Int J Adv Manuf Technol (2008) 39:1033–1044
DOI 10.1007/s00170-007-1276-5
ORIGINAL ARTICLE
Applying Six Sigma methodology to collaborative forecasting
K. K. Chang & F. K. Wang
Received: 26 February 2007 / Accepted: 9 October 2007 / Published online: 9 November 2007
# Springer-Verlag London Limited 2007
Abstract Collaborative planning, together with forecasting
and replenishment (CPFR), is a processing tool that
improves supply chain management (SCM). The majority
of studies done on CPFR have focused on identifying the
advantages and future developments of CPFR, along with
providing explanations for the implementation stages of
CPFR. Six Sigma methodology is a method that can lead to
a continuous decrease in process variances. In this paper,
we applied Six Sigma methodology and proposed a
continuous improvement model on different phases of
CPFR. We used a case study to demonstrate how to
improve the performance of collaborative forecasts. The
results show that the proposed improvement model can
effectively improve the accuracy of collaborative forecasts.
Keywords Six Sigma methodology . Collaborative
forecasting
1 Introduction
The majority of supply chain models employed these days
lack a coordination framework; they are unable to match
the supply and demand that occurs between the enterprises.
Downstream firms fail to provide the right forecasts, while
upstream firms are forced to raise inventory levels to
compensate for such changes; the result is an increase in
inventory and a reduction in operational performance.
K. K. Chang : F. K. Wang (*)
Department of Industrial Management,
National Taiwan University of Science and Technology,
No. 43 Keelung Road, Sec. 4,
Taipei, Taiwan 106, Republic of China
e-mail: fukwun@mail.ntust.edu.tw
Collaboration between trading partners has been recognized
as one of the most efficient methods for improving forecast
accuracy and increasing service level, while reducing costs.
The collaborative planning, forecasting and replenishment
(CPFR) model from the voluntary inter-industry commerce
standards (VICS) is a process tool to improve supply chain
management (SCM). The concept of such a model is to
share information and risk among the supply chain partners
and improve forecasting accuracy in doing so. The CPFR
model includes collaborative planning, execution and
monitoring by all members. The benefits of implementing
CPFR for trading partners are mentioned in VICS [1]. For
examples, CPFR implementation can improve forecasting
accuracy by 10%–40%, reduce inventory cost by 10%–
40%, save between 0.3% and 1% in transportation cost and
increase customer service level by 0.5%–4%. CPFR has
also been known to reduce out of stock occurrences,
shorten the lead time from the time of order to replenish-
ment, reduce purchase returns and strengthen relationships
between supply chain members. As one might expect,
CPFR is coveted by decision-makers and engineers
primarily because it improves forecast.
Crum and Palmatier [2] explored why businesses are
cautious in embracing collaboration, and subsequently
investigated the conditions that will need to be met if
demand collaborations and CPFR become the standard
business practices among partners today. Based on field-
work conducted on hundreds of supply chain partners,
Finley and Srikanth [3] identified the requirements of
successful supply chain collaborations, collaborations that
required strategic alignment among contiguous supply
chain participants within a unified channel. They found
that the partners should apply quasi-real-time connectivity
and channel-wide metrics focused on downstream demand
in order to enable the delivery of tangible business benefits.
1034
Hutchins [4] pointed out that quality tools can be applied
to supply chain areas, such as mapping of supply chain
processes, process standardization, process variation con-
trol, supplier certification, total customer satisfaction,
auditing, preventive and corrective action and supply
performance measurement. Moreover, Snee [5] pointed
out that Six Sigma is an action oriented and focuses on
processes used in customer service and defect reduction
through variation reduction and improvement goals. Based
on the above discussion, we found that Six Sigma can be
employed to improve forecasting accuracy in CPFR.
Therefore, we proposed a continuous improvement model
in CPFR. This paper is organized as follows. Section 2
reviews the related researches on CPFR and Six Sigma
methodology. Section 3 describes the proposed model
which is a continuous improvement model on different
phases of CPFR implementation. Section 4 reports a case
study to reveal ways in which one can improve the
performance of collaborative forecasts. The final section
presents the conclusions and directions for future research.
2 Literature review
A set of CPFR guidelines have been prepared and
published by VICS. In the guidelines defined by VICS in
1999, the execution process had three stages and nine steps
Table 1 The CPFR process models of 1998 and 2004 [1]
Int J Adv Manuf Technol (2008) 39:1033–1044
[1]. After a revision was done of the six-year-old model, the
execution process contained four stages and eight steps.
The new CPFR business model is a continuous improve-
ment model and focuses on effects. Table 1 shows that the
differences between CPFR process models of 1998 and
2004. Under CPFR, both trading partners develop a joint
business plan, which includes a promotion calendar. The
buyer and the seller agree on a joint sales forecast and a
joint order forecast. The joint sales forecasts can drive
production scheduling, distribution planning and store
activity planning. Any deviations from any of the forecasts
that are beyond an agreed-upon threshold are defined as
exceptions; they induce collaborative actions by both
parties to realign the planning for the channel. Order
