MINNEAPOLIS -- The frozen food segment of the grocery industry stands to realize great benefits from the implementation of Efficient Consumer Response.
That was the message from Peter Harding, vice president of Kurt Salmon Associates, Princeton, N.J., who spoke here March 4, during the kickoff ceremony of the National Frozen Food Month promotion.
Harding told more than 100 frozen food executives attending the kickoff that only companies that commit fully will garner all the benefits associated with ECR, the industrywide movement to reduce operating costs and sell goods more efficiently.
He said the original ECR study, which focused on the dry grocery/warehouse-supply segment, determined there were cost savings of about 11% within the retail supply chain.
"We didn't look within that study at the frozen food segment," he said. "But through subsequent research and discussion, it's very clear that at least this level of savings is possible, if not quite significantly greater, because of the higher costs of storing frozen food products."
While not all facets of ECR are applicable to frozen food, the message here was the same as at an American Frozen Food Institute seminar a month earlier in Anaheim, Calif.: Cost savings in the frozen food aisle can begin immediately by focusing on the electronic data interchange aspect of ECR.
Other seminar panelists were Skip Smith, senior vice president of Supervalu here, and Dave Tarr vice president of distribution for Pet Inc., St. Louis. They agreed that ECR requires a commitment from both retailers and suppliers.
"It threatens your very existence if you're not in this now," said Tarr. "This isn't an option. It's a strategy to improve the return on investment for both us and our partners, and we've found that's the case."
Smith, also a member of an ECR committee examining EDI, cited information from companies profiled in a study that found a $500 million business will have 30,000 to 35,000 purchase order cycles annually. He said one retailer in the study saved $23 per cycle.
"There are a number of factors which can affect the level of savings, but most companies in the $500 million sales range can save between $250,000 and $750,000. It's a tremendous opportunity that you should not be looking beyond." Other benefits, he said, include reduced order lead time, reduced inventory on hand, and fewer emergency situations.
Harding said companies getting the most out of EDI are few and far between.
"There are no more than 10 major frozen chains who are actively using [point-of-sale] data to drive replenishment," he said, adding that scan data accuracy levels for others are about 90%. "There are retailers today who are getting in the 99%-plus level of accuracy because they put policies, procedures and practices in place to train their people and to work with their suppliers to ensure bar codes scan properly. Once you've got that in place you suddenly have a whole new area of opportunity. You can manage inventory in your stores because at any given point and time you can know how much of a particular item you have and in what stores."
EDI requires give and take on both the retailer and supplier sides, Tarr said. "Customers have some responsibilities," he said. "They have to openly communicate. They have to be willing to adopt the technology to share sales data and inventory data and they really have to have a willingness to trust us to handle those inventories. This relationship really requires trust."
He said trust pays off. "We've seen our retailers achieve dramatically lower inventories. They've received increased sales because of improved service levels in their stores and they've reduced operating and administrative expenses."
