Collaborative planning, forecasting, and replenishment

Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept that aims to enhance supply chain
integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory
through joint visibility and replenishment of products throughout the supply chain. Information shared
between suppliers and retailers aids in planning and satisfying customer demands through a supportive system
of shared information. This allows for continuous updating of inventory and upcoming requirements, making
the end-to-end supply chain process more efficient. Efficiency is created through the decrease expenditures for
merchandising, inventory, logistics, and transportation across all trading partners.

CPFR Origins
CPFR began as a 1995 initiative co-led by Wal-Mart's Vice President of Supply Chain, Chief Information Officer,
Vice President of Application Development, and the Cambridge, Massachusetts software and strategy firm,
Benchmarking Partners. The Open Source initiative was originally called CFAR (pronounced See-Far, for
Collaborative Forecasting and Replenishment). According to an October 21, 1996 Business Week article
entitled Clearing the Cobwebs from the Stockroom, New Internet software may make forecasting a snap,
"Benchmarking developed CFAR with funding from Wal-Mart, IBM, SAP, and Manugistics. The latter two are
makers of accounting and supply chain management software, respectively. To promote CFAR as a standard,
Benchmarking has posted specifications on the Web and briefed more than 250 companies, including Sears, J.C.
Penney, and Gillette. About 20 companies are implementing CFAR."

Warner Lambert (now part of Pfizer) served as the first pilot for CFAR. The pilot's results were publicly
announced at a CFAR industry session at Harvard University, July 30, 1996 of executives from Wal-Mart's
suppliers as well as other retailers and the Uniform Code Council. Benchmarking Partners then presented CFAR
to the Board of Directors of the Voluntary Interindustry Commerce Standards Committee (VICS). VICS
established an industry committee to prepare for rolling CFAR out as an international standard. The original
committee was co-chaired by the Vice President of Customer Marketing from Nabisco and the Vice President of
Supply chain from Wal-Mart. Based on the suggestion of Procter & Gamble's Vice President of Supply Chain, the
standard was renamed CPFR to emphasize the role of planning in the collaborative process.

The first publication of the VICS CPFR Voluntary Guidelines came out in 1998. Currently there are committees
"to develop business guidelines and roadmaps for various collaborative scenarios, which include upstream
suppliers, suppliers of finished goods and retailers, which integrate demand and supply planning and
execution. The committee is continuing to improve the existing guidelines, tools and critical first steps that
enable the implementation of CPFR."[1] These committees gained experience from pilot studies which have
occurred over the past six years. VICS continues to lead much of the research and implementation of CPFR
through its guidelines and project investigations.

CPFR Model
CPFR originally was presented by VICS in their VICS CPFR Guidlines in 1998 as a 9 step (or data flow) process,
starting with the collaborating businesses developing the agreement for collaboration. The 9 steps were:
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

The CPFR model presents the aspects in which industries focus. The model provides a basic framework for the
flow of information, goods, and services. In the retail industry the “retailer typically fills the buyer role, a
manufacturer fills the seller role, and the consumer is the end customer.” The centre of the model is
represented as the consumer, followed by the middle ring of the retailer, and finally the outside ring being the
manufacturer. Each ring of the model represents different functions within the CPFR model. The consumer
drives demand for goods and services while the retailer is the provider of goods and services. The
manufacturer supplies the retailer stores with product as demand for product is pulled through the supply
chain by the end user, being the consumer.

Some of the main processes shown in the model can be found in the second ring that has arrows in a circular
pattern. This is displayed with collaboration arrangement, joint business plan, sales forecasting, order
fulfilment etc. This stage will be described in detail below:

“Strategy & Planning, Collaboration Arrangement is the process of setting the business goals for the
relationship, defining the scope of collaboration and assigning roles, responsibilities, checkpoints and
escalation procedures. The Joint Business Plan then identifies the significant events that affect supply and
demand in the planning period, such as promotions, inventory policy changes, store openings/closings, and
product introductions.”