forecasts are also checked for exceptions and then realigned
to generate the actual replenishment orders. Many CPFR
pilot initiatives involved a limited number of items and
suppliers, with both the buyer and the seller providing
forecasts. Table 2 lists four scenarios of collaboration role
alternative.
Fliedner [6] explained the CPFR processes, cited the
benefits achieved when employing the CPFR processes,
and identified possible obstacles that may occur when
utilizing the CPFR process. A collaborative forecasting
model can be implemented with an enterprise resources
planning (ERP) system. Lin et al. [7] proposed a suitable
CPFR implementation process for the mechanical wood
Int J Adv Manuf Technol (2008) 39:1033–1044
Table 2 Collaboration role alternatives [1]
Scenario Sales Order Order
forecast forecast generation
Scenario A (conventional order Buyer Buyer Buyer
management)
Scenario B (supplier managed Buyer Seller Seller
inventory)
Scenario C (co-managed inventory) Buyer Buyer Seller
Scenario D (vendor-managed Seller Seller Seller
inventory)
carving industry. In addition, they suggested that CPFR
should focus on collaboration between the buyer and the
seller to establish collaborative forecasting procedures.
Holmstrom et al. [8] presented a forecasting solution for
CPFR that is based on category forecasting using the
retailers’ rank and share information as initial data to
forecast the stock keeping unit (SKU) level. Holweg et al.
[9] concluded that the effectiveness of supply chain
collaboration depends upon two major factors: the level to
which it integrates internal and external operations, and the
level to which the efforts are aligned to the supply chain
setting in terms of geographical dispersion, demand pattern
and product characteristics.
Six Sigma methodology is a logical and systematic
approach to achieving continuous process improvements.
This process improvement methodology was developed
in the 1980s in Motorola’s high-volume manufacturing
environment. Note that the sigma quality level offers an
indicator of how often defects are likely to occur when
using a particular process; a higher sigma quality levels
indicate a process that is less likely to create defects. The
framework consists of five integrated modules: define,
measure, analyze, improve and control (DMAIC).
Chowdhury [10] pointed out that Six Sigma is a manage-
ment philosophy that emphasizes how to avoid mistakes
and overlapped work. Hoerl [11] considered the difference
between Six Sigma and previous management methods.
The definitions of the DMAIC modules are given as
follows.
1. Define: This module defines the required activities and
the key process.
2. Measure: This module measures the capability of the
process. It measures the defects created by the process
and quantifies the difference between the output of the
process and the goal of the improvement goal.
3. Analyze: This module analyses when and where defects
occur. It applies statistical methods to verify the cause
of the process problem. The purpose of this module is
to evaluate the current performance as the foundation of
solving the process problem.
1035
4. Improve: This module focuses on how the Six
Sigma improvement technology could be developed.
The module also identifies critical factors that may
arise from the control process. The method of
solving the problem is tested and a plan is devised
to mitigate it.
5. Control: This module identifies the controls that must be
in place to sustain the benefit of the new process. It
standardizes the improved steps to keep the process
stable.
Wyper and Harrison [12] proposed applying the Six
Sigma methodology to the human resource (HR) function
in order to urge improvement in HR processes. Ehie and
Sheu [13] integrated Six Sigma and the theory of
constraints (TOC) to improve the production system. It
was estimated that the project resulted in a total saving of
$200,000 per year, exceeding the average savings from a
typical Six Sigma project at the plant. Motwani [14]
reported that the Dow Chemicals Company applied Six
Sigma to improve its process, and the project resulted in a
total saving of $1.5 billion from 1999 to 2003. Blakeslee Jr.
[15] indicated that aligning organizational components
within the company (leadership, strategy, people and
technology) is vital in implementing Six Sigma. Moreover,
he provided seven key principles critical to ensuring that
companies reap the benefit of improved business perfor-
mance from their investment in Six Sigma. Wang et al. [16]
applied Six Sigma methodology to supplier development in
SCM. In their study, they developed an application
guideline for the assessment, improvement and control of
quality in SCM using Six Sigma methodology. The
methodology can increase the supplier’s performance and
improve the quality of all supply chain processes, thereby
reducing costs and improving customer service. Tong et al.
[17] applied the DMAIC approach to improve the sigma
level of the screening process in the manufacture of surface
mounted printed circuit boards. Mahesh et al. [18]
presented a Six Sigma methodology for benchmarking of
rapid prototyping & manufacturing processes. Knowles et
al. [19] integrated Six Sigma, the balance scorecard and
SCOR into an SCCIM model. The model has two phases:
strategic cycle and operational improvement cycle. The
DMAIC cycle was introduced completely or partially
depending on the operational feature. The purpose of the
strategic cycle is to ensure maximum benefits from the
process. The purpose of the operational cycle is to
continuously decrease the variance in the supply chain.
Spector [20] reported that auto parts production could be
improved by the application of lean_Six Sigma. In
particular, work in process (WIP) inventory was reduced
by more than 70%, cycle time was halved and customer
service level was increased up to 95%.
1036 Int J Adv Manuf Technol (2008) 39:1033–1044

