A CPFR IMPLEMENTATION METHODOLOGY STUDY A CARPENTER MECHANICAL INDUSTRY CASE STUDY

Transcription

1 172 International Journal of Electronic Business Management, Vol. 2, No. 3, pp (2004) A CPFR IMPLEMENTATION METHODOLOGY STUDY A CARPENTER MECHANICAL INDUSTRY CASE STUDY James T. Lin *, Chen-Hao Yang and Tun-Mu Lin Department of Industrial Engineering and Engineering Management National Tsing Hua University Hsinchu (300), Taiwan ABSTRACT CPFR has been implemented successfully in hundreds of enterprises in order to overcome forecasting and replenishment problems relating to the supply chain. Until now only two companies in Taiwan have the experience to implement CPFR according to the records of the VICS. This paper proposes a methodology of how to implement CPFR and takes a mechanical wood carving industry as a case study. In recent years, VICS (Voluntary Inter-industry Commerce Standards) has gradually found ways to make up for the defects of CPFR due to many cases of having implemented CPFR. From front-end agreement, CPFR based joint-business plans to order product generation, order fulfillment and exception management, have been often well implemented, have raised the efficiency and have greatly improved business defects. Although CPFR can overcome forecasting and replenishment problems, few people in Taiwan know the spirits of CPFR and how to implement CPFR effectively. Moreover, CPFR Roadmap, which is proposed by VICS, only describes the outputs of each step, but does not illustrate details in every step about how to implement CPFR. Therefore, a mechanical wood carving industry in Taiwan is illustrated to propose a CPFR implementation methodology in this paper. This paper also tries to find out core elements for proposing CPFR s implementation and important procedure according to relative papers and released documents from VICS. Keywords: Collaborative Forecast, CPFR (Collaborative Planning, Forecast and Replenishment) * 1. INTRODUCTION With the globalization of business administration and the pressure of pursuing effectiveness and speed, companies are devoted to speeding up their information transmission race, both within themselves and externally, for corresponding to the needs of fast messages transmission. CPFR (Collaborative, Planning, Forecasting and Replenishment) is one of the developing molds that are used in the collaborative business. It mainly emphasizes that using collaborative processes raises the effectiveness of the supply chain. It also emphasizes that, at the same time, the effectiveness of the supply chain can also be raised by the sharing of information among business members. CPFR is primary applied to the forecasting and replenishment between supply manufacturers and retailers. Retailers can lessen the amount of goods held in storage and can reduce the rate of having a lack of goods by using CPFR. At the same time, supply manufacturers can also get precise information * Corresponding author: jtlin@ie.nthu.edu.tw about the needs of the market, make plans to replenish markets in order to reduce OCT (Order Cycle Time; OCT) and avoid having an unnecessary amount of goods held in storage by using CPFR. Most of the surveys and researches nowadays are focused on the effectiveness and the functions that CPFR has, but few of them mention the specific steps or methods of how to apply CPFR to a company. By interviewing and proving practical information, this study provides a set of steps about how to apply CPFR to a company and states the implementation processes. Also, it may become a reference to companies that want to apply to this skill. 2. MECHANICAL WOOD CARVING INDUSTRY The report of MM Mechanical Technology Magazine 2003, pointed out, that most of the factories in Taiwan that produce mechanical wood carvings are located centrally in Shengang Village, Fengyuan Village and Taichung Country and are of either small or middle sized scale. These factories have good upstream-downstream production systems and the

2 J. T. Lin et al.: A CPFR Implementation Methodology Study 173 supply of the constituent parts of products is sufficient and quick which lowers transportation cost, production time and lets firms become more competitive in the global market. As a whole, the market of the mechanical wood carving industry is centralized in the European and American area. Figure 1 shows the process from producing to delivering. The ocean shipping takes about one month from Taiwan to harbors in Europe and America under the consideration of costs, Furthermore, because of its huge bulk the space to store and the quantity of loading is limited. The Taiwanese mechanical wood carving industry is characterized by the following: (1) The production of product: The production system of the mechanical wood carving industry is centralized which makes the supply of building blocks very rapid. The basic raw materials of the mechanical wood carving industry can be simply classified into mould parts, plastic parts, hard iron parts and electronic engineering parts. Some of these parts (for example: mould parts etc.) need to be preprocessed so their leading time is as long as one month. (2) The access of marketing: It has no market access itself and its customers are agents and overseas agents. Under economic consideration, ocean shipping is the way of transportation and this takes one month. It s limited to product bulk, the storage space and loading quantity is fixed. (3) The characteristics of consuming areas: The majority of wooden houses