Collaborative Planning, Forecasting, And Replenishment
"Forecasting is always difficult, especially when it's
about the future."
—The Economist, September 28, 2002.
Few businesses forecast well. Fewer still stop to think through the consequences of poor forecasts. So they build more inventory and work-in-progress than necessary, and endure the costs of rework, restocking, and reimbursement. They leave money on the table during negotiations. They disappoint customers — and shareholders.
Such inefficiency might have been tolerable when the techniques and tools were not available to handle forecasting processes better — and when the stakes were lower. Today, a slow economy and the global market's reach put margins under excruciating pressure. Most managers feel they have their backs to the wall. But some are finding maneuvering room with a practice called collaborative planning, forecasting, and replenishment (CPFR).
The driving premise of CPFR is that all supply chain participants together develop a synchronized forecast. Any participant — supplier, manufacturer, distributor—can view and amend forecast data to optimize the process from end to end. The collaboration theme is key. There is mounting evidence that "collaborative commerce" — using Internet technologies to integrate a company's core business processes with those of its business partners — brings sterling benefits. A recent survey report entitled "Collaborative Commerce: Compelling Benefits, Significant Obstacles," April 2002, by consulting firm NerveWire, Inc., reveals that businesses that operate at the highest levels of collaboration have increased revenue on average 40 percent, cut costs by 30 percent, and reduced cycle times by 37 percent.
Yet lack of trust prevents companies from collaborating more effectively. Only a quarter of those polled say they're successful at overcoming distrust in sharing proprietary information with other parties, according to the study.
The breakthrough is that CPFR can tie demand planning and supply planning into one process. For any change in the demand cycle — whether a truck breaks down or a seasonal holiday commences — inventory is adjusted throughout the supply network to fully execute the plan. Participants can continuously verify the accuracy of each other's forecasts, and handle exceptions in real time using the same data. CPFR has another boast: it uses performance feedback to continually improve the system's efficiency by answering the question: "How did I do on my forecasts?" That feedback also helps participants earn each other's trust.
The strength of J.D. Edwards CPFR software is in how it meshes front-end planning and forecasting with supply chain execution. Common protocols ease integration among all nine CPFR steps—and link onward into detailed manufacturing, distribution, and delivery stages.
To illustrate how CPFR can add value, this process brief offers typical examples through the fictionalized account of a mid-sized consumer-goods manufacturer that benefits from implementation of the J.D. Edwards software.
The story begins with an uncomfortable situation: inadequate planning and forecasting processes have undercut the business results, and publicly embarrassed the chief executive. Let's listen in as HouseRight CEO Jack Doucette, still smarting after the analyst briefing, returns to his office.