Benefits of CPFR Collaboration Strategy under Different Inventory Holding and Backorder Penalty Costs

  •  Raj Kamalapur    
  •  David Lyth    


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.

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