Efficient Consumer Response again will be the main topic of conversation at the Food Marketing Institute's annual convention in Chicago this week. But the details everyone will be talking about have changed enormously.
A year ago, little more than the broad outline and sweeping promises of the industry's ambitious ECR initiative -- projected to cut $30 billion in costs out of the distribution system -- were making the big headlines.
Now the show should serve as a key opportunity to highlight many of the steps and the progress retailers, wholesalers and manufacturers have made in the ECR arena.
"We feel very good about where we are at this point," said Anne Lightburn, director of technology at FMI, Washington. "What we are trying to accomplish [with ECR] is huge in scope. It is staggering in magnitude. We are working to improve and make more efficient every activity, from the supply of raw materials to the sale of product at the front-end register.
"In terms of support and promotion of the various projects -- as well as dialogue, discussion and industry interest in ECR -- tremendous progress has been made," she said.
Jerry Golub, director of trade and inventory effectiveness for Price Chopper Supermarkets, Schenectady, N.Y., stressed the progress the industry has made on the ECR front in just over one year.
On a scale of one to 10, with 10 representing full ECR practices implementation, some companies are already operating on a five or six level, and others are at the three or four level, Golub said. Golub is co-chair of the ECR holistic work group, part of the best practices committee, which is charged with preparing a road map to help companies set ECR priorities and manage large-scale change.
Golub also cited the complexity and magnitude of the challenge of achieving the full ECR vision. ECR implementation on an industrywide basis is still at about a two level overall. But that is still impressive, considering the scope of the ECR goals, he said.
"ECR, on a company-by-company level, is a potentially complex and large issue. As a result, many companies have had trouble getting their arms around what ECR really is, what it means to their individual companies, and what they can do to take advantage of the opportunities presented by these concepts," Golub said.
Multiply by a thousand the complexity of effecting change at just a single company and you may begin to envision the monumental task of changing the way the whole industry conducts business, he added.
Ralph Drayer, vice president of product supply and customer development at Procter & Gamble, Cincinnati, and co-chair of the ECR best-practices operating committee, contends that the pace of implementation has been quicker than anyone might have expected or predicted.
"I'm amazed at how far the industry has come in the relatively short time this has been in front of people," Drayer said. "It's nothing short of incredible."
Drayer predicted that a sizable number of companies will be at or near full ECR implementation by next year. "It's going to happen a lot faster than anyone imagined because a lot of companies have realized that unless they change quickly, they may be placed at a serious competitive disadvantage," he said.
"Companies that don't make the transition to the new ways of doing business quickly will have a lot of trouble competing," he said.
The time frames suggested in the initial ECR report, which received its first extensive public airing at the FMI Midwinter Executive Conference in January 1993, called for ECR "best practices" to be in place by the end of this year. It also called for full implementation of ECR to be achieved by the end of 1996.
Many industry observers consider those target dates overly optimistic. But there clearly has been change and progress in the ECR arena in the past year.
Several retailers and wholesalers, for example, have teamed up with manufacturers and brokers to undertake extensive pilot projects to determine the best practices to use in implementing ECR.
Some pilots, including those on continuous replenishment programs and electronic data interchange have been or are about to be completed. Others, such as computer-assisted ordering, will take longer. But reports on all the pilot programs are scheduled for publication by the end of the year.
In addition to completing pilot projects and implementing specific programs, the dialogue now under way between different segments of the industry as a result of the ECR initiative is also considered critical.
FMI's Lightburn said that for the industry to optimize what it learns about ECR practices, cooperation is a cornerstone. "The whole supply system has to work in concert. One of the most important elements of ECR is communication, the business-building dialogue between trading partners."
Some components of the industry's ECR initiative are already gaining widespread implementation; others are in their infancy. Continuous replenishment and EDI are clearly on the fast track when it comes to industrywide implementation.
· Electronic data interchange: EDI is considered an ECR enabler and a fundamental component of the industry quest. Without EDI to transmit information electronically, cleanly and instantaneously, other elements in the ECR arena cannot work.
