The supermarket industry will undergo more change in the next year than it has in the past decade.
That, according to industry executives, will be the inevitable result of the Efficient Consumer Response initiative just now beginning to take hold among retailers, wholesalers and manufacturers.
"We've seen more changes in the industry in the past year than we had in the previous five," said one retailer, who asked not to be named. "The rate of change today is faster than we've seen in a long time, and ECR is going to be happening in a thousand little pieces and ways."
Other retailers cited some of the areas of changes coming soon to their own chains and to the industry as a whole.
Gary Watson, director of logistics for Hannaford Bros., Scarborough, Maine, said his company is investigating various elements of ECR and expects to make considerable strides in several areas in the year ahead.
Among the chief areas of interest at Hannaford Bros. are category management, continuous replenishment and flow-through distribution, he said. The industry also needs to move forward more aggressively on its activity-based costing initiative, he added.
"We have embraced the ECR concept and are investigating which variables are important to our strategic position. We are actively pursuing various elements. We have implemented some new programs and are actively soliciting and working with manufacturers and suppliers who are willing to work with us," Watson said.
Hannaford has invited manufacturers and suppliers to participate in its joint optimization relations program. Through the program, the chain wants to identify costs and determine the best alternatives for the company's strategic position, Watson said. "We are looking at [costs] from the point of ordering to the time the product hits our stores," he said.
At Price Chopper Supermarkets, key ECR areas now being targeted include EDI-driven direct-store-delivery systems and continuous replenishment programs, said Jerry Golub, director of trade and inventory effectiveness at the Schenectady, N.Y.-based chain.
"We are also looking at automating the accounts-payable process, such as matching invoices and purchase orders, a great portion of which are transmitted by EDI," Golub said.
Several other ECR projects are also much under way at Price Chopper, although Golub declined to provide specific details. "We have decided ECR is important and have put the structure in place to allow us to understand what ECR is and how it applies to our company's direction," he said.
The goals of ECR, in a nutshell, are to improve efficiency and pare costs substantially throughout the distribution pipeline. While the potential benefits for everyone once ECR is fully implemented are enormous, getting there, on a chain to chain basis, will take time.
Companies, whether retailers, wholesalers or manufacturers, will implement ECR programs selectively, choosing elements and components that suit their own competitive situations and pocketbooks.
That, in fact, is the recommendation of a joint-industry work group charged with drawing up a road map for companies to follow in implementing ECR. Golub, who co-chairs that work group, said the road map offers many alternate routes.
"We realize ECR can't be all or nothing. It's not one-size-fits-all. In an industry with many diverse strategies, it's easy to see that a concept like ECR will have to be implemented differently by each company," he said.
Individual companies will set their own priorities and select the components of ECR that work best with their own philosophies, strategies and resources.
"Some pieces will be more valuable to individual companies. For example, continuous replenishment initially was synonymous with ECR. Now we realize that while it is a key component, not all companies will want to implement that piece. You don't necessarily have to do continuous replenishment to do ECR," Golub said.
One reason for companies to pick and choose which ECR elements to focus on and implement is, simply put, the investment. The technology required to undertake some ECR initiatives can be costly.
"Even companies with the greatest amount of resources are finding it difficult to implement all the components of ECR," Golub said.
From both a cost standpoint and an organization standpoint, large-scale change such as ECR must occur in "bite-sized chunks," he said.
The process "hinges on understanding where your company is -- the environment in which you are operating, your strategic direction, your own capabilities. You need to understand what you do well and how to exploit that.
"You also need to understand what you don't do well and decide whether you are comfortable with not doing it well, or if that [shortcoming] constitutes a competitive threat," Golub said.
In addition, "you have to understand where the industry is and what tools are available. Then you can decide, in terms of your own direction, what tools provide the best fit for your company," he concluded.
While individual chains look to take the next steps in the ECR process, a growing number of joint industry "best-practices" ECR pilots will be completed and final reports published throughout 1994.
Those reports should give companies that have not yet forayed into ECR or are considering what next steps to take a greater understanding of the tools available and how they work, according to several members of the joint-industry ECR best-practices operating committee.
Among the pilot programs completed or about to be completed are those involving electronic data interchange, continuous replenishment practices and category management. With these areas of investigation and testing further along, they should gain ground rapidly as relatively standard industry practices.
Other ECR elements, such as computer-assisted ordering and sophisticated cross-docking for flow-through distribution, on the other hand, will probably take hold at a slower rate.
In the area of EDI, for example, Anne Lightburn, FMI's director of technology, said, "We expect critical mass on EDI in one to two years."
Another executive agreed. "A year from now we'll see a majority of the players with integrated EDI. UCS I will be in use on a much more widescale basis and UCS II will be involved in many more pilots," he said.
UCS -- the uniform communication standard -- has been in use for some time for electronic transmission of purchase orders and invoices. Industry tests now have been completed for a second set of transactions, referred to as UCS II, that will expand EDI capabilities to other key areas, such as promotional allowances, price changes and item-maintenance information.
Retailers, wholesalers and their trading partners are expected to implement those additional uses relatively rapidly. Progress in implementing continuous replenishment and category management as an industry practice also should proceed quickly.
Within a year, an estimated "30% of all supermarket product volume will be under continuous replenishment," said another industry executive. "Category management programs will be much more solid, and pilots of activity-based costing will pop up all over the industry."
Lightburn agreed. "We expect [companies] to start using ABC to identify cost-saving opportunities. Once a CEO's eyes are opened to cost-saving opportunities, the barriers [to implementation] miraculously fall away," she said.
Intermediate-level pilots of flow-through distribution also may be in place in a year.
But computer-assisted ordering still may take a while longer before it is widely used. "Scan-data accuracy is the bugaboo there," said one executive, who asked not to be named. "Generating meaningful replenishment orders from point-of-sale scan data requires near 100% scan data accuracy, but the industry averages less than 85%," he said.
Overall, industry executives said the speed of ECR implementation is following the course mapped for it 15 months ago when it was introduced to the industry. That is expected to continue.
"Over the next six to 12 months, we will continue to refine and implement our ECR plan," Golub said.