are in North America and the consumers here mostly purchase carpentry tools to fix their houses by themselves. Therefore the main industry of DIY and desktop wood carving machines is centralized in North America. the selling characteristic of this industry is focused on the European and American area. As shown the market lies abroad so many of the goods of the mechanical wood carving industry in Taiwan sell abroad by way of overseas agents who then sell to retailers. Taiwan s mechanical wood carving industry therefore depends highly on overseas markets and overseas agents expand and create the market themselves or by using the producer's private label. Usually two big problems exist in this industry of Taiwan: (1) They have too many supplies or inventories: The producers prepare more materials or build up a safe quantity in order to satisfy the need of brand-retailers (the main customers) to avoid shortages which could lower the needs of customers. (2) The process of production is highly seasonal: There are high fluctuations in the volume of sales because brand-retailers sell according to orders made. Orders are not certain and there is always a level of uncertainty in predicting them. Producers produce by order since the uncertainty of prediction of the market raises considerations of cost in addition to the product life cycle. Also, three big problems exist for brand-retailers abroad: (1) The benefits of every plain tend to be lower-- The benefit generated by every plain is lower than others, due to the supplementary is not ready, producers have nothing to sell on shelves or because products on shelves have a low turnover rate. (2) The reserves are too much and not necessary-- To stabilize the quantity of products as much as possible and to raise the service level, the storage level has to be increased. Unfortunately, the stored products are often not what the customers want. (3) The situation of a lack of goods in storage often happens-- The lead time for a reaction to changes in market demands takes too long such that business opportunities can be missed. 3. LITERATURE REVIEW Figure 1: The marketing access of products in the mechanical wood carving industry of Taiwan European consuming behaviors are the same as those in North America, in spite of their brick-cement made houses. Therefore part of the market is also distributed all over the countries in Europe. Overall, 3.1 Introduction CPFR is a method of supply chain collaboration to get a more accurate judgment of market demand by sharing corresponding information. It also could less inventory problems and lower the inventory cost. CPFR focuses on collaboration between buyer and seller to work out collaborative forecasting procedures. These forecasting procedures can share risk by commitment. VICS [15] offered a scenario of alternatives, nine steps, deployment of IT systems and so on for enterprises implementing CPFR.

3 174 International Journal of Electronic Business Management, Vol. 2, No. 3 (2004) 3.2 CPFR Roadmap When in the pilot stage of CPFR implementation, enterprises can start CPFR implementation on only several products and partners. They should consider if sources are enough for implementation. Enterprises must first choose a specific range such as a sales forecasting process and experiment with results on a theoretical level only. Then they could extend the collaboration processes to the whole CPFR scope. VICS provided Roadmap to assist enterprises implementing CPFR and to help understand what should be done in each stage of implementation. The main steps shown are list: (1) Step1: Evaluate your current state (2) Step2: Define scope and objectives (3) Step3: Prepare for collaboration (4) Step4: Execute Perform a the pilot (5) Step5: Asses performance and identify next step 3.3 CPFR Critical Success Factors Seifert [8] referred to the implementing experiences of consultancy and pointed out that the crucial success factors should include well-defined processes, trust between trading partners, information technology investment and executive commitment. Figure 2 shows them. Trust Process Commitment Technology Figure 2: CPFR critical success factors [8] 3.4 Problems in CPFR Implementation We collected relative researches about CPFR implementation and classified them in Table 1. We found that the problems in CPFR implementation were sorted into business process, reengineering, collaborative forecasting, information sharing, partner relationship, deployment ability, agreement of goals and previous experience. Those problems will be noticed in our CPFR Implementation Methodology. 4. CPFR IMPLEMENTATION METHODOLOGY 4.1 Origin of the Implementation Methodology We summarized all the relative research about CPFR Implementation problems and the meanings of each stage of CPFR Roadmap to conclude our methodology structure. Description is as follows. The key points for implementing CPFR are: (1)Analyzing the motives and benefits to implement CPFR, (2)Constructing the processes corresponding with the spirit of CPFR, (3)Reviewing and modifying the problems after implementing CPFR in order to extend the next collaboration stage. When we think about future processes, we can refer to previous research and build CPFR concepts into processes reengineering. Moreover, we consider how to change enterprises processes to coincide with CPFR core thinking (collaborative processes, exception management, information sharing and KPI). So we can set six stages in our methodology to outline