3 Improvement model to produce the historical and holdout forecasts. To evaluate

There are four stages in CPFR implementation. The first
stage is to create a joint business plan. It is extremely
important to determine the items necessary for the
collaboration, along with a willingness to conform to
the collaboration rules. The second stage is demand and
supply management, which is at the core of CPFR. The
major tasks involved in the second stage include
forecasting point-of-sales (POS) demand and making
order shipment requirements that will need to be met
during planning. Consumption data are used here to
generate sales forecasts. Using information from the sales
forecasts and inventory policies, we can determine when
each store needs to release an order to the distribution
center. This information is then used to generate an order
forecast for the manufacturer. The third and fourth stages
are execution and analysis, respectively. In this section,
we developed an improvement model that applies Six
Sigma methodology to CPFR in the second stage of
CPFR (see Fig. 1). The details of the DMAIC cycle are
given as follows:
3.1 Define module
The major purpose of this module is to improve the
forecasting accuracy of collaborative forecasts. In the
collaborative forecasting, we need to define what type of
data from the product sales data are needed for forecasting,
and the time period in which such a sale was done in order
the forecasting accuracy, the mean absolute percentage
error (MAPE) is identified as a critical-to-quality (CTQ)
characteristic that needs to be controlled by the collabora-
tive forecasting process.
3.2 Measure module
The purpose of this module is to collect the sales data of all
the products involved in the collaborative forecasts from a
POS system. It also includes cause and effect information
and event data. Only when such is collected can we proceed
to the next module.
3.3 Analyze module
The purpose of this module is to evaluate the current
performance and to re-evaluate the standards to be met for
forecasting accuracy. A highly regarded standard such as
MAPE is used to examine the sales data collected in the
measure module. In the analyzing model, we analyze the
data pattern by using the autocorrelation function (ACF)
and the partial autocorrelation function (PACF); in doing
so, we can determine whether or not the data collected is
stationary and of value. After analyzing the data pattern, we
find the time series data by way of a simple exponential
smoothing model, which allows us to forecast future sales.
The MAPE values of all products on the control chart are
used to monitor the forecasting accuracy. Once the process
is under control, the current data can be used to evaluate the

