Question

What are the two types of demand present in any inventory and Which one is used in forecasting models?

Explain CFPR. Why is it important in today’s supply chain?

Answer 1

The two categories of demand in an inventory are as follows:

Independent Demand – In this category all the finished goods are listed which are demanded by the consumers. For e.g. computers, pizza, etc.

Dependent Demand – In this category all those products or parts are listed that are required to make a finished good. For e.g. microchips for computer, cheese for pizza, etc.

Independent demand is used in forecasting model as it is influenced by market condition and the complete process of making a finished good depends upon market demand and market forecast.

CPFR generally known as Collaborative Planning, forecasting and replenishment is a process through which partners in business share information in various levels of product trading, in order to understand market demand and therefore plan the supply accordingly.

For e.g. if there is as sudden decrease in demand of a particular product due environmental conditions, then it will be a benefit for both the retailer as well as the supplier and/or manufacturer to share and utilize this information which will help the business in all levels and that is why it is termed under relationship model.

The use of CPFR can reduce cost and increase efficiency, definitely there has to be proper forecasting after gather the required information and then the report can be used to manufacture appropriate quantities of a product for order fulfillment followed by performance analysis.

CPFR gives a detailed idea about consumer purchasing patterns and other related aspects associated with the purchase of a product. This collaborative planning resulting in the creation of sales forecast gives a wider horizon to any business and helps in profitable growth with time.