Under an advanced order system, a customer places orders for goods far in advance of when he or she needs them. In our original example, Dower Industries might have placed an order for eight No. 456 gaskets to be delivered on November 1. Several of those gaskets would sit on Dower's storeroom shelf for close to a month before being needed. Dower's cost of procuring material would be unnecessarily high. After all, they have to pay for the material, store it, protect it from damage, etc.
Collaborative forecasting allows a customer to pull material from the distributor's stock as needed.
Their cost of acquiring and carrying material is minimized. And, because of having a better forecast of future demand, the distributor achieves a high level of customer service with minimal reserve inventory. In other words, they can consistently meet their customers' requirements with a minimal amount of inventory. It is easy to see how successful collaborative forecasting results in a win-win situation. It is not surprising that CPFR is considered one of the most exciting and profitable applications in electronic commerce.