“Demand & Supply Management is broken into Sales Forecasting, which projects consumer demand at the
point of sale, and Order Planning/Forecasting, which determines future product ordering and delivery
requirements based upon the sales forecast, inventory positions, transit lead times, and other factors.”

“Execution consists of Order Generation, which transitions forecasts to firm demand, and Order Fulfilment,
the process of producing, shipping, delivering, and stocking products for consumer purchase.”

“Analysis tasks include Exception Management, the active monitoring of planning and operations for out-of-
bounds conditions, and Performance Assessment, the calculation of key metrics to evaluate the achievement of
business goals, uncover trends or develop alternative strategies” Wal-mart supply chain and logistics
management.
 Introduction to CPFR
An introduction to the CPFR“ Guidelines as published by the VICS Association
by Syncra Systems

While annual consumer demand for a brand across the nation may be well understood, it is difficult to
determine the right number of specific products to put in an individual store on a particular day of the year.
Unpredictable factors such as weather, transportation delays, production problems, and administrative errors
can all wreck havoc on supply and demand. But more fundamentally, promotions create massive swings in
demand. A single promotion can dwarf the average weekly demand for a product. Suppliers are forced to
carry unprecedented amounts of safety stock, or stay lean and risk being unable to fulfill demand. The first
option raises costs for everyone; the second results in lost sales, and frustrates customers.

The CPFR Opportunity

Collaborative Planning, Forecasting and Replenishment (CPFR), a set of guidelines supported and published
by the VICS Association, changes the rules, so companies throughout the supply chain can simultaneously
lower costs and improve customer service. Trading part-ners share their plans for future events, and then use
an exception-based process to deal with changes or deviations from plans. By working on issues before they
occur, both partners have time to react. A supplier can build inventory well in advance of receiving a
promotional order, and carry less safety stock at other times. A retailer can alter the product mix to reduce
the impact of supply problems. In short, both sides win, and the consumer ultimately benefits from lower
prices.

The CPFR process is divided into nine steps:

 Step 1 - Front-end agreement: Participating companies identify executive sponsors, agree to

confidentiality and dispute resolution processes, develop a scorecard to track key supply chain
metrics relative to success criteria, and establish any financial incentives or penalties.
 Step 2 - Joint business plan: The project teams develop plans for promotions, inventory policy
changes, store openings/closings, and product changes for each product category.
 Steps 3-5 - Sales forecast collaboration: Retailers and suppliers share consumer demand forecasts,
and identify exceptions that occur when partners' plans do not match, or change dramatically. They
resolve exceptions by determining causal factors, adjusting plans where necessary. Steps 6-8 Order
forecast collaboration: Retailers and suppliers share replenishment plans, identifying and resolving
exceptions.
 Step 9 - Order generation/delivery execution: Results data (POS, orders, shipments, on-hand
inventory) is shared, and forecast accuracy problems, overstock/understock conditions, and
execution issues are identified and resolved.

Step 1 ensures that each company has an adequate commitment to collaboration, and that all parties are
aligned around common goals. This front-end agreement might be reviewed on an annual basis. Step 2
applies good category management principles-borrowed from the Efficient Consumer Response (ECR)
initiative - to create a joint plan for going to market. This would typically be revised quarterly, or semi-
annually. What makes CPFR unique is that this joint business plan is used to control the day-to-day
activities of manufacturing, delivering, and selling products. That's where steps 3-9 come in.

A core assumption of CPFR is that each organization will enter the details of the joint business plans into
their on-line planning systems, and then share the results on a regular basis as market conditions change and
logistical problems occur. Because each company may manage thousands of products distributed across
thousands of locations, it is not feasible for planners to compare these plans manually and deter-mine which
changes are significant. Instead, a specialized CPFR system exchanges and compares each value using
thresholds that planners have set. If changes in one plan, or differences between them exceed the threshold,
the CPFR system alerts the planner to the problem. Forecast revisions are exchanged on a regular-usually
weekly-basis.
The CPFR philosophy is that if plans are "close enough", they probably do not require attention. Even when
trading partners have identical objectives, differences in statistical forecasting or constraint-based planning
algorithms will produce minor variances in plans. These are not significant relative to statistical deviations
in demand, and safety stock will take care of them. CPFR technology is essential to identifying exceptions,
because of the millions of product/location combinations that are planned, and because of the unique
perspectives (product, location, and partner hierarchies) of each supply chain participant. Figure 1 illustrates
exceptions that might be triggered when a supplier's forecast is compared with the retailer's.

