Collaborative Planning

In the manufacturer to retailer model, customer collaborative partnerships have been a dominant theme since the 1990s. Although there was a lot of energy behind CPFR, manufacturers and retailers are adopting different versions of collaborative forecasting and replenishment strategies now. These include Collaborative-VMI, CPFR, Account Based Forecasting, CMI, Shared Single Forecast and replenishment etc.

The Retailers have emphasized the adoption of Collaborative Planning for better forecasting promotional volume. So there is a broader adoption of CPFR and Account Based Forecasting in this space although there is no consistent standard among either manufacturers or retailers. The CPFR that is being preached by retailers also vary in flavor from one retailer to the other and between Mass, Food and Drug.

Some retailers focus on the Sales or the POS forecasts, while others focus on promotional forecasts alone. Again some Retailers focus on starting the process with two different forecasts, while others emphasize the importance of a Shared Single Forecast.

More formally, collaboration is defined as the creation of a shared understanding between two participants where none had previously existed or could have come to on their own.

Test of Collaboration

• Is there good Communication between collaboration Partners?
  • Honest and open communication. This should be clearly spelled out in the up-front business agreement. If there are constraints here then there is little chance the collaboration effort will succeed
  • Frequent and timely communication. This is key. Communication forums, teleconference or in-person meeting, should be set up for periodic exchange of information. This may be weekly by phone or monthly in person or what ever the parties think is optimal depending on their industry and business considerations
• Are they communicating the right information?
  • Forecast Content. The process design should clearly outline what should be in the forecast that is shared. What items are included? What time period is covered? A clear process design and buy-in by both parties at the start will substantially help the success of the process
  • Accuracy of the Forecast. As with any demand planning process, forecast accuracy is the key. Achieving forecast accuracy depends on the accuracy of the information that is shared as well as timeliness. If the demand information that is shared by the customer is inaccurate, a tight collaborative relationship will spread this incorrect forecast through out the supply chain

Probability of an accurate Collaborative Forecast

The probability of an accurate collaborative forecast depends on the accuracy of the forecast as well as proper and timely communication.

Probability of Correct Collaborative Forecast = Prob (Correct Forecast) * Prob (Proper and timely communication)

Collaboration Accuracy

Perfect communication and poor Forecast
==> Collaboration accuracy= 0

Good Forecast and untimely communication
==> Collaboration accuracy= 0

In the Manufacturer to retailer model, the collaboration process is based on the assumption that the retail customer can help create a better forecast for the manufacturer. This is because customer is close to where the retail take away occurs. They understand consumer buying patterns better and have a vast database of store-level demand and promotional information.

Secondly point of sale (POS) information is easily forecastable since retail consumption is generally a smooth series. Volatility occurs only when there are unexpected economic or natural events. Case in point will be battery sales around before hurricanes.

Finally, the collaborative relationship allows you visibility into your customer’s planned programs. Key events will include promotions like features, tabs, price rollbacks as well as changes in inventory policy.

If you would like to find out more details on facilitating or developing a collaborative planning process, please contact us.