Fig. 1 An improvement model

for CPFR
Stage 1 Stage 2 Stage 3 Stage 4
Strategy & Planning Demand & Supply Management Execution Analysis

Define : the key

process
(collaborative
forecast)

Control : sustain
the
Measure : collect
collaborative
forecast with the sales data
high accuracy

Improve : adopt
advanced Analyze : examine
forecasting the forecasting
model to improve accuracy by a
forecasting control chart
accuracy
Int J Adv Manuf Technol (2008) 39:1033–1044 1037

process performance. Further, this module identifies and 4 Case study

prioritizes improvement areas that are out of control. Once
these areas have been prioritized, we should consider the
areas that must receive immediate attention and proceed to
the next module.
3.4 Improve module
This module focuses on identifying and implementing
changes that may occur, which would improve the
overall forecasting accuracy. The analysis of the fore-
casting accuracy showed that some products’ MAPE
values were not within the limits. That is, the collabo-
rative forecasts for some products were not satisfactory.
In order to improve the forecasting accuracy, ARIMA or
some advanced forecasting models was used as a core
tool. For example, we can change the original forecasting
method from a simple exponential smoothing model to
an ARIMA model. After the first improve cycle, we
return to the measure module to repeat this cycle until
the collaborative forecasts for all products are under
control. Then, we can formulate the final producing plan
and collaborative replenishment plan according to the
final collaborative forecast.
3.5 Control module
In order to improve forecasting accuracy in demand and
supply management, the variation between what is fore-
casted and the actual sales should be monitored using
control charts. If the difference value exceeds the control
limit, a revision of the forecast model should be performed
immediately to formulate a suitable collaborative demand
and supply course of action.
4.1 Company and processes
This case study was conducted in a company called
company-A which is a part of the paper industry in Taiwan.
This company has three different types of products —
cultural paper, family paper and industrial paper. These
different types of products have different supply chain
models (see Fig. 2). Since industrial paper is customized
according to a customer’s needs, it is difficult to forecast
each customer’s order. Cultural paper and family paper
have similar production and marketing processes. Further,
their combined revenues were merged over 60% of the total
revenue. Therefore, this case study focuses on cultural
paper and family paper.
To improve partnership with its retailers and competition
in this paper market, this company used the concept of
CPFR to establish its own collaborative forecast process.
Following business reengineering, the CPFR processes
from the downstream retailer to the upstream supplier (see
Figs. 3 and 4) are given as follows:
1. The retailers transfer the sales forecasts of all collabo-
rative products from the POS system to the sales
database.
2. The regional salespersons aggregate the sales of all
collaborative products and report them to the regional
manager.
3. The regional manager gathers the sales forecasts and
produces the regional order forecast using the system
and personal experience.
4. The head office gathers the order forecast of all
collaborative products in every region and then
produces the whole order forecast.

Fig. 2 The supply chain model

of company-A A company Demand plan
(Sales Forecast)

Cultural paper Product schedule and

replenishment plan Retailer
department
MTS

Demand plan
(Sales Forecast)

Family paper Product schedule and

Wood pulp replenishment plan Retailer
department
MTS

Certainly Order
(size, strength,numbers)

Industrial paper Enterprise

Waste paper pulp Product schedule
department customer
MTO
1038 Int J Adv Manuf Technol (2008) 39:1033–1044

Fig. 3 The CPFR processes of

company-A Sub-regional sales Retailer
forecast sales forecast

Summary sub-
regional sales
forecast

System
forecasting

Produce regional Regional

sales forecast Target plan

Meeting
result

Summary regional
sales forecast

System
forecasting

Produce final Webplan

forecast

Meeting
result
Forecast posting to
APS

Order generation

Replenishment
maintain

End

5. The regional managers transfer the region order to the
retailers according to each retailer’s past sales data. The
retailers need to confirm the order.
6. After the order is confirmed, the data are transferred to
an advanced planning and scheduling (APS) system
that calculates the inventory and route to determine
when the order should be produced. Finally, the
replenishment plan is established and sent to the
individual retailers.
From Table 2, we can identify that company-A belongs
to Scenario B. In this situation, company-A is in charge of
the order forecasting and order generation. Even after
executing CPFR, the accuracy of the collaborative forecasts
failed to meet the target. Thus, company-A decided to apply
the DMAIC approach to improve its forecasting accuracy.
Currently, the forecasting models are fitted by a simple
model such as moving average, weighted moving average
or simple exponential smoothing.