EDI, though, is already in fairly wide use. One study conducted for the Uniform Code Council, for instance, indicated that 67% of grocery manufacturers, 65% of supermarket retailers and 90% of food brokers are currently using EDI to transmit or receive an estimated 32% of purchase orders and 16% of invoices.
Pilot tests involving UCS II, which expands the number of applications available using the Uniform Communication Standard, have now been completed, and a number of companies are now already in the process of implementing this key piece of EDI architecture.
UCS I, which is still the most widely used communication standard, enables vendors and retailers or wholesalers to exchange purchase orders and invoices electronically.
UCS II, on the other hand, will make it easier for one company to automatically transmit or receive price changes, promotional announcements and item-maintenance information to or from another company.
"There's no need for further piloting of the continuous replenishment aspect of ECR. The results are documented, and the techniques and benefits are clear," Drayer said.
P&G, for its part, now has continuous replenishment programs in place with 45 customers representing 170 ship-to locations. Drayer estimates that 25% of P&G's case volume today is shipped using continuous-replenishment practices.
P&G may be a leader in launching continuous replenishment programs, but it is not alone by any means. Many other companies are also taking advanatage of the enhanced delivery system.
"I think continuous replenishment will be the [ECR] approach for significant savings in the near term," said an industry observer who wished to remain anonymous. "It's a quick, relatively low-risk method of becoming more efficient."
· Category management: With this practice, point-of-sale data is used to determine how to enhance category profitability. Category specialists manage portfolios of items rather than focusing on best deals or gross margins of single items.
The joint industry category management work group is expected to present initial findings in this area at this week's FMI convention, although the final report won't be published until Sept. 1.
In addition, the group's final reports on efficient promotion, efficient assortment and efficient product introduction aren't due until the year's end, Drayer said.
In other key areas involving ECR, a direct-store-delivery best practices report is expected to be published by Sept. 1. However, pilot studies on other areas, such as computer-assisted ordering and comprehensive cross-docking, will take longer.
In computer-assisted ordering, scanned point-of-sale data is used to electronically generate product replenishment orders. This component of ECR is in an early stage of development.
In particular, more accurate scan data is critical for computer-assisted ordering to be successful. Currently, industry scanning accuracy is estimated to be only in the 85% range, according to another industry source.
A flow-through distribution ECR work group is studying pallets and the entire shipping-receiving process, as well as cross-docking. Flow-through distribution "means retailers don't have to store inventory. It's a much more responsive supply system," Drayer said.
Another area vital to the success of many of the ECR intiatives is the ability to fully and much more accurately analyze the costs of each activity.
Such cost-accounting is critical not only as a tool for understanding how much each step in any industry practice costs, but also as a benchmarking measure for analyzing success in driving out total costs.
The first step in this process is taking place as part of a study called the Value-Chain Analysis, which seeks to identify which steps in the distribution process should be broken out separately and then analyzed for cost.
The study involves manufacturers, brokers, DSD suppliers, wholesaler-supported retailers and integrated chains and includes areas such as purchasing raw materials, manufacturing, selling and distributing products and stocking the store shelf.
"We've studied the value chain to determine where the dollars are spent and where the cost-saving opportunities are," said David Jenkins, vice chairman of the joint industry ECR executive committee. "Obviously, the manufacturer spends his dollar in different ways from the retailer. But to create savings, the two have to work together, and each has to be somewhat flexible."
The long-term goal of the study is to begin practicing what is know as activity-based costing, or ABC, which is now used by mass merchandisers to better understand operational costs.
"With activity-based costing, we will be able to learn precisely where the costs are" in getting product to the store shelf, said another industry source.
In contrast with the old industry concept of direct product profitability, which tried to incorporate an unwieldy amount of data, ABC involves breaking costs down into manageable sections and identifying items or categories that are high in cost.
"Some areas might be expensive, but if they offer the consumer a lot of value, they are still high-value areas. It's the high-cost, low-consumer-value areas we want to focus on. With ABC, we study not just pricing, but improved operations," said the executive.