NORTHFIELD, Ill. -- The rollout of Efficient Consumer Response is right on schedule. Pilot tests of various ECR techniques have been proceeding and the documents for the Best Practices of operation will be published in the second half of the year. Most importantly, the industry now understands what ECR is and what it isn't, says Richard Mayer, chairman and chief executive officer of Kraft General Foods here. "Where we are right now is where we
thought we would be," says Mayer, who is co-chairman of the Joint Industry Executive Committee on ECR, which oversees the initiative.
ECR, of course, is the well-publicized strategy that aims to eliminate unnecessary costs from the total supply chain, resulting in more value for the consumer.
"What we're trying to do is focus on the consumer, the active buying, as opposed to stockpiling and a lot of practices that really don't add value," Mayer told Brand Marketing in an interview. "To the extent that you do that, you can get a lot of costs out of the system. To the extent that that is passed on to the consumer, it creates a competitive advantage and value to the consumer."
He explains that last year the industry laid the foundation for ECR by achieving a consensus on the need for broad-based change, and what the methods were to achieve it.
"The first thing we tried to do in year one was establish a work plan or strategies for attacking ECR," says Mayer. "Many elements of ECR already existed throughout the industry -- things like scan accuracy and continuous replenishment. "Some of the various pricing [strategies] on the part of manufacturers and retailers were out there. No one had really woven it together in terms of an overall strategy. That's what ECR basically did."
The key accomplishment to date, he says, has been getting executives to understand that ECR was not an immediate cure for the problems of the industry.
"There were a number of people who thought that ECR was a panacea," he explains. "Transform your company overnight! It clearly is not that." Nor is ECR a "light switch" that would turn on the industry to operating with ECR techniques, he adds. "I don't think anyone would tell you that today."
Early critics and skeptics of the ECR strategy are now having second thoughts, according to Mayer. They are recognizing that there are a number of changes in the industry that are relevant to them as well. They need to look at modifying a number of their practices to allow them to be competitive, he says. "So I think understanding is one of the keynotes that I would sound as to where we are today vs. a year ago." ECR, which hinges on cooperation between manufacturer, retailer and wholesaler, was officially presented to the grocery industry in January 1993 at the Food Marketing Institute's Midwinter Executive Conference. It consists of four strategies designed to save $30 billion a year for the industry. They include: efficient replenishment ($11.9 billion), efficient promotion ($11.4 billion), efficient assortments ($4.2 billion) and efficient product introduction ($2.5 billion).
The ECR initiative is being planned and implemented by four committees and one task force. They are: · Best Practices Operating Committee: Identifies, pilots and documents industry best practices.
· Performance Measurements Operating Committee: Defines supply-chain activities and sets standards for measuring costs.
· Technology Operating Committee: Identifies and supports ECR-enabling technologies, standards and applications.
· Wholesaler/Independent Retailer Task Force: Concentrates on ECR techniques that apply to wholesalers and their independent customers. Most of the work on ECR so far concerns efficient replenishment, which forms the largest segment of potential cost savings. ECR operating practices in this area include direct store delivery, cross-docking and electronic data interchange.
Efficient promotion, which nearly equals replenishment in potential cost savings, is perhaps the most sensitive area in terms of changing business practices. It includes deal simplification and forward buying, and could involve antitrust considerations. Mayer acknowledges that these are "emotionally charged areas," and he sees a slow change coming about in these practices. "Some of the wholesalers recognize that the competitive landscape has changed," he explains. "Some of the ones who have protested and continue to protest are also working with manufacturers [to find] a better way of operating. This is not going to transform itself overnight. But I think there is an understanding that there is a need for change."
While many of the ECR practices can involve sophisticated technology, Mayer says that's really not necessary to get started.
"A misconception regarding ECR is that people believe that the only way to get there is literally through investing in the creation of new sophisticated technology. That's just not true. I think it's being used as an excuse for some not to get involved.
"The majority of benefits of ECR do not require technology or 'high tech.' They really are a change in practices and in the way you go to market. What we're trying to do is give people a road map so that they can embark on many of the aspects of ECR, which they can handle without changing technology. "The more advanced ones are pursuing some of the things that are fairly 'high tech.' But clearly, [most of] the industry is not in that camp," he says.
That's not to say that attention hasn't been placed on "enablers," which are technical systems and expertise that a company must have to make ECR work to its fullest potential. They include EDI, scan data accuracy and activity-based costing.
"EDI is clearly one of the critical ones," he says, "and activity-based costing, because before you can really run [ECR] through a company, you need to have accurate costs."
But more important than technology, Mayer points out, are people. In ECR jargon, this is referred to as "change management." It's been said that ECR is 20% technology and 80% people.
"ECR is going to require changing the culture in an organization, and that indeed is one of the most difficult things that anyone could undertake," he says. "Not just the physical hardware, but really changing the way people like to market."
According to Mayer, this will present the most difficult challenge for manufacturers operating under ECR. Managing that change internally will be "hard." For example, changing the compensation system is one area being reviewed by many brand marketers. Mayer links this to a change in job responsibilities that affects the three partners: manufacturers, retailers and wholesalers. "It's got to be something that is looked at within the context of how are you changing your behavior. What behavior do you want? Which gets back to the Best Practices. They will define what the objectives are for any given business, and then compensation systems will follow. They're all linked."
Mayer contends that there is more trust between trading partners today than ever before, and that is helping the industry embrace ECR. "The very fact that you have an industrywide committee on ECR composed of wholesalers, retailers and manufacturers is an indication that all parties recognize that they need to work together.
"So, understanding has increased. We're working together on alliances and partnerships. It is occurring. But that's got to be by mutual agreement. I mean, we're not beating the bushes looking for people to partner with who aren't ready. There's got to be a willingness to commit on both parts because it requires resources and resources need money."
Looking to 1995, Mayer says the industry will have the road map to get to ECR with the Best Practices documents. Then it's up to each company to proceed at whatever speed it feels comfortable with. "What we were going to do is really to provide the documentation, the how-to type manuals, but the real work has got to be done by companies," he says. "It's company by company, clearly. I think you're going to see the transformation over many years.
"The ECR executive committee never has and it never should be in the position to require, cajole or force participants to get on these programs," he says. "In the final analysis, it's going to be the commitment of the individual company -- whether on the trade side or the manufacturers' side -- that will determine how fast they progress."