The New Drumbeat
Collaboration. Collaboration. Collaboration. It’s starting to sound like a new corporate drumbeat issued from the offices of every IT vendor dealing with e-commerce. And for good reason.
If you’re involved in the supply chain, your company can likely add as much as three points to its profit margin through smarter resource deployment available from CPFR—Collaborative Planning, Forecasting and Replenishment. At its essence, CPFR is a set of business processes that help eliminate demand and supply uncertainty through improved communications between supply chain trading partners.

In this article we will introduce you to the basic concepts of CPFR, highlight examples of the very compelling results experienced by customer and supplier collaborators, speculate about where this whole movement is headed, and illustrate how you and your company can begin to explore the opportunities.

The Three Percent Solution
We’ve all heard that business-to-business (B2B) e-commerce is exploding, shepherded perhaps by fewer dotcoms, but huge all the same. What’s become more clear recently is that the most promising source of B2B benefits is collaborative supply chain management. The most recent analysis shows that while the early buzz highlighted the procurement and selling advantages of e-commerce, it is supply chain collaboration that can add as much as three percentage points to margins for all types of supply chain players including OEMs, tier 1, 2, & 3 manufacturers/suppliers, and their fixed capital managers.

As always, human nature and organizational realities get in the way of realizing CPFR’s potential. These barriers are only gradually being chipped away by the information-sharing power of the Web, sophisticated demand planning and supply chain tools, and emerging “soft” approaches to peer-to-peer collaboration.

Nevertheless, CPFR is gaining broad appeal. While some have associated CPFR with high tech, the elimination of uncertainty between trading partners has deep value across all industries. As an example, look at what Burlington Northern Santa Fe is orchestrating between coal mines and its electric utility customers.

Collaboration—or some form of the word—is the common thread in a newwave of supply chain business models. What exactly does this mean? Take a look at the Merriam-Webster’s Collegiate® Dictionary definition of “collaborate” (see box).
Should we take it literally? Yes. Successful collaboration, in the business sense, means that two or more groups or companies are working jointly to:
• Derive shared information,
• Plan based on that shared information,
• Execute with greater success than when acting independently,
• Measure performance, and
• Reward success.

Clearly this is not a new idea, and cynics rankle over the conceit of such an obvious concept—after all, isn’t “collaboration” one of the skills we all learned in kindergarten?
Merriam-Webster’s definition #2 gives a clue why it sounds deceptively easy: collaboration is unnatural behavior within companies, much less between companies.

A collaborative relationship must be based on trust. “To cooperate treasonably, as with an enemy occupation force in one’s country,” there needs to be trust between partners who in reality may not heretofore have considered themselves “partners.”
Successful partners have bridged the “us versus them” gap. They believe that both manufacturers and retailers are responsible for inventory—for using it efficiently and keeping it as low as possible.

This suggests that while the application of supply chain software and demand planning tools are certainly exciting, strong leadership and change management are essential
ingredients of a successful collaboration effort. Fred Adair, former president of the change management consultancy SmytheDorwardLambert, has seen it first hand: “It has proven very difficult for companies in adjacent links of the supply chain to share data and trust that others will play fair. While it’s often clear that sharing and collaboration can have large benefits, people suspect the other guy is getting more. Those who are successful in joining forces, however, can develop incredible momentum, because the good news about increased efficiency travels quickly up and down the chain.”

This usually requires changes in organizational structure, corporate culture, and organization process and measurements. Good leadership is essential to making these changes possible.
In the face of mistrust and barriers to organizational change, widespread collaboration would have an extremely limited future without a common process that diverse companies can latch onto and replicate in multiple relationships. That’s why CPFR specifies various processes and software tools to synchronize and exchange data between organizations for collaborative demand planning. The intention is to integrate systems and provide supporting collaborative forecasting and replenishment processes, with the goal of increasing sales and reducing inventory investments and cycle time. It involves collaboration among all the partners who have an effect on the value of the end product. Currently the best example of a true collaborative approach, CPFR is a superior business model for direct material planning and fulfillment.