NEW YORK -- A test program that Procter & Gamble, Cincinnati, will launch July 1 has widespread implications for the role of manufacturers in the store-level execution and maintenance of retail shelf sets.
The new initiative's goals include helping retailers combat out-of-stocks by providing them with a variety of diagnostic and best-practice technologies and programs.
One key element of the new Store Development Initiative, which kicks off next month in the Arizona and Corpus Christi, Texas, markets, is the replacement of P&G's manufacturer-supplied store reset labor with a volume-based incentive fund, to be paid on a quarterly basis.
"We wanted a program that incents efficiency and reduces total systems cost," Michael Henties, business development manager at P&G, told a group of SN senior editors in an interview here last week. "We also wanted it to be flexible enough for the wide variations that exist in customers' programs. There's no cookie-cutter approach that will work all across the United States."
The drive for flexibility is present in all elements of the SDI. The initiative will provide a variety of diagnostic tools, developed in conjunction with Senn-Delaney/Andersen Consulting, Chicago, that will allow customers to benchmark their processes against other retailers', including the industry's top performers.
In addition, a "tool box" of 27 solutions/enablers includes technology such as forecasting software and a program that allows chains to cluster stores that could benefit from similar types of planograms.
A program called Predict, which P&G has been testing for nine months, will be able to analyze customers' point-of-sale data for specific problems, such as distribution voids or out-of-stocks, and use the telephone to contact the appropriate executive within the company.
The program includes a new-item function, which identifies the first scan of a new product in each store. "If a retailer has one store that hasn't scanned a new item that was introduced a few weeks before, we can call them immediately," said Henties.
"With this test, we're committed to fixing the particular customer's operations problems," said Mike Maurer, director of industry affairs at P&G and co-chairman of the Efficient Consumer Response Operating Committee. "We used a significant amount of customer input in developing this program."
P&G has been presenting information on the SDI to customers in the test markets this month, and will be monitoring the effect of the new initiative on an ongoing basis. The manufacturer is considering expanding the program to other geographic markets, possibly as early as this fall.
"We'll be measuring out-of-stocks, as well as the percentage of distribution on the shelf and overall compliance," said Henties. "We'll also be examining the program's impact on P&G's overall volume and share, as well as changes in our customers' processes and systems."
"We're confident our customers will be able to show savings in terms of the hours of labor," needed for these store-level functions, said Lou Fentress, director of North American customer retail operations for P&G.
P&G will distribute the incentive fund to all its direct buying customers in all channels of trade in the test markets. The fund amount, divided based on P&G's selling volume with each customer in that market, includes the manufacturer's costs associated with resets, remodels and new item cut-ins, but not costs for retail selling activities such as account representatives and P&G's telephone sales force.
The SDI is one of several programs P&G has introduced in the past five years that are designed to create efficiencies and lower system-wide costs in the industry, by motivating customers to adopt a variety of best practices through financial incentives, education and support programs.
Most of these programs, such as P&G's Streamlined initiatives, have focused on supply-chain improvements, by motivating more customers to use electronic data interchange or to cut truck unloading times. Industry observers say these programs have had the practical effect of moving the industry closer to the goals of the Efficient Consumer Response initiative.
Motivation for the current program came from a variety of studies that identified store-level maintenance of planograms, and the lack thereof, as a key factor in the continuing problem of out-of-stocks.
The most comprehensive study of the problem, conducted in 1996 by the Coca-Cola Research Council and Andersen Consulting, found that out-of-stocks average 8.2%, and that 48% of all items are out of stock at least once in every four-week period.
Compliance with planograms, especially on a continuing basis, is spotty at best, according to P&G. "We've seen studies showing that 35% to 40% of category plans remain intact, but that they tend to break down six to seven weeks out," said Fentress.
Not surprisingly, improved planogram compliance means fewer out-of-stocks, according to a 1996 P&G Atlanta Out-of-Stock Study of five grocery accounts in four key categories.
Higher out-of-stock percentages have a negative effect on customer loyalty, noted Fentress. "The better the in-store conditions, the better the customer loyalty and the more improved the margins," said Fentress.
Another study, combining P&G data with household panel data from ACNielsen, Stamford, Conn., indicated that each 10% increase in loyal customers translated to a 0.4% increase in retailer operating profit.
Some of the solutions P&G is offering as part of the SDI address detailed aspects of retailer operations. Some of these "state-of-the-industry" processes include adding or deleting a product from inventory, general inventory management and night crew scheduling, said Henties.
In addition, help will be available in the human resources area. The industry's training, recruitment and retention problems are the "single greatest area of disconnect, and the reason for the lack of consistent implementation" of planograms, he added.
While the solutions reach down all the way to the store level, P&G's contacts in the development and discussion of the SDI have been "as high as possible," said Henties. "We're dealing with long-term, deeply entrenched practices, so it's important to have support as you work down through the organization."
The changes that SDI could herald are not limited to retailers, said Fentress. "Procter & Gamble's resources had also been focused on older processes, such as planogram development," he noted.
"The problem is more complex than just setting the store," said Maurer. "There are systemic outages after the set takes place. Fixing it involves labor issues, systems and business processes."
Some retailers who had not been using manufacturer funds for these in-store functions "could use the [incentive fund] for their own research and development projects," said Henties. "Maybe they want to explore electronic shelf tags, for example."