Fig. 4 Product’s forecast model 70.00%

control chart before 1st improve
60.00%
cycle
50.00%
History
40.00% MAPE

UCL
30.00%

20.00%

10.00%

0.00%
Product1 Total

Product2 Total

Product3Total

Product4 Total

Product5 Total

Product1 Combine

Product2 Combine

Product3 Combine

Product4 Combine

Product5 Combine
Table 3 MAPE values before 1st improve cycle

Item Product1 total Product2 Product3 Product4 Product5 Product1 Product2 Product3 Product4 Product5 Mean Standard UCL
total total total total combine combine combine combine combine deviation
Forecast Weighted Exponential Exponential Exponential Exponential Exponential Exponential Weighted Weighted Exponential
model moving smoothing smoothing smoothing smoothing smoothing smoothing moving moving smoothing
average average average
Weighted Weighted Exponential Weighted
moving moving smoothing moving
average average average
Exponential
smoothing

History 14.54% 20.91% 1.99% 57.27% 2.53% 13.02% 19.99% 1.92% 58.78% 2.74% 19.37% 20.55% 39.92%
MAPE
Int J Adv Manuf Technol (2008) 39:1033–1044

Holdout 16.61% 13.37% 3.49% 49.92% 2.25% 8.70% 23.38% 3.51% 51.75% 4.02% 17.70%
MAPE

Table 4 MAPE values after 1st improve cycle

Item Product1 total Product2 Product3 Product4 Product5 Product1 Product2 Product3 Product4 Product5 Mean Standard UCL
total total total total combine combine combine combine combine deviation
Forecast Weighted Exponential Exponential Holt- Exponential Exponential Exponential Weighted Holt- Exponential
model moving smoothing smoothing winters smoothing smoothing smoothing moving winters smoothing
average average
Weighted Weighted ARIMA Weighted
moving moving moving
average average average
Exponential
smoothing

