CHICAGO -- Efficient Consumer Response may be the roadmap but, ultimately, each retailer and wholesaler will have to find its own route to more efficient operations, said executives from some of the trailblazers of ECR.
The companies ranged from the biggest supermarket chain, Kroger Co., Cincinnati, to one-store independent Paw Paw Shopping Center, and included crack regional chain Wegmans and wholesaler Spartan Stores, at a seminar entitled "ECR: The Vision -- The Reality," presented at the Food Marketing Institute's annual convention here.
A top executive from each of those companies outlined in brief the steps his firm has taken toward integrating ECR. The panel also included Quaker Oats, to offer the supply side viewpoint. The message reflected through their varied perspectives was that companies must find their own way with ECR; yet, interestingly, they cannot get there alone.
The Kroger executive, senior vice president Donald F. Dufek, first described the status of the grocery industry's collective ECR effort, with its ongoing series of research projects and best practices studies addressing each of ECR's acronymed components, such as DSD, EDI, ABC, CRP, CAO and UPC.
He likened the process to puzzle pieces gradually coalescing into a work of retailing art. But while the version of ECR emerging from the whole-industry studies will serve as a template, in practice "it will be so different from company to company." And in Kroger's case, will even vary within the company.
"Kroger has 16 divisions, all working their way down the road. A year from now, we will have 16 different ways to bring ECR about," he predicted.
Dufek's comment reflected the seminar's overall tenor, and he reinforced it several times. For example, he said that the puzzle pieces of ECR, taking form through different projects, will have to be worked into an "entire ECR process, a holistic plan." But "ultimately, it will be each individual company's job to adapt the plan to its own structure and vision."
Dufek's suggestion: "Take your own company, and start with a vision of where you want to go; then, take the elements of ECR and put them into place to get you there.
"At Kroger, we saw $10 million of excess money in the distribution system. We created our own vision," he noted. The chain took its own approach to category management, paperless electronic data interchange, continuous replenishment, cross-docking, its own version of activity-based costing, and so on.
Wegmans, in its own way, found itself on a path to ECR in 1992 while searching for a passage to continuous replenishment, said Daniel R. Wegman, president of the 46-unit chain based in Rochester, N.Y.
"We felt the simplest way to solve our inventory problems was to choose a strategy, and we began with the everyday costs for our suppliers and ourselves," he said.
The chain quickly realized that upsetting the apple cart of deals, ads and promotions in isolation could lead to "other bad things," so it decided to load category managment into its new strategy that same year.
The next revelation, Wegman said, was the need to re-orient its buyers and merchandisers. "Can our people, used to buying and negotiating for the low procured price, learn another way? We felt they were adaptive. We kept most of our folks, but gave them guidance for working in this new way."
The next year, ECR as a concept emerged formally, incorporating those two elements that Wegmans had already recognized in its own effort to gain control over inventory.
But ECR also demanded the integration of much more. To get a better grasp, the chain took to heart an analogy of ECR's attendant activities as a series of learnable dance steps -- which Wegman ascribed to David Jenkins, former chairman of Shaw's Supermarkets, East Bridgewater, Mass., and ECR's earliest booster. The next logical move was to find supplier partners with which to learn those dance steps, "an individual partner for each step," he said.
Wegman said the chain's lessons learned so far include the fact that "ECR is taking a long time. First, we had to train our people, and before that, learn what we needed to train them. Second, we found we did not have the information needed to run our business this way. Category sales planning requires knowing the category is up or down on a regular basis, so we sought out suppliers for an information system," he said. Wegmans had the needed data loaded by August 1993, but in a mishap last December the data was lost, dealing Wegmans a setback.
In the third step being taken by his company, the dance with suppliers, he admitted, "It is new for many of us, and it takes a while to find the right partners, but we are not big enough to plow ahead with this on our own."
He added that among his chain's criteria for selecting partners, "the biggest is trust and mutual respect."
But strength is another requirement for getting on Wegmans' dance card. "The partner has to be significant enough to affect the growth of the total category. A partner