Supply Chain Trends and Issues : Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  
  - March 5, 2008 -  

The On-Going Battle over CPFR


Does it Work? Can it Scale? The Debate Continues; Is the Real Difference Formal versus Informal CPFR?



SCDigest Editorial Staff

SCDigest Says:
Robert Nardone, who recently retired as a senior supply chain executive at Unilever North America, told SCDigest that a large part of the problem is simply definitional.

What do you say? Send us your comments here

It’s hard to think of any area of supply chain management that causes more debate than Collaborative Planning, Forecasting, and Replenishment (CPFR).

The CPFR process was originally developed in 1996 as a pilot program between Wal-Mart and the former Warner-Lambert (now part of Pfizer) aimed at doing a better job of keeping Listerine mouthwash on store shelves. It worked - Warner-Lambert’s in-stock averages rose from 87% to 98%, lead times dropped from 21 to 11 days, and sales increased $8.5 million over the test period, performed in a limited geographic region of Wal-Mart DCs/stores.

In the late 1990s, the VICS committee of the Uniform Code Council (now called GS1) formalized the process, developing the famous “nine-step” model (see graphic) that was released with much fanfare, and strong early support from retailers, manufacturers, and supply chain software vendors. While VICS is focused on the consumer goods-to-retail supply chain, the basic CPFR paradigm has been adopted in some ways in other industries as well.

What’s happened from there is a matter of some debate.


Simplified 9-Step Original CPFR Model


(Supply Chain Trends and Issues Article - Continued Below)



(Supply Chain Trends and Issues Article - Continued)

Can CPFR Scale?

In the inaugural issue of CSCMP’s Supply Chain Quarterly magazine in mid-2007, consultant Rich Sherman wrote an article titled Why has CPFR Failed to Scale? In Sherman’s view, “More than 300 companies have implemented some form of CPFR, but they represent only a small percentage of the companies that could benefit from this strategy. What's more, many companies have established strategic collaborative relationships with some of their most important customers and suppliers, but these implementations represent just a small part of their total customer and supplier base.”

Why has CPFR not reached any sort of critical mass? Sherman says the basic problem is a disconnect between the objectives of retailers and manufacturers.

“What's lacking is a reasonably straightforward capability to systematize the process of balancing and synchronizing retail replenishment requirements with manufacturers' shipping and production requirements,” Sherman wrote. “As a result, CPFR implementations have been relegated to the strategic few— that is, the largest customer/supplier relationships— rather than scaling to encompass the entire market.”

Andraski Fires Back

In a subsequent issue of Supply Chain Quarterly, Joe Andraski, president and CEO of VICS and former supply chain executive in the consumer goods industry, rebutted Sherman’s entire premise.

“The article has “a somewhat familiar tone and tenor compared to several others that I have critiqued over the years,” Andraski wrote. “They have had in common an attention-grabbing headline followed by a review of the past, forecasts for the future of CPFR/collaboration, and a conclusion that CPFR is important, but with certain caveats.”

“To the best of my knowledge, there has never been a negative CPFR article written by a member of VICS or anyone who has had direct experience with implementing CPFR,” Andraski continued. “Typically, those who have written with a negative slant have not attended any VICS CPFR committee meetings, where numerous case studies were presented, including some about the sharing of information between trading partners. Perhaps they might have developed a different point of view if they had just gone to a CPFR meeting.”

However, Jeff Harrop of Demand Clarity, had a view similar to Sherman’s.

“In my opinion, the scalability of the current CPFR business process has been "the elephant in the room" for quite a few years now,” Harrop wrote in a letter to the editor. “The simple fact is that the highest levels of both out-of-stocks and finished-goods inventory in the CPG (consumer packaged goods) supply chain are at the retail store. In and of themselves, higher-level management processes like CPFR were not designed to deal with what goes on day by day, item by item, and store by store.”

Ed Nieuwenhuis, a former supply chain manager at retailer Meijer stores, also agrees with Sherman, but still sees great potential for CPRF.

“Our suppliers would refer to "forward buys" and "diversion"; we would look at making "investment buys" and collaborating with each other to get the biggest economic punch from the pricing programs offered by our suppliers,” Nieuwenhuis responded. “Only when the focus is on reducing total logistics cost can collaboration succeed.”

“From the time we started the collaboration process at Meijer until the time I left, we had reduced our total logistics cost by more than 50 percent,” he concluded. “For most companies, savings are there, but it does take time, motivated people, and enabling technology.”

Truth is Probably Somewhere in the Middle

Robert Nardone, who recently retired as a senior supply chain executive at Unilever North America, told SCDigest that a large part of the problem is simply definitional.

“There is a lot of collaboration happening between manufacturers and retailers in terms of forecast sharing and inventory requirements,” Nardone said. “How much of it uses the formal nine-step model? Very little.”

Indeed, in 2004 VICS significantly revised the CPFR model, maintaining the original nine-step version as one option, but in effect also saying CPFR can be whatever trading partners want it to be.

Karin Bursa, Vice President of Marketing at supply chain software provider Logility, agrees.

“Many may not realize that the VICS definition of CPFR was updated a few years ago to be a much more flexible process,” Bursa said. “Another supply-side challenge is defining a strong 'value add' to justify the CPFR initiative. With VMI and Collaborative VMI, the supplier can more clearly see the upside of improved inventory availability with lower costs. The supplier can also control the process. With CPFR, you need to find a retail partner who is willing to do some work with you and that's not always easy.”

Nardone also says that for consumer goods manufacturers with advanced Sales and Operations Planning (S&0P) processes, collaborative forecasting data from retailers or other customers is key to the planning and decision-making process.

“It’s essential to get good forecast information from retail customers to develop demand and supply plans,” he added. “That is happening with leading manufacturers, whether you call it CPFR or not.”

So what’s your take – has/can CPFR scale? Has it come at all close to meeting its potential? What are the real barriers? Let us know your thoughts at the Feedback button below.

Send an Email