CPFR or Demand-Driven replenishment for your supply chain? Choose wisely….

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Prior to today’s advanced capabilities around Demand Driven Value Networks, the prevailing strategy was to implement Collaborative Planning, Forecasting, and Replenishment (CPFR).

Given the state of technology platforms a few years ago, CPFR was a prime focus for many of the ERP/MRP type vendors. In fact some vendors have even published comparisons of the workflows in their systems to the structure of CPFR.

What is CPFR?

CPFR defines the flow as Creating the Sales Forecast, Creating the Order Forecast, Generating Orders, Executing Orders, and then gathering Replenishment feedback.

In the past this flow was the best available option, but in today’s fast-paced world it just isn’t sufficient.

What companies are demanding now is  what Gartner is calling a demand-driven value network (DDVN) oriented architecture, which is similar in concept to a “Consumer-Driven” network.  It seeks to align and synchronize demand, supply, and product cycles, as well as enable the ability to sense and shape demand to make a profitable demand response. Focusing on a single view of the consumer for all members of the extended supply chain requires an approach that includes retailers, manufacturers, and logistics providers to all be connected across a multiparty execution backbone that orchestrates a coordinated response to the end-consumer’s demand signal.

Unfortunately the CPFR design is a limited architecture and basically constitutes a push or ERP batch oriented type environment, where an attempt is made to collect and react to exceptions, but this architecture just isn’t designed to resolve these issues in a timely fashion (e.g. daily) given its long lead times and serially integrated nature. Using this method means a price must be paid in lost sales along with excess and obsolete inventory.

Today’s DDVN technologies now provide new opportunities to add value within the replenishment process such as by optimizing truckloads simultaneously with inventory using pull policies. In fact under today’s prevailing strategies around Lean, many companies are implementing technologies that will allow them to move from push to pull, basically moving away from CPFR type architectures toward more DDVN oriented capabilities.

For example KanBan, being one of the simplest DDVN pull policies, is designed to pull supply based on a rate of consumption. The KanBan binning technique is designed to provide discrete quantities the supplier must monitor and use to calculate required shipment quantities. Min/Max, a more flexible pull policy, provides a range of acceptable inventory levels the supplier must monitor and use to calculate their required shipment quantities. Supply is done dynamically based on a consumption rate, and therefore additional consideration can be made for transportation optimization under this policy.

Using these types of DDVN based inventory replenishment policies allows customers to reduce supply chain variability, optimize inventory levels, and minimize freight expense. Typical measurements include inventory turns, truck utilization, and premium freight reduction.  Unfortunately, in order to provide this type of functionality most ERP-type vendors must use plug-ins that are not integrated as part of the transactional flow.  Thus, this type of replenishment may be listed as a capability, but given the batch architecture it just can’t be engaged on a real time, exception oriented basis which is what is really required in today’s rapid replenishment environments.

In addition to improved performance, companies that expand beyond CPFR to a DDVN environment will also enjoy full internal & external visibility of component parts (at retailer DC’s, supplier DC’s, export hubs, etc) based on a technology platform which supports both an automated and an interactive capability to enable full electronic commerce, including the ability to communicate replenishment signals across the global supply network in real time.

Finally, CPFR systems typically takes retailers 1.5 and 4 years to implement. Many of these retailers never get the system to work properly in part because of heavy maintenance requirements.  Former demand planning sales executives have estimated that as many as 60% of demand planning system implementations have failed.  Conversely, DDVN-based systems have been implemented in major portions of retail inventories in as little as six month windows.

Want to learn more? I suggest you download and read the three new tech briefs that cover CPFR, Push vs. Pull, and the new cloud-based supply chains.

Greg Brady