History 14.54% 20.91% 1.99% 6.73% 2.53% 13.02% 19.99% 1.92% 6.40% 2.74% 9.08% 7.08% 16.16%
MAPE
Holdout 16.61% 13.37% 3.49% 6.68% 2.25% 8.70% 23.38% 3.51% 7.16% 4.02% 8.91%
MAPE
1039
1040
The details of the DMAIC approach adopted in this case
study are as follows:
Define module MAPE was used as a performance measure
to evaluate the forecast accuracy. The goal was for the
MAPE values of the forecasts of all products to be less than
10%. Here, we selected five products from a particular
product family to improve their collaborative forecast. The
selling areas of all five products could be divided into three
areas: area_#1 (products #1, #2 and #3), area_#2 (products
#2, #3, #4 and #5) and area_#3 (products #3, #4 and #5).
We collected 50 weeks worth of sales data for the forecast.
Data from the first 45 weeks were used to build a
forecasting model, while the data from the last 5 weeks
was used to verify the forecasting model. We used a control
chart to monitor the forecast accuracy of all products. The
upper control limit (UCL) on the control chart was set as
the average MAPE value of all products plus one standard
deviation. If a product forecast’s MAPE value was greater
than the UCL, then the forecast was deemed as needing
improvement.
Measure module The area manager produced the forecasts
of all products based on the area retailer’s POS system. We
aggregated the forecasts from the three areas to obtain the
final forecast result of all the products; this forecast is called
the ‘combine forecast’. In addition, we generated the final
forecast of all products from the company’s sales database;
this forecast is called the ‘total forecast’. As one may
expect, ten time series data were collected for further
analysis.
Analyze module All time series data were fitted by using
one of three models — moving average, weighted moving
average or simple exponential smoothing. MAPE values
obtained by using the best fitted forecasting model for all
products are shown in Table 3. The UCL was obtained as
39.92%. Figures 3 and 4 shows that both the total and
Fig. 5 Product’s forecast model 25.00%
control chart after 1st improve
cycle 20.00%
15.00%
10.00%
5.00%
0.00%
Product1 Total
Product2 Total
Int J Adv Manuf Technol (2008) 39:1033–1044
combine forecasts for product_#4 are above the UCL. Thus,
these two forecasts needed improvement. The sales fore-
casts of product_#4 from areas #2 and #3 were fitted by an
exponential smoothing model. When we evaluated the time
series data by using ACF and PACF graphs, we found that
the data were not stationary. That is, this data set could not
be fitted by an exponential smoothing model and, thus,
needs to be fitted by another type of model.
4.2 Improvement using advance forecasting models
When a product’s forecast was above the UCL, an ARIMA
model or another advanced forecasting model was selected
for the forecasting. Table 4 shows that the MAPE values of
the combine and total forecasts of product_#4 in historical
periods are 6.40% and 6.73%, respectively. Further, we
found that the MAPE values of the combine and total
forecasts of product_#4 in holdout periods are 7.16% and
6.68%, respectively. Thus, the UCL was reduced from
39.92% to 16.16%.
The first improvement cycle shows the total and
combined forecasts in Fig. 5 for product_#2, which is
above the UCL. Thus, these two forecasts needed improve-
ment. The sales forecasts of product_#2 from areas #1 and
#2 were fitted by an exponential smoothing model. When
we evaluated the time series data by using ACF and PACF
graphs, we found that the data were not stationary. That is,
this data set could not be fitted by an exponential
smoothing model and needed to be fitted by a different
model. Thus, an ARIMA model was selected for the
forecasting. Table 5 shows that the MAPE values of the
combine and total forecasts of product_#2 in historical
periods are 11.15% and 10.81%, respectively. Further, we
found that the MAPE values of the combine and total
forecasts of product_#2 in holdout periods are 6.78% and
9.17%, respectively. Thus, the UCL was reduced from
16.16% to 11.81%.
History
MAPE
UCL
Product3Total
Product4 Total
Product5 Total
Product1 Combine
Product2 Combine
Product3 Combine
Product4 Combine
Product5 Combine
Table 5 MAPE values after 2nd improve cycle

Item Product1 total Product2 Product3 total Product4 Product5 total Product1 Product2 Product3 Product4 Product5 Mean Standard UCL
total total combine combine combine combine combine deviation
Forecast Weighted ARIMA Exponential Holt- Exponential Exponential Holt- Weighted Holt- Exponential
model moving average smoothing winters smoothing smoothing winters moving average winters smoothing
ARIMA Weighted ARIMA Weighted
moving average moving average
Exponential
smoothing

History 14.54% 10.81% 1.99% 6.73% 2.53% 13.02% 11.15% 1.92% 6.40% 2.74% 7.18% 4.62% 11.81%
MAPE
Holdout 16.61% 9.17% 3.49% 6.68% 2.25% 8.70% 6.78% 3.51% 7.16% 4.02% 6.84%
MAPE
Int J Adv Manuf Technol (2008) 39:1033–1044

Table 6 MAPE values after 3rd improve cycle

Item Product1 Product2 Product3 total Product4 Product5 total Product1 Product2 Product3 Product4 Product5 Mean Standard UCL
total total total combine combine combine combine combine deviation
Forecast Holt- ARIMA Exponential Holt- Exponential Holt-winters Holt-winters Weighted moving Holt-winters Exponential
model winters smoothing winters smoothing average smoothing
ARIMA Weighted moving ARIMA Weighted moving
average average
Exponential
smoothing

