Abstract
This study uses discrete event simulation to investigate the benefits of Collaborative Planning, Forecasting andReplenishment (CPFR) strategy over Traditional Supply Chain (TSC) under different inventory holding costsand backorder penalty costs for both the manufacturer and retailer. A two-echelon production-inventory systemwith a retailer and manufacturer in a variable demand environment is considered for this study. No information isshared in TSC, while sales, forecast and inventory level information is shared in CPFR between a retailer and amanufacturer. The order quantity for retailer and the production quantity for manufacturer during each period aredetermined using periodic review order-up-to inventory policy. Lot-for-lot production policy is used by themanufacturer with a lead time of one period. The results suggest that CPFR performs better than TSC for boththe manufacturer and retailer under all inventory holding costs. As inventory holding cost per unit per periodincreases, benefits of CPFR also increases for both the manufacturer and retailer. Also, when inventory holdingcost is high, maximum benefits of CPFR is achieved for both the manufacturer and the retailerin an environmentwithhigh demand variability, high backorder penalty cost and long delivery lead time.
Highlights
In a traditional supply chain (TSC), the manufacturer has no visibility of their customer demand, and production planning and inventory replenishment decisions are typically made from forecasts based on historical demand
The cost benefits of CPFR compared to TSC under different inventory holding costs for both the manufacturer and the retailer aredetermined
The cost benefits of CPFR compared to TSC under different inventory holding costs along with other control factors for both the manufacturer and the retailer are determined
Summary
In a traditional supply chain (TSC), the manufacturer has no visibility of their customer demand, and production planning and inventory replenishment decisions are typically made from forecasts based on historical demand. With the supplier gaining more benefits, the retailer has less incentive to share information with the supplier.In order to encourage retailers to share information with their suppliers, many types of collaboration strategies have been developed and implemented in various industries with mixed results (Lapide, 2001; Baljko, 2003; Seifert, 2003). One such collaboration strategy is known as Collaborative Planning, Forecasting and Replenishment (CPFR)
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