how to proceed with CPFR implementation. Our CPFR Implementation Methodology references are summarized in Table 2. References Barratt et al(2001) ECR Europe(2002) Holmstrom et al(2002) Noekkentved(2000) P&G,Wal*Mart case (1998) Stank et al(1999) VICS(1998) Zin(2003) Table 1: Relative researches about CPFR implementation Business Process Reengineering Collaborative Forecast Information Sharing Partner Relationship Deployment Ability Agreement of Goals Previous Experience Table2: References of each stage in our methodology Stage Reference Analysis VICS CPFR Roadmap Step1 [14] Buildup Anjard [1] CSF(Critical Success Factor) Definition Execution Feedback Seifert [8] EAN.UCC [3]VICS [14] Teigen [12]VICS [14] Satty [7] VICS CPFR Roadmap Step4 [14] VICS CPFR Roadmap Step5 [14] 4.2 Content of the Implementation Methodology Current research divides implementation into six stages [13]. They are: Analysis, Buildup, CSF (Critical Success Factor), Definition, Execution, and Feedback. The depiction is as Figure 3 shows. We would describe them as follows: (1) Analysis The purpose of stage 1 is to find out the current problems between buyer and seller. Ways must then be tested to solve these problems through CPFR implementation and an understanding must be gained

4 J. T. Lin et al.: A CPFR Implementation Methodology Study 175 of why we should implement CPFR. When it is certain that CPFR could really solve the problems, we use a series of methods to analyze these problems and review the relations between the problems to look into their crucial essence. Like the method Goldratt [4] provided, it can assist buyer and seller in looking for UDE (undesirable effects) through thinking processes in theorem of constraints. Moreover, core problems would emerge by using the UDE Map. To sum up what we should do in Stage 1, there are three steps. Step1 is to find out the intent of why to implement CPFR (Why CPFR). Step 2 is to identify problems relations. Finally, step 3 is to dig core problems. (2) Buildup The purpose of stage 2 is to reach a common view about current processes between buyer and seller. The core problems should have come to light in stage 1. However before designing future processes by solving core problems, buyer and seller should agree with a common consensus of current processes. We can refer to Anjard [1] and Keller et al. [5] to describe process mapping between buyer and seller. Thus, we also can set three steps in stage 2. Step 1 is to map the current processes (AS-IS process mapping). Step2 is to establish a solution proposal (Build-up Solution). Step3 is to map the future processes (TO-BE process mapping). (3) CSF Using the concepts and knowledge gained from the previous stage, details for the future processes can be developed using the critical success factor view (CSF). In other words, we develop measures for future processes after pointing out what processes should be changed. CSF (critical success factor) means positive and effective factors for implementing policies or systems when enterprises operate. Seifert [8] points out that it should include well-defined processes, trust in partners, investment in IT and commitment to practice when implementing CPFR. They can be separated into three parts as Figure 2 shows: process, organization and technology. In Stage 5, we will probe into how to analyze and design the technology. So we barely discuss the process parts of CPFR collaboration method here and instead refer some other researches to instruct with the organization side of CPFR. Viewing related researches, the process part of CPFR contains revolutions in forecasting, information sharing, exception management other organizational areas. Whereas this research analyzes how to implement CSFR based on the product making process, we also take other complementary factors like enterprise culture, IT capabilities and implementation experiences into consideration. Therefore, we could conclude that CSF in the process stage contains: CSF1--Revolution in forecasting, CSF2--Information sharing, CSF3--Exception management and other complementary factors. (4) Definition After designing future processes, we need to establish KPIs (key performance index) to evaluate if the changed processes could solve problems and reach our goals. KPIs in CPFR have two kinds of meaning. First, they can be used to measure the benefits after implementing CPFR. Second, they can be seen as targets that buyers and sellers engage in. For example, they will make it possible to cut down the gap between forecast orders and real purchase orders if both sides set a KPI at a forecasting accuracy of 80%. We could then make sure of the scope and details in the future processes again and draw TO-BE process mapping figures and working sheets after deciding what KPIs will be used. Additionally, the needed information could be known from matching KPIs with CPFR FEA (Front-end agreement) and JBP (Joint-business plan). Thus, this stage includes four steps. Step 1 is to choose the KPIs for evaluating performance. Then we could prioritize these KPIs by many mathematical methods such as AHP. Third, confirming the futures processes. Finally, proposing a collaboration agreement. (5) Execution We should analyze how to use IT implementation to help enterprises adopt CPFR after future processes are confirmed. For example, IT systems can assist enterprises to understand what kinds of exception messages happen so as to let enterprises solve them. Both sides can share information efficiently