisar International sourcing for apparel and general merchandise has lengthened the supply chain and cycle time, again necessitating supply chain planning visibility. Purchasing and Supply Management. Managing CPFR For successful CPFR implementation, senior management must understand the issues concerned with executing the strategy, purpose and structure to retailer-vendor partnerships. This increases the importance of effective supplier selection and assessment Kannan and Tan, An Analysis of the Dep Enterprises in the union should trust each other. Once the corresponding forecasts are ejerging agreement, the order forecast becomes an actual order, which commences the replenishment process. The operation costs of CPFR are substantially higher along with greater implementation difficulties Sari, Collaboration between emegring partners creates greater benefits Skjoett-Larsen et al.