In the year since the introduction of the Efficient Consumer Response idea, much has been done in the way of spreading the word about the cost-cutting project.
But in 1994, as the industry attempts to make some aspects of ECR standard operating procedure, the real work of putting ECR's theories into practice is about to begin.
That process is at the forefront of the Food Marketing Institute's Midwinter Executive Conference this week in Boca Raton, Fla., where results of several ECR initiatives are being discussed.
Most observers believe the time frame for full-scale
implementation of ECR -- which would create supply-chain savings of $30 billion and lower grocery prices to the end consumer by about 11 cents on the dollar -- is farther off than the end of 1996, as was originally projected.
Still, the progress that has been made to date on testing ECR strategies is pleasing, according to those involved with overseeing the massive industry effort.
"I am really surprised with the amount of progress made in a year's time," Jerry Metcalf, chairman and chief executive officer of Scrivner, Oklahoma City, said in an interview with SN. The ECR idea had its first major presentation at the FMI Midwinter Executive Conference last year.
Metcalf, who was named a co-chairman of the Executive Committee on ECR last fall, said it is "difficult to tell" how long it will take the industry to achieve the critical mass needed for the payoff to begin, but at least the framework for participation is beginning to take shape.
"ECR is not a slam dunk," he said in the interview. "There are some issues out there related to the equity of ECR. One of my tasks is to try to work in conjunction with the committee to make the project more equitable."
Richard Mayer, chairman and CEO of Kraft General Foods, also is a co-chairman of the Executive Committee on ECR.
The first public progress reports on the ECR project are being issued this week at the FMI conference, which ends Wednesday. Metcalf said he believes executives will be pleased with the results they hear.
Among the scheduled presentations at the four-day conference are a series of reports on specific ECR projects, including continuous replenishment, category management and cross-docking.
Industry executives hope the conference will be just the first step in a year-long effort to get out more hard results and how-to information on the ECR idea.
David Jenkins, who preceded Metcalf as a co-chairman of the ECR executive committee, told SN the committee wants to establish a "library" of information on ECR. This includes the explanation of the costs, the problems and a how-to guide for implementing specific processes.
"That's the approach," Jenkins said in a recent interview. "There is no cookbook. But what I am hoping people will carry away from Midwinter is the idea that there are a lot of different ideas we can tackle individually right now without much technology. They can read this material and determine which ones they want to tackle."
Jenkins, a director of J. Sainsbury, London, said the project has gone "much better" than he expected. He formally introduced the idea at last year's midwinter conference.
"The industry rallied last winter and spring to organize a very complex set of project ideas into a workable scheme and tested those ideas," he said. "We initiated substantial work on what appeared to be the most promising near-term opportunities: efficient promotion and efficient replenishment."
Kurt Salmon Associates, a consulting firm based in Princeton, N.J., and the author of the original ECR study, estimated that $23 billion of costs could be eliminated solely in the areas of efficient promotion and efficient replenishment. (Efficient assortment and efficient product introduction account for the $7 billion balance.)
Efficient replenishment includes direct store delivery, cross-docking and electronic data interchange. Efficient promotion includes deal simplification and an industry shift in focus to selling from buying.
Jenkins said efficient replenishment is much easier to work on than the efficient-promotion idea since the replenishment priorities are not strategies that break new ground.
But deal simplification and promotional practices are more difficult to work on, he said. They are both more complex and more likely to involve antitrust considerations.
"That slowed down the work pretty substantially," he said. "We have quite a bit of progress to report on efficient replenishment, but not much on efficient promotion."
A new document that has been agreed upon by all sides should allow the committees to step up their efforts on the promotional issues, he said.
After progress reports are issued at the midwinter conference, more detailed reports are expected to become available at industry meetings in March, May and then at a fourth-quarter conference focusing solely on ECR, Metcalf said.
A time and location for the day-and-a-half-long joint-industry ECR conference has yet to be determined. But by the time the conference is held, most of the groundwork for companies to begin implementing full-scale ECR operations will have been laid.
"The pilot studies, the how-to's, will be done in 1994," Metcalf said. "Those who want to participate and who want to get the advantages will be able to jump in with their own efforts."
In spite of the progress the industry has made on the ECR project, a number of stumbling blocks remain. A late-summer survey of top executives, conducted for the ECR Executive Committee by Thomas Hoban, a sociology professor at North Carolina State University, identified a number of them. They are: · The perceived complexity and overwhelming scope of the project.
· The belief that manufacturers receive "the biggest bang for the buck," especially in the early stages.
· Resistance to change among people in the industry.
· The belief that ECR is applicable to only everyday-low-price operators and not high-low operators.
Hoban's findings also showed that retailers had mixed views, with many seeing ECR as driven by manufacturers. Some expressed concern that the benefits to consumers "have not been clearly identified and emphasized."
Manufacturers were the most enthusiastic and expressed the "greatest sense of urgency" about the pace of ECR implementation. Wholesalers tended to be the most cautious about ECR and "would generally like to see the pace of implementation slowed," the Hoban report said.
"As a group, wholesalers feel that they have the most to lose from ECR. Elimination of certain practices [such as forward buying and diverting] would remove a major source of revenues for them," it said.
Metcalf said one area of concern he has is how all manufacturers are going to be able to "partner," or form alliances, with every other segment of the industry, including the independent retailer. "I don't want you to get the impression that this is a big happy hunting ground and everybody is pleased with everybody," he said. "What I'm saying is that we have a very compatible working group of people working on a major project that should eventually be of great value to the food industry. That does not mean that all those players agree with each other on every subject."
In his role as a co-chairman of the lead ECR committee, Metcalf said he intends to speak for both the wholesaler and the retailer. Scrivner supplies independent customers and also owns corporate stores that account for about $2 billion of the company's $6 billion in annual sales.
"The ECR project will not be successful unless it gets a majority of the business from the industry long term," Metcalf said. He noted that 56% of all groceries sold are distributed by wholesalers, according to a 1993 Andersen Consulting study. "You can't have just one segment or another of the business involved," he said. "It needs to have critical mass to be successful."
Metcalf said he believes, as do many others, that implementing ECR will be more difficult for the independent retailer and its wholesaler, primarily because of technological link-ups and the cost of making them. One of five subcommittees working under the ECR Executive Committee has been set up to solve this problem.
"The committee is going to work on these links to be sure the independent retailer can be tied in with the wholesaler and ultimately with the manufacturer," said Metcalf.
To successfully implement ECR ideas, Metcalf said, a company will have to make a dedicated effort to the project. At Scrivner, for example, he said the organizational structure has been set up to "mirror" the ECR committee structure.
"It's not going to be something that you can just decide tomorrow that you're going to do and put in very little effort," he said. "It's going to take a concerted effort by everybody in management to make the project work."
Some ECR ideas already are being implemented at Scrivner, especially the projects the best-practices studies have shown to be successful, Metcalf said.