Figure 1: Forecast-to-Forecast Comparison Exceptions CPFR Results

Only a few CPFR initiatives have published the results of their collaboration, but these have been eye-
opening. Nabisco and Wegmans, for example, noted over a 50% increase in category sales. Wal*Mart and
Sara Lee reported a 14% reduction in store-level inventory with a 32% increase in sales. Kimberly-Clark
and Kmart achieved steady increases in category sales growth that exceeded market growth.

It may be surprising to see such dramatic sales increases linked to a "supply chain" initiative like CPFR.
While improved in-stock levels can increase sales, they wouldn't normally be responsible for a 50% lift.
Joint business planning (CPFR step 2) was behind most of these increases in the pilot projects. These
increases are clearly not sustainable when CPFR is applied across the board; more telling is that in spite of
the sudden sales increase, inventory did not increase in the Nabisco-Wegmans pilot, leading to higher
inventory turns. Steps 3 through 9 of CPFR can take credit for keeping inventory under control in the face of
sharply higher sales.

CPFR Process Synchronizes Planning

From a business process standpoint, CPFR defines how retailers and suppliers can synchronize their
different planning functions. Retailers are focused on predicting consumer reaction to promotions,
competitors, and product category changes, while suppliers usually concentrate on managing the level of
inventory at distribution centers. The retailer's objective is to keep products in stock in stores. The supplier's
objective is to create the most efficient production and replenishment process possible. These differences are
reflected in each party’s sales and order forecasting processes.
• Sales (Consumer Demand) Forecast Comparisons Retailers produce very detailed sales forecasts, often
including weekly (or even daily) store-level demand per SKU. Suppliers may also gather a great deal of
intelligence about what sold from a syndi-cated data source (typically IRI or Nielsen), but they usually
create only market- or account-level forecasts. The CPFR solution aggregates the more detailed sales
forecasts from the retailer and compares the total with the supplier's number.
• Order Forecast (Replenishment Plan) Comparisons Often, retailers do not produce an order forecast at all.
When retailers do produce an order forecast, it may include only base demand. Many handle promotional
orders through a totally different process, tools, and personnel. Suppliers, therefore, don't often get an
integrated view of the retailer's demand. A CPFR solution can improve this situation by providing a forum
where replenishment order forecasts and promotional orders can be brought together and compared in full. It
can also give the retailer better visibility to how the supplier makes changes to their order forecasts to meet
demand.

CPFR Technology Fits Existing Applications

Putting CPFR technology into action requires sophisticated data processing and network technology. CPFR
systems stand on their own but must interact with existing supply and demand chain applications in an
enterprise. The points of contact depend upon if a company is a retailer or supplier.

Figure 2 illustrates how a CPFR solution can fit in with a set of existing retail applications.

 Systems responsible for merchandise planning generate promotions and sales forecasts.
 Distribution systems - including purchasing, warehouse management or replenishment planning
applications - can produce order forecasts, track shipments and report distribution center on-hand
information.
 Store operations systems report store sales, store orders, and on-hand information.

Figure 2: CPFR in the retail IT environment

The CPFR solution collects planning and historical data from these retail systems, identifies exceptions, and
forwards relevant data to suppliers for review and processing.

On the supplier side, a different set of applications contributes to the CPFR process as illustrated in Figure 3:

 Customer relationship management (CRM) applications help the sales force develop promotions and
sales forecasts.
 Advanced planning and scheduling (APS) applications create optimal replenishment plans.
 Enterprise resource planning (ERP) applications produce and distribute products, based upon firm
demand.
Figure 3: CPFR in the supplier IT environment

Figure 3 also illustrates how a CPFR solution could fit into the supplier's IT environment. The CPFR system
compares the data it collects from the supplier's enterprise systems with the data it receives from retail
partners. It generates any exceptions it finds, and communicates results with the retailer's CPFR solution.