on the IT platform. So both sides would discuss how to establish CPFR systems in this stage. Referring to Zin [16], we could set up CPFR systems through three steps: step1 is system structure analysis, step 2 is system design, and step3 is system establishment. (6) Feedback After a period of executing CPFR, we will review the results of the KPIs and check the differences between them and the original targets. These differences found in this analysis can then let enterprises know the outcomes of implementing CPFR and where they should focus in the next stage. The differences found by the above analysis could be divided into two parts to be diagnoses. Firstly, we find out whether there are still some problems in future processes by viewing the difference between estimated and obtained KPIs. Then we also check this analysis of KPI difference to see how we can revise future processes. Through assessing the problems behind future processes, we know how to modify the future processes. Moreover more detailed processes can be

5 Process Trust Technology Technology Commitment CSF Exception Handling FCST process Information sharing 流 聯 異 狀 理 CPFR 行流 料 聯 異 狀 理 KP I KPIexception cri ter iascenario Forecast Horizon/Bucket/Frozen Reference VICS CPFR 9 STEPs Business Message Standards Business Message Standards 料 Front-end Agreement 異 狀 Event Item locat ion Profile Forec as t Exception R eport Forecast Revisio nsperformance 176 International Journal of Electronic Business Management, Vol. 2, No. 3 (2004) developed with the CSF view. So there are recurrent stages for us to control and check the outcomes of when implementing CPFR. Supply analysis CPFR Motive Analysis Demand TOC-Think Process Analysis GAP Analysis non-kpi Analysis Feedback step1 Find Core Problems step3 KPI KPI Target V.S. Report Find unconsidered CSF AS-IS process mapping step1 Build Solution step2 (1) (2) (3) TO-BE process mapping step3 Buildup Execution System Analysis & Design Process Trust CSF Problem Problem Probleblem Pro- UDE Map step2 Commitment Exception Handling CSF KPI Selection Method (AHP) Baseline Target Definition Figure 3: CPFR implementation methodology structure [13] FCST process Information sharing 5. CASE STUDY PRACTICE CPFR IMPLEMENTATION METHODOLOGY IN A MECHANICAL WOOD CARVING INDUSTRY The following describes a mechanical wood carving industry (seller) and its customer (buyer) and the implementation of CPFR according to our Implementation Methodology. The details can be referred to in [13]. (1) Analysis In this stage, the mechanical wood carving industry and its customer would figure out current problems between them and detect if CPFR could really solve those problems. After several discussions with every department and managers of both sides, they collected some problems. Then they used a series of analytical processes to find out the essential problem. These problems were a high volume inventory, too long lead-time, low replenishment frequency and wrong forecasting. Those problems were indeed what CPFR could solve. For this reason, both sides decided to progress with a CPFR implementation project and got high-level agreement in each company. (2) Buildup First, both sides proceeded in process mapping. Some work involved confirming their processes inside their companies, finding relative processes, defining correlative information, drawing process figures and outputting work sheets. Then the CPFR project team concentrated on core problems to bring out future processes conforming to the CPFR spirit. With brain storming and some other methods, they developed several solutions to their found problems. Finally, they produced the future processes. The key changes were as listed: Horizon of sales forecasting changed from half year to one year. Time bucket of forecasting changed from month-base to week-base. Demand planning changed from five months to one year. Replenishment changed from month to week. (3) CSF Continuing the previous stage, they set up the details of future processes from using the critical success factors view. These included the following: CSF1: Revolution in forecasting forecasting horizon, forecasting frozen time and forecasting skills. CSF2: Information sharing trading items/locations and trading frequency, deciding which information (inventory, forecasting, orders, production capacities, and transportation plan) should be involved in trading items for sharing. CSF3: Exception management and other complementary factors exception criteria, reaction procedure and so on. (4) CSF4 Definition In this stage, the project team analyzed the correlation between core problems and KPIs, and reached an agreement as to the KPIs criteria standard. They agreed eighteen KPIs, such as inventory level, sales forecasting accuracy and out-of-stock frequency. Secondly, high level managers in both sides conferred on the priority of KPIs. Then they decided nine main KPIs and set up a baseline and the estimated targets for the nine KPIs. They mapped the future processes to the CPFR nine-steps and then checked the KPIs again. Both sides signed front-end agreements and joint-business plans finally. (5) Execution The project team developed a CPFR system through system structure analysis, system design and system establishment. Both sides proceeded to future processes with CPFR systems. On the CPFR platform, they could transmit information of inventories, sales forecasting, order forecasting and POS data. Moreover, buyer and seller proceeded with new processes supported by the CPFR system. In this stage, both sides actually did new processes which developed in previous meetings. The collaboration project team began to trade information and continued to revise the bias of progress. They also monitored exceptions, recording exception criteria and tried to solve them in time. (6) Feedback They would review the KPIs and compare real value to target value after a period of time. For

