Advance in technology and globalization has brought new innovation that has made organizations to easily collaborate and replace the traditional adversarial relationship. Collaboration enables organizations to attain the goals they have set for themselves through intra/ inter-organizational coordination and collective decision making (VICS, 2004). This enhances the way business processes are executed within organizations, thus achieving the strategic objective in regard to producing, supplying, and presenting products and services to different market segments. In this light, the following paragraphs explain why CPFR is important in an organization’s supply chain management and how inventories can be managed through the incorporation of various business processes.
According to VICS (2004), CPFR is defined as a business process that integrates the capabilities of multiple business partners in the coordination and fulfillment of the market demand. CPFR is used in increasing availability product while reducing inventory, logistics and transportation cost by means of linking best practices in sales and marketing to those of supply chain planning and implementation
CPFR has changed the supply chain by changing supplier and buyer relationship to make an accurate end-customer-driven process and free flow of information which facilitates common view of demand through the coordination of plans, actions, and activities. Furthermore, coordination enables the inter-relating organizations to delay buying/making/moving activities for highly valued good with uncertainty in demand, so that they happen as close as possible to the sell (Stuart & Barry, 2006).
Consequently, logistics is an important management function that interfaces with other business processes. Logistics interfaces with finance, marketing and manufacturing from an inventory standpoint. In modern business environment, activities in one department may in one way or the other affect other department functions, which has made different departments to interface in order to minimize dependency. For example, logistics affects other organization functions which include marketing, finance/accounting and manufacturing (VICS, 2004).
Marketing interface is one of important interface where logistics affect products, price, and promotion elements in decision making and depends much on place element of marketing mix. Marketing mix elements are affected in following ways; Logistics affects the pricing of product in both the cost and profit margin through addition or reduction of embedded transportation charges in the product price, product element is affected by provision of protection to the product attributes by the means of packaging and lastly, its affected the place element in choosing the distribution channels, inventory in each channel, location of the channel and where to maintain inventory for each product. All affected elements of marketing can result to addition in commodity’s price, acceptance by customer or availability which affects inventory (Stuart & Barry, 2006).
Logistics play a role in relocation of existing firm or location of a renew one by provision of assistance and advice on transportation cost, economy of scale, storage space consideration and in choosing equipment for material handling which can affect inventory.
Lastly, logistics interfaces with finance and accounting in allocation of funds by finance, for logistics operations and logistics provide information required by finance. The allocated funds determine how much is to be used in inventory because it is the most expensive and takes major part in firm’s cost structure (Stuart & Barry, 2006).
In the rapid changing modern environment, both CPFR and logistics interfaces with other departments. This has benefited many organizations by the provision of smoother running of organization through the use of both inter/intra – organization communication, collaboration and implementation of shared plan.
VICS. (2004). CPFR Overview. Web.
Stuart, E., & Barry, C. (2006). The relationship-driven supply chain: creating a culture of collaboration throughout the chain. Farnham, UK: Gower Publishing Ltd.