The CPFR solution itself does not have to be deployed at each trading partner. Instead, several companies
offer hosting services that run CPFR solutions for a trading community. All each company needs is access to
the Internet; data is uploaded to the hosting service through a secure connection, and then planners access
their company's view through a web browser. Hosting services allow companies to launch CPFR initiatives
quickly and with minimum investment.

Conclusion

CPFR is rapidly becoming mainstream. One retailer already has 20 partners online, with announced plans
for 200. Other industries, as exemplified by the RosettaNet high tech consortium, have adopted CPFR
business practices as well. Innovative manufacturers are also beginning to do forecast collaboration with
their own suppliers - resulting in end-to-end collaboration. Barriers to participation are low, and benefits are
being demonstrated. May be all the buzz about trading exchanges is justified, at least once they take
forecasting product demand and distribution into account through CPFR.

SCM Chopra Meindl - CPFR 526-529

The importance of communication and collaboration can never be stressed enough in a supply chain. A well-
documented example is of Volvo and green cars. In the 80's, Volvo had a growing inventory of green cars. To
reduce this growing inventory, a promotional campaign was initiated which turned out to be a huge success.
The production department saw the sales of green cars pick up and assuming that demand has increased, they
started producing more green cars. This again resulted in a growing inventory of green cars and negating the
entire motive behind the campaign. This example shows that if different entities collaborate and communicate
in their functioning, the situation is always much better. A similar issue is faced in supply chains where lack of
communication results in increasing demand variability through the supply chain popularly referred to as the
"Bullwhip Effect". The point here is that the left hand HAS to know what the right hand is doing. Collaborative
Planning, Forecasting and Replenishment (CPFR®) is an attempt to address this issue.
Collaborative Planning, Forecasting and Replenishment (CPFR®) is a business practice that combines the
intelligence of multiple trading partners in the planning and fulfillment of customer demand. The Voluntary
Interindustry Commerce Standards (VICS) Association published guidelines for implementing CPFR in 1998
(updated in 2001) and it has been in various stages of implementation at different companies since then.
CPFR is one of a series of supply chain initiatives like JIT (Just-In-Time), ECR (Efficient Customer Response) and
VMI (Vendor Managed Inventory) driven by organizations to make their supply chains more responsive and
keep all the supply chain members in tune with the end customer demand, both in terms of the product and its
volumes. By ensuring end-to-end communication, the occurrence of the "Bullwhip Effect" is prevented thus
reducing inventory levels across the chain. It also allows partners to visualize the bigger picture in terms of the
entire supply chain rather than their enterprise alone. As partner collaboration is initiated right from the
planning till the replenishment stage, the supply chain as a whole is in a better position to respond to
exceptional circumstances making it a more proactive entity rather than a reactive one. On a more abstract
level, CPFR aims at creating an environment of trust between trading partners where the benefits of sharing
information are known. The role of CPFR in various stages of supply chain activity is aptly represented in the
figure below.

The VICS Association provides information about the structure of CPFR activities and guidelines for
implementing them. According to them, CPFR comprises of four main collaboration activities: 1) Strategy and
Planning 2) Demand and Supply Management 3) Execution and 4) Analysis.
Implementation of all four activities is not necessary for implementing CPFR and a subset of these activities can
also be implemented.

1) Strategy and Planning:

This activity establishes the ground rules for the collaborative relationship. It determines the product
mix and placement and develops event plans for the period.
2) Demand and Supply Management:
This activity estimates consumer demand and order and shipment requirements over the planning
horizon.
3) Execution:
In this activity, orders are placed, shipments are placed and delivered, products are received and
stocked, sales transaction are recorded and payments are made.
4) Analysis:
In this activity, planning and execution are monitored for exceptions, results are aggregated and key
performance metrics are calculated. The insight thereof is shared between the partners and plans are
adjusted for improving results.