6 J. T. Lin et al.: A CPFR Implementation Methodology Study 177 example, if the sales forecasting accuracy value was 60% and the previously agreed target value was 80% then both sides would find out the causes of mismatch: the seller didn t take promotion events into account, so the seller s sales forecasting value is much different from the buyer s. Later they improved this and continued proceeding with new processes. Other KPIs are also analyzed in the same method. Every difference would tell something and let both sides improve and revise processes. Through the result of CPFR implementation a valuable stage could be reached by viewing and using target differences well. 6. CONCLUSION This research tries to figure out the key factors within CPFR according to CPFR s authoritative documents and relative papers. We give a series of procedures to guide enterprises implementing CPFR, practicing our Implementation Methodology into a tool machine industry and verifying if it is workable. The final result shows very good achievements by exploiting it. Also, we tested it again by interviewing with scholars and managers in different fields. So the summary is as listed: This research offers a workable CPFR Implementation Methodology assisted by many means. It specifies the details to implement CPFR. This research complements the shortage of the CPFR Roadmap and provides a way of doing things in each stage. Through a practice in the tool machine industry, we could clearly and explicitly know how to use our Implementation Methodology. Our research here also provides knowledge for enterprises to understand CPFR. The research here has a limited range due to limits of time and resources but is suitable for helping follow up research to continue probing. Our research is limited in the following ways: This research discusses only industries similar to the woodworking machine industry. We have not discussed CPFR implementation for industries which have different characteristics and we have not discussed which industries have characteristics that may or may not make them suitable for CPFR implementation. What this methodology is oriented in predicting is the field in cases where co-operation between different segments of the commercial structure is possible. However every commercial structure has different characteristics and different channels of communication and co-operation (for instance: Design in coordination, in coordination with logistics management, etc.). Researchers who are researching different commercial structures with different channels of co-operation can consult this research institute to advance the depth of CPFR theory. This research improves discussion of the main procedures involved in CPFR implementation but it has not further investigated the effect of other factors, such as enterprises performance, climate of organization, etc., on the implementation of CPFR. This can be done in and by future research. This research has concentrated on a specific type of product with certain constituent parts. However it can not necessarily be instructive for CPFR implementation in companies with different types of products from the one discussed here. Companies with products of different characteristics may require different CPFR implementation styles. Further research may find whether different products determine whether a different CPFR implementation style is necessary for the company producing those products. Then discussions for which products require different company CPFR implementations may be pursued. This research discusses only a situation of communication between two parties (A Company woodwork machine manufacturers and B company brand sellers through fare trade). The research has not investigated cases where communication has to be done between "more than one pair " or the buying and selling relation situation " to one more ", can carry on the further discussion to this a part in the future. This research discusses only equal, two way discussions between manufacturers and traders in their buying and selling relationship. It does not discuss communication in situations where there may be many manufacturers selling to one retailer or in situations where there may be many retailers buying from one company. Future research may concentrate on how such differences affect communications and the CPFR implementation This research does not consider what happens in the example given, (chapter 3), when products can not be sold. This situation is not taken into account in the five steps given for CPFR implementation in chapter 3. We have used the ideal model of a "circulation industry." Further discussion in the future may consider CPFR implementation in non circulation industries. This research has assessed the goals and success of CPFR only in terms of direct monetary profit. However practical analysis uses AHP to analyze benefits which takes into account benefits in various areas, not only monetary profit. Future discussions may find more suitable 'assessment performance of index' methods to help further discussion.

