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CHAPTER 1 INTRODUCTION

2.1 CPFR REFERENCE MODEL

2.1.1. Evolution of CPFR

To retrieve the historic environment when CPRF was initiated, the fierce market competition requires global enterprises constantly shorten lead-time, cut cost, while improving quality of products and services.

Therefore, tighter collaboration among manufacturers, distributors and retailers is desired widely. Hence, a new topic rise from conventional Supply chain management, that, how to form an innovative partnership across each functional party in the supply channel? During the period of 1980-1990, the Vendor Managed Inventory (VMI, by Gerber, 1991) and Collaborative Replenishment Planning (CRP) have been introduced to supply chain management arena, which facilitated the evolvement of CPFR. At meantime, SCM developed ECR in the year 1993, where all participants in the SC are enabled to synchronize database via IT manner; in accordance, the entire supply chain pursued for an integrated mechanism to enhance efficiency and proficiency. Finally in the year1995, the term CPFR (Collaborative Planning Forecasting and Replenishment) occur, integrated two very important perspectives together i.e. Information Exchanges and SC collaboration.

Figure 2-1 Evolution of CPFR

The first application was carried out in Wal-Mart in its retail operations, under the assistance of its supplier Warner Lambert, SAP and Manugistics, and consultant Benchmarking partners. The mechanism aimed at enhancing demands fulfillment ratio by jointly forecasting of products of sales, including production planning, inventory planning, distribution and sales programing. The result was fairly successful; when after, VICS dedicated efforts in study of CPFR model, hence more and more enterprises implemented it for inventory reduction purpose.Williams (1999) described how Procter & Gamble (P&G) took advantage of CPFR in a

SUPPLY CHAIN ECR(1993) Supply Chain

VMI(1980) CRP(1990) CPFR(1995)

Information SC collaboration

Demanded Facilitatin

Inspired Promoted

Evolution

Facilitatin

supply chain to create value for the corporation, trade partners, and consumers. Foote and Malini (2001) found that the incorporation of Data Warehouse with Wal-Mart in CPFR enabled more accurate forecasting of operational processes. Later on CPFR model has been challenged and verified in numerous academic reports, e.g. Fliedner, “CPFR” an emerging supply chain tool (2003), and Holmstrom (2002), “new solutions needed for mass collaboration”.

2.1.2 What is CPFR?

CPFR is a collaborative business practice that enables partners to have visibility into one another's demand, order forecast and promotional data to anticipate and satisfy future demand (VICS,1995). Literally interpretation comes to the four core attributes: Collaboration, Planning, Forecasts, and Replenishment, while all of the four are done a systematic process of information and knowledge sharing.

Table 2-1 Definition of CPFR

Items Features Contents Relevant to Case

Collaboration -Common objective among participants along the stream volume, order fulfillment, pricing, safety inventory, gross margin.

Mutually agreed forecast, improvement of accuracy radio, increase inventory mgt.

effectiveness and efficiency.

-Features of Air-con purchase /sales cycle Replenishment -Time sequential demand

transferred into forecast -Exception radio

Respect to order process cycle, minimum order quantity, purchase habits, forecast deviation, transportation, etc.

-Improvement in the future

CPFR goes beyond internal system of information sharing out to trading partners; therefore, investment in IT manners and tools are required, such as Warehouse Management Systems (WMS), Forecasting / APS systems, Enterprise Resource Management (ERP) systems, Materials Requirements Planning (MRP) systems, and Customer Relationship Management systems. In practice, CPFR drives the best performance of sales and marketing function in relations with supply chain planning and execution, in which way, product availability can be increased while reducing inventory, transportation and logistics costs.

2.1.3 CPFR Implementation

The purpose for enterprises’ implementation of CPFR is to 1) provide clarified business-to-business collaborative “P”, “F” and “F” standard (Nine-step process Model), 2) introduce Roadmap of CPFR (5 steps of implementation), 3) and to customize evaluation metrics, and Key Performance Indicators.

The case company aims to employ 5 steps roadmap, and the research builds up the business case with Step 1. Evaluate the current conditions, Step 2. Define Scope and objectives. The researcher also conducts primary preparation for collaboration (Step 3). Step 4. Execute of the Nine-step process model (see figure) is not carried out during the research project, yet Step 5. Assess Performance and Identify Next Steps, has been included into Data analysis for complete the Findings.

Figure 2-2 Nine Steps Process Model

2.1.4 CPFR Impacts on S&OP

The implementation of CPFR model gives rise to impacts on Sales& Operation system. There are five aspects to locate the influence. First of all, it changes Partner Relationships from traditional buyer and seller to flexible partnerships; meanwhile, it facilitates deeper collaboration through interdependencies, joint systems & processes. Secondly, it affects the Inventory. Successful implementation reflects a. decrease in inventory levels and safety stocks, b. decrease in storage & financing costs, c. decrease in obsolescence.

Subsequently, it results in the improvement in company’s financial statement, due to the fact that a.

Reduction in stock-outs and opportunity costs, b. Promotion Efficiencies, c. Sales increase from improved customer service. The forth impact is on the process efficiencies, a. Improvements in forecast accuracy, b.

order management, c. purchasing, d. inventory control, e. production labor. The last impact arrives at the Transportation management, a. Strategic Rate Management, b. Tactical Rate Management, c. Less than Truckload (LTL) Consolidation, d. Capacity Utilization and e. Demurrage.

More importantly, many business process executives have realized that to link the customer’s perspective into their supply chain could assist in driving efficiencies back through their on-going corporate sales and operations planning process (S&OP). (Baumann, 2010) Katerina Pramatari stresses that CPFR as the latest business practice aims to ensure that there is always enough quantity to meet consumer demand,

1.Develop Front End Agreement 2.Create the Joint Business Plan 3.Create the Sales Forecast

4.Identify Exceptions for Sales Forecast 5.Resolve/Collaborate on Exception Items 6.Create Order Forecast

7.Identify Exceptions for Order Forecast 8.Resolve/Collaborate on Exception Items 9.Order Generation

while maintaining optimum levels of stock across the supply chain. The essence of CPFR is about utilizing technology capabilities and information sharing to support trading partner interaction and collaboration in meeting consumer demand (Pramatari).