Page 91 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes However, results do not come in immediately. It takes time to put the system in place and get
results from it. There is a learning curve for participants, systems and sub-systems have to be
developed and process decisions have to be made, before results come in. All of these issues
combine to make a change to collaborative forecasting as a challenge to each of the organizations
in the entire supply chain.
In the collaborative forecasting environment, the information is current and more accurate as
companies supplement statistics with information gathered directly from the customer, the
market, and other sources. This supplemental information reduces the uncertainty that exists in
the forecast and therefore minimizes the inventory carried as it the need for inventory to cover
uncertainty is reduced.
The driving premise of CPFR is that all supply chain participants develop a synchronized
forecast. A company can collaborate with numerous other supply network members both
upstream and downstream in the supply network. Every participant in a CPFR process – supplier,
manufacturer, distributor, and retailer – can view and amend forecast data to optimize the
process from end to end. Essentially, CPFR puts an end to guesswork in forecasting. It means
that manufacturers and retailers share their plans, with detailed knowledge of each others’
assumptions and constraints.
However, there is a high investment involved and sophistication required in using such systems.
Gillette found that not everyone in the supply chain could become a member of the integrated
supply chain. Finally, it decided to differentiate its customer strategy by customer size. More
complex, sophisticated retail chains received the more differentiated and integrated service
based on Gillette’s value chain structure. Smaller, independent operators receive a standardized
set of supply chain services. Both the cost-to-serve and the sophistication of the customer drive
this distinction. Thus, Gillette only does CPFR with its largest accounts.

Example: There are many successful examples of CPFR. Heineken USA employs CPFR
and has successfully cut its order-cycle time. It is extending its programme and is currently
providing collaborative planning and replenishment software to its top 100 distributors.

Self Assessment

Fill in the blanks:
11. The CPFR process usually begins with identifying a …………………….

12. The champion also has to facilitate …………………… efforts required for improved
forecasting.
13. The composition of the group should be such that its members represent a variety of
…………………… areas.
14. Companies often hold at least …………………… meetings during the month, scheduled
on a regular basis.

15. The driving premise of CPFR is that all …………………… participants develop a
synchronized forecast.

4.4 Quantitative Methods

Most firms, especially small and medium firms do not find the use of such IT-based models
economical, even when they have the capability and sophistication to use these models. The
option they have is to use traditional quantitative methods for generating their forecasts. The
most commonly used method is the ‘time series’.

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