History 7.72% 10.81% 1.99% 6.73% 2.53% 7.72% 11.15% 1.92% 6.40% 2.74% 5.97% 3.34% 9.31%
MAPE
Holdout 6.51% 9.17% 3.49% 6.68% 2.25% 6.51% 6.78% 3.51% 7.16% 4.02% 5.61%
MAPE
1041
Table 7 MAPE values after 4th improve cycle
1042

Item Product1 Product2 total Product3 Product4 Product5 Product1 Product2 combine Product3 Product4 Product5 Mean Standard UCL
total total total total combine combine combine combine deviation
Forecast Holt- Decomposition Exponential Holt- Exponential Holt- Decomposition Weighted Holt- Exponential
model winters (multiplicative simple smoothing winters smoothing winters (multiplicative simple moving winters smoothing
exponential smoothing) exponential smoothing) average
Decomposition Weighted ARIMA Weighted
(multiplicative simple moving moving
exponential smoothing) average average
Exponential
Smoothing

History 7.72% 8.26% 1.99% 6.73% 2.53% 7.72% 8.01% 1.92% 6.40% 2.74% 5.40% 2.60% 8.00%
MAPE
Holdout 6.51% 7.69% 3.49% 6.68% 2.25% 6.51% 8.49% 3.51% 7.16% 4.02% 5.63%
MAPE

Table 8 MAPE values after 5th improve cycle

Item Product1 Product2 total Product3 Product4 Product5 Product1 Product2 combine Product3 Product4 Product5 Mean Standard UCL
total total total total combine combine combine combine deviation
Forecast Holt- Decomposition Exponential Holt- Exponential Holt- Decomposition Weighted Holt- Exponential
model winters (additive ARIMA) smoothing winters smoothing winters (additive ARIMA) moving winters smoothing
average
Decomposition Weighted ARIMA Weighted
(additive ARIMA) moving moving
average average
Exponential
smoothing

History 7.72% 8.13% 1.99% 6.73% 2.53% 7.72% 8.01% 1.92% 6.40% 2.74% 5.39% 2.59% 7.98%
MAPE
Holdout 6.51% 8.59% 3.49% 6.68% 2.25% 6.51% 8.49% 3.51% 7.16% 4.02% 5.72%
MAPE
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Int J Adv Manuf Technol (2008) 39:1033–1044 1043

Table 9 Final collaborative forecasts’ MAPE values

Item (X, Y) Product1 (1, 0) Product2 (0.67, 0.33) Product3 (0.64, 0.36) Product4 (0.71, 0.29) Product5 (0, 1) Mean

History MAPE 7.72% 7.78% 1.85% 6.39% 2.53% 5.26%

Holdout MAPE 6.51% 7.13% 3.50% 6.54% 2.25% 5.18%

X is the optimal weight of the Product’s Combine forecast model, and Y is the optimal weight of the Product’s Total forecast model.