Implementation
To derive maximum benefits from CPFR, it needs to be implemented in a well-defined structure. A step-wise
implementation of CPFR is outlined in the following manner.
 Formally establish an agreement with your trading partners and identify key performance indicators
consistent with the purpose of collaboration.
 Formalize the roles and responsibilities of each partner in the CPFR process.
 Develop a collaborative business plan that is consistent with the goals of individual partners and the
supply chain alike.
  Develop a sales forecast for the collaborative initiative and identify key exceptions along with methods
to address those exceptions.
 Execute the collaborative plan and address any exceptions that arise in a manner decided before hand

Value Proposition
The greatest value of CPFR is derived from the reduction in inventory levels and eliminating out-of-stock
situations. Moreover, replenishment cycles get smaller as supply chains get more responsive to end customer
demand making it more competitive. As out-of-stock situations are eliminated, sales increase especially in the
retail goods industry. As inventory levels are reduced, warehousing costs are also reduced which can result in
significant savings. In summary, the supply chain becomes more customer-driven than before and realizes
significant advantages from such collaborative activities.
The purpose behind CPFR or any other collaborative activity in a supply chain is to leverage the competencies
of each trading partner in a manner where the entire supply chain benefits. Even if trading partners do not
implement CPFR in the structured manner defined by VICS, an environment of trust and a collaborative
interaction can greatly benefit each one of them.
 Supply Chain Collaboration
CPFR Means Process and Practice

CPFR is not a technical standard. It is actually an initiative that facilitates the reengineering of the relationships
between trading partners and thus transactions. This initiative is based on an industry-recognized set of
standards which are not proprietary. “True collaboration is something that completely reengineers the
relationship or the transaction between trading partners,” notes Andrew White, vice president of product
strategy for Logility, an Atlanta-based company that offers a CPFR-based supply chain management application.

Although the Internet has enabled more self-service and faster service, as in the examples of Dell.com and
Amazon.com, up to this point transaction methods have not really changed much. This kind of collaboration is
all about doing things differently.

CPFR provides templates for supply chain partner collaboration. The process model at below is segmented into
three stages. The planning stage establishes and updates the relationship; the sales forecasting and order
replenishment stages occur more frequently.

CPFR Process Model

CPFR processes depend on the comparison of data: comparing one organization’s plans with another;
comparing a new version of one organization’s plans with a previous plan; or comparing a plan to actual
results. In other words, CPFR manages by exception—it addresses variances, whether plan-to-plan or plan-to-
actual.

An important premise of this model is that accuracies in the forecast can be improved by having the customer
and supplier participate in the forecast. A retailer can compare its demand or sales forecast with the
manufacturer’s order forecast. If a discrepancy occurs,
the two trading partners can react—they can get together and decide on the replenishment quantity to recify
any such discrepancies. Hence, a supplier can build inventory well in advance of receiving a promotional order,
and carry less safety stock at other times. A customer can alter the product mix to reduce the impact of supply
problems.

CPFR creates a win–win scenario, tying the buyer and seller together so that their goals are compatible. By
competing as one, the buyer and seller form a value chain that will come out ahead of other buyers and sellers
who are still caught up in price negotiations.
CPFR Has Evolved from a Heritage of Supply Chain Solutions
CPFR is considered to be the next stage in the evolution of supply chain initiatives.
Older supply chain operations had gaps in their practices, including financial plans taking precedence over
forecasts and non-integrated supply planning. This resulted in higher inventory levels, lower order fill rates,
and increased expedited activity. Companies were not realizing the benefits that they expected.

Only later did companies start focusing on process integration—managing the supply chain from raw materials
through delivery to the end user. The difference between CPFR and other business process tools, such as
Efficient Consumer Response, is that the other models require critical mass before any benefits are realized.
With CPFR, a customer can improve performance by just having a collaborative relationship with one vendor.