7 178 International Journal of Electronic Business Management, Vol. 2, No. 3 (2004) REFERENCES 1. Anjard, R., 1998, Process mapping: a valuable tool for construction management and other professionals, Facilities, Vol. 16, No. 3, pp Cho, B. Z., 2004, A web services based peer-to-peer CPFR message exchange architecture, Department of Information Application, National Tsing Hua University, Master Thesis. 3. EAN.UCC, 2001, CPFR Business Message Standards Version Goldratt, E. M., 1994, It s Not Luck, North River Press. 5. Keller, P. J. and Jacka, J. M., 1999, Process mapping, The Internal Auditor, pp Noekkentved, C., 2000, Collaborative Processes in e-supply Networks, European SAP Centre of Expertise, PricewaterhouseCoopers. 7. Satty, T. L., 1971, The Analytic Hierarchy Process, McGraw-Hill. 8. Seifert, D., 2003, Collaborative Planning, Forecasting, and Replenishment - How to Create a Supply Chain Advantage, AMAZOM. 9. Stadtler, H., Kilger C., 2002, Supply Chain Management and Advanced Planning Concepts, Models, Software and Case Studies, Second Edition, Springer. 10. Stank, T. P., Daugherty, P. J. and Autry, C. W., 1999, Collaborative planning: supporting automatic replenishment programs, Supply Chain Management, Vol. 4, No. 2, pp Tage, S., Christian, T. and Claus, A., 2003, Supply chain collaboration: Theoretical perspectives and empirical evidence, International Journal of Physical Distribution & Logistics Management, Vol. 33, No. 6, pp Teigen, R., 1997, Information Flow in a Supply Chain management System, Lin, T. M., 2004, CPFR implementation methodology study - A machine tool industry case, Department of Industrial Engineering and Engineering Management, National Tsing Hua University, Master Thesis. 14. VICS, 1998, Roadmap to CPFR, Voluntary Inter-industry Commerce Standards Association. 15. VICS, 2002, Collaborative planning, forecasting and replenishment (CPFR ), Voluntary Interindustry Commerce Standards Association. 16. Zin, W. T., 2003, CPFR platform design and analysis, Department of Information Application, National Tsing Hua University, Master Thesis. ABOUT THE AUTHORS James T. Lin is a Professor in the Department of Industrial Engineering and Engineering Management at National Tsing-Hua University (NTHU), Taiwan R.O.C. He received his Ph.D. degree in Industrial Engineering at Lehigh University in His current research and teaching interests are in the general area of Supply Chain and Production Management. In particular, he is interested in Supply Chain Management, Simulation Modeling of Manufacturing Systems, Advanced Planning and Scheduling. He is a member of IIE, SCS, and CIIE. Chen-Hao Yang is engaged in his MS degree from Industrial Engineering and Engineering Management Department at National Tsing-Hua University (NTHU). His research interests are Simulation and CPFR. Tun-Mu Lin received his MS degree from Industrial Engineering and Engineering Management Department at National Tsing-Hua University (NTHU). His research interests are Simulation and CPFR. (Received September 2004, revised November 2004, accepted December 2004)