We repeated these improvement cycles until it was
impossible to further improve the collaborative forecasts of
all products. After the fifth DMAIC cycle, the MAPE
values of all products could not be decreased further (see
Tables 6, 7 and 8). We found that the average MAPE value
of all products in historical periods decreased from 19.37%
to 5.39%. Further, the average MAPE value of all products
in holdout periods decreased from 19.15% to 5.72%.The
result shows that the proposed model is effective in
improving the forecasting accuracy. The model can also
effectively reduce the forecast variability of each product.
Although the MAPE values of the combine and total
forecasts of product_#2 in historical periods are 8.13% and
8.01%, respectively, the forecast of all products cannot be
improved and the goal cannot be met. Thus, we can break
the improve cycle. We can produce the collaborative
forecast using the forecast models.
For each product, we have two models that offer two
forecasts. We can find the best fitted weight between the
two forecasts to produce the final collaborative forecast.
For example, we found that the MAPE values of the
combine and total forecasts of product_#3 in historical
periods are 1.99% and 1.92%, respectively. We adopted the
regression method to find the initial weights and use the
genetic algorithm (GA) to find the best fitted weight. We
found that the best fitted weights of the combine and total
of product_#3 are 0.64 and 0.36, respectively. Further, we
found that that the MAPE value of product_#3 in the
historical period is 1.85%. Moreover, the MAPE value of a
product_#3 in the holdout period is 3.5%. We repeated the
above method for all the products. The results are shown in
Table 9. They show that the two models can be integrated
to form one final collaborative forecast model.
This model enables us to find the smallest average
MAPE in both the historical and the holdout periods. We
found that the average MAPE value of all products in
historical periods is 5.26%. The average MAPE value of all
products in holdout periods was calculated as 5.18%. The
result shows that final collaborative forecasts can offer the
highest forecasting accuracy for the product as a whole.
Control Based on the above results in Table 10, we can
conclude that the optimal collaborative forecast can be
generated using the forecast models that yield the smallest
MAPE values of all products. A control chart can then be
utilized to contrast the forecasted sales from the real sales.
If the difference value exceeds the control limit, the
forecasted model is revised immediately so that it produces
a suitable collaborative forecast. The purpose of this
module is to sustain the forecasting accuracy in demand
and supply management.
In addition, the financial benefit of the proposed method-
ology in this case company is significant. For instance, the
monthly revenue of the case company is about US$ 53
million. Using the DAMIC approach to improve the forecast-
ing accuracy for five weeks, the shortage cost and material
shortage cost for the supplier can be reduced from US$
138,669.39 to US$ 9,603.34. That is, it reduced by 93%. On
the other hand, the shortage cost and holding cost for retailers
can be reduced from US$ 166,324.14 to US$ 87,437.70. That
is, it reduced by 47%. This approach can be applied into other
stages of CPFR to improve their performance.
5 Conclusions
Past studies on CPFR focused mainly on identifying the
advantages of CPFR, recognizing the uses of CPFR in the
near future, and explaining CPFR implementation stages.

Table 10 The comparison of collaborative forecast models

Collaborative forecast models Item Product_#1 Product_#2 Product_#3 Product_#4 Product_#5 Mean

Original model (choice the best one between two History MAPE 13.02% 19.99% 1.92% 57.27% 2.53% 18.95%
forecast models) Holdout MAPE 8.70% 23.38% 3.51% 49.92% 2.25% 17.55%
DMAIC model (choice the best one between two History MAPE 7.72% 8.01% 1.92% 6.40% 2.53% 5.32%
forecast models) Holdout MAPE 6.51% 8.49% 3.51% 7.16% 2.25% 5.58%
DMAIC model (combining two forecast models History MAPE 7.72% 7.78% 1.85% 6.39% 2.53% 5.26%
using GA to allocate the weights) Holdout MAPE 6.51% 7.13% 3.50% 6.54% 2.25% 5.18%
1044
Six Sigma is a method that can lead to a continuous
decrease in process variances. In this paper, we applied Six
Sigma methodology and proposed a continuous improve-
ment model on different stages of CPFR implementation.
We discussed a case study to demonstrate how to improve
the performance of collaborative forecasts using the Six
Sigma methodology. We found that the average MAPE
value of all products for historical periods can be reduced
from 19.37% to 5.26%. We additionally concluded that the
average MAPE value of all products for holdout periods
can be reduced from 17.7% to 5.18%.
Regardless of the type of SCM style adopted, the most
important obligation would be the sharing of information
and the building of trust among trading partners involved in
collaborative forecasting. It is highly probable that the Six
Sigma methodology will be incorporated into CPFR in the
near future, a methodology that will become the standard
practice for any e-business application that seeks to excel in
this highly competitive globalization era. The analyzed case
study is in fact, limited in that it was drawn from a
relatively short span of time. Scenario B in Table 2 also
only consisted of the paper industry. Research done in the
future should pull data from a longer period of time, and
should include other industries belonging to the other
scenarios (either A, C, or D) in Table 2. In addition, one
referee suggested that we should investigate how to manage
demand smoothing and supply arrangement in CPFR.
Acknowledgement The authors wish to gratefully acknowledge the
referees of this paper who helped to clarify and improve the
presentation. The authors are grateful for partial research grant from
the National Taiwan University of Science and Technology, Taiwan.
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