The story began in 1995 when retailer Wal-Mart found that consumer products and pharmaceutical company
Warner-Lambert’s in-stock averages were not up to par with Wal-Mart’s vendor performance standards. Wal-
Mart, along with Warner-Lambert,
Surgency, (formerly Benchmarking Partners), and two software companies, SAP and Manugistics, spearheaded
an effort to define a process that would link customer demand with replenishment needs through the entire
supply chain.

The pilot focused on stock of Listerine mouthwash kept in stores. The group actually first tested the
collaborative concept on paper, and then demonstrated in a computer lab that the Internet could be used for
the information exchange. Here’s what happened: 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—even though the
pilot was limited to one Warner-Lambert manufacturing plant and three Wal-Mart distribution centers.

Supply Chain Collaboration

Momentum Builds

The movement gained momentum in 1998 when the Voluntary Interindustry Commerce Standards (VICS) got
involved. VICS, formed by retailers, textile suppliers, and apparel makers, was established in 1986 to develop
bar-code and EDI standards for the retail industry. VICS is a voluntary, nonprofit organization which takes a
global leadership role in the ongoing improvement of the flow of product and information (about the product)
throughout the entire supply chain in the general merchandise retail industry.

With VICS’ involvement, more companies were willing to participate in testing and
validating CPFR. A number of pilots were launched and successful. One of the most talked about involved stores
in the Wegmans grocery chain and a Nabisco distribution
center. The two companies shared data on 22 items. Manugistics furnished the
application and hosted the server where the data was stored.

The Nabisco sales force developed a forecast for the items, which was then compared with Wegmans’ own
forecast for its stores. Whenever any variance occurred, the Manugistics software sent an email to both parties.
The pilot was successful: Nabisco’s sales of 22 Planters nut products grew by 31%, while Wegmans’ dollar sales
of nuts increased by 16%, with a surprising 18% decrease in inventory.
CPFR Business Opportunities Abound
Who can best use CPFR? Companies that experience variation in demand, or buy or sell a product on a periodic
basis; especially those that deal in highly differentiated products, branded products, and those that are not
driven off price. In other words, most industries and companies, as evidenced by our earlier coal example. And
there are many areas for collaboration, as shown in the diagram below.

Herein lies A LOT of opportunity. But where do we stand, and how far have companies progressed? In the
winter of 2000, Syncra Systems and Industry Directions conducted a survey of manufacturers, retailers,
distributors, logistics providers, and others to determine how many companies were deploying CPFR practices.
For those who were engaged in CPFR, the study measured their techniques. The study found that there were
multiple supply chain initiatives under way in 79 percent of the respondent companies—vendor-managed
inventory being the most widely implemented.

ECR was the second most widely used initiative, closely followed by CPFR. Given how new CPFR is, this is
indeed impressive, at least at face value. However, firms actively involved with or considering collaborative
programs have a long way to go to achieve true collaboration: less than half of these companies share any data
beyond promotional plans, and only 25 percent share POS data. The evolution to CPFR is still in its early stages.

Supply Chain Collaboration

A Look Ahead—

Leading the Horses to Water . . . How will CPFR gain momentum? Certainly the growing awareness of
collaboration benefits—illustrated by the case studies and examples in this article—will help inspire new,
deeper one-to-one partnerships between suppliers and
customers. Moving beyond this rather deliberate “dating game” initiated by one or the other party, there are
two emerging—some would say conflicting—business models that are expected to spur the pace of value chain
collaboration.
• CPFR adoption by e-marketplaces
• “Napsterization” with peer-to-peer collaboration

Some believe that the e-marketplaces, or net markets, may provide the most
promising environment for CPFR, soon accelerating its adoption by many large
companies. Based on a “many-to-many” e-business model, the leading net marketplaces have evolved from
independently run trading exchanges focused on spot transactions for indirect materials, to consortia of major
industry players interested in extensive collaboration around direct material procurement and fulfillment. For
example, major consumer product e-marketplaces such as Worldwide Retail Exchange (WWRE), Global
NetXchange, and Transora have committed to offer CPFR, and some believe that their formal endorsement will
stimulate large-scale global adoption of collaborative practices over the next two years.

