NEW ORLEANS -- Ralston Purina Co. is aiming to have 60% of its volume on a continuous replenishment program by the end of this year.
Today, 35 of its customers, representing 25% of its volume, are on CRP. The St. Louis-based maker of dog and cat food operates six distribution centers around the country.
The company offers CRP because it's "the right thing for us to do for our customers," said Don Mowery, director of customer response and Efficient Consumer Response. He outlined Ralston's CRP experience and plans at a conference here sponsored by IBC USA Conferences, Southborough, Mass. Ralston is the leading U.S. marketer of branded dry pet food. Its customers include grocers, mass merchants and operators of pet specialty stores. Thirty-four of its CRP customers are supermarket retailers and one is a discounter. "Today, we have 20% of our volume on vendor-managed CRP," said Mowery. "We also have customers with their own sophisticated ordering systems that are designed to achieve high inventory turns and high service levels. They are willing to work with us on all the other aspects of the CRP relationship, but want to manage the inventory and create the purchase orders themselves. We have about 5% of our volume on that kind of relationship."
According to Mowery, CRP has benefited both its customers and Ralston. "We are seeing our customers' inventory turns increase between 20% and 150%. We're seeing 98% service levels, as measured by our customers' ability to fill retail store orders.
What that means is a significant improvement in in-stock position at retail. For those customers, we're seeing an increased gross margin return on their investment in our products."
For Ralston, Mowery said the "bottom line" has been increased sales, improved customer service and some reduction in costs. To do CRP, the company had to change its internal organization and ways of doing things, he explained. "We had to redefine some performance measures and rewards. The industry numbers tell us that, on average, if you take away the incentive for the customer to forward-buy your product -- that's essentially what you're doing with continuous replenishment -- you're taking away the high-low trade promotions that incent customers to buy the inventory and hold it. When you take that away, on average you can expect to see an 8% reduction in sales the first year as the customer adjusts the inventory levels down," he said. CRP requires a multifaceted cross-functional relationship with the customer, according to Mowery. When Ralston began to investigate CRP, it already had this relationship with some customers, and was planning to expand it. Ralston found that having people with knowledge of logistics on the team changed its customer marketing.
"We saw [improvement] in areas such as trafficking, scheduling, receiving, processes, merchandising execution and, more importantly, we saw improved utilization of expertise.
"We had the right people with the right expertise focused on solving the right problems. That freed up the people's creativity to go out and really drive consumption of those products by a focus on merchandising activities with planning and execution," he said. Ralston's first step in CRP was to secure the commitment of top management, which was enthusiastic about the project. Next came an examination of the company's capability for electronic data interchange. "That's the key" to making CRP work, Mowery said. "We already had the ability to receive purchase orders and product activity information from our customers."
Ralston next organized a steering team. The functions that were represented on the team were: sales, marketing, customer service, manufacturing, transportation, distribution, information systems, purchasing and legal. To start continuous replenishment, he said, "there were four alternatives as to what technology to use: develop our own capabilities, purchase the software to run on our systems, outsource the service or modify an existing application used for the internal distribution network. "We decided that outsourcing was the best way to go. It required minimal investment and had the fastest startup time." For the outsource service, Ralston turned to Integrated Systems Solutions Corp., Cincinnati. The pilot started in December 1992.
For companies looking at getting into CRP, Mowery offered these suggestions:
Keep getting management commitment.
Look for a customer that you already have an EDI relationship with to do the pilot.
Choose a company that is already doing CRP. "Don't put both of you in a learning mode at the same time."
Make sure it's in an appropriate business for CRP. "Pick something that fits."
Make sure there is a trusting relationship with the partner and that both have reasonable expectations."