By doing so, these e-marketplaces expect to dramatically improve their participants’ ease of entry into CPFR
and attract new participants by building the infrastructure once for all players, providing a common product
catalog, and offering CPFR as a standard service. According to Larry Lapide of AMR Research, “B2B exchanges
can also improve visibility to all of a company’s trading partners from one point of access, and allow the
efficient development of common standards and normalized data formats for calendars, product codes, location
codes, and scorecarding criteria.” E-businesses focusing on transportation services also see collaboration
adding value in the future. “By providing an efficient hub for collaboration between shippers and
transportation providers, we’ll help translate customer shipment forecasts into more predictable demand for
equipment —containers, chassis, and ships—allowing carriers to deploy their global assets more effectively,”
says Vijay Sundaram, vice presi-dent of marketing for Tradiant, which is hosting the Global Transportation
Network (GTN) for nine major ocean carriers.

Peer-to-peer collaboration may enhance the e-marketplace applications, or

completely run around it. Andrew White of Logility explains: “Peer-to-peer is a very exciting development for
CPFR because it has the potential to create what some have called the ‘Napsterization of the supply chain.’ It’s
very different from one-to-one interactions where the connections were like tunnels that were closed, and
independent from other tunnels. In peer-to-peer, you don’t need a centralized server at all; each peer operates
independently and in an open manner. Files on one peer site are secured from the preying eyes of companies
that you do not want to do business with. File formats are standardized, and files are interchanged between
trading partners on a push or pull basis as needed. No middle service (such as a net market) is needed to
facilitate the flow of documents and other media; however, a universal registry of participants and their
interests (such as UCCnet.org for consumer packaged goods companies) is critical.”

One of the most promising providers of peer-to-peer software is Groove Networks www.groove.net, founded by
Lotus Notes inventor Ray Ozzie. Groove currently offers a free preview edition of its “shared workspace,”
encompassing voice conferencing, document sharing, calendars, active white boards, and other collaborative
tools. The company is working with initial pilot customers, and will begin selling its product more broadly later
this year. With an open architecture platform and full support for standard data formats and protocols, Groove
sees its value in adding a “person-to-person interaction layer” in conjunction with centralized web-based
business systems. This has two important implications for CPFR activities, according to Bob Anderson, Business
Evangelist at Groove. “A peer-to-peer solution like Groove tackles the ‘soft’ side of CPFR, enabling the capture of
best practices by the right people, and in self-formed groups. This is particularly useful during the up-front
negotiation of the agreement and rules, and also in the management of exceptions. For example, when
discrepancies appear in forecasts, a collaborative peer-to-peer workspace allows the appropriate individuals to
efficiently discuss, analyze, and resolve the issue, and leave a multi-media trail of documentation for others to
learn from the next time a similar problem arises.”

Growing awareness of CPFR benefits will continue to draw the horses to water, perhaps in a stampede if
companies recognize that supply chain collaboration can drive margin improvements up to three percentage
points. Getting the horses to drink is always a
challenge—due to significant management commitment and cultural changes required to initiate and sustain
CPFR initiatives—but the endorsement of e-marketplaces and availability of new peer-to-peer workspaces will
help companies overcome their natural reluctance to set aside old transactional ways of doing business. And if
anyone doubts that their industry competitors are working hard to establish new collaborative strategic
relationships up and down the value chain, just read through the variety of case studies presented on these
pages.

How to Make It Happen

› Solicit a Senior Management Champion

› Embracing collaboration efforts often requires a cultural shift; hence, you must
have top-level support for the initiative.

Dedicate Resources (e.g., project leader, consultant)

› The process may be facilitated by an outside solutions provider or consultant, as
well as an internally selected team.

Pick Your Pilot

› You need to be certain that your trading partner shares the collaborative vision.

Establish the Win–Win Potential

› The focus should be on a “win–win” model for the entire value chain.

Dive into the Process

› You are ready to further align your relationships with your trading partners,
create more value in the supply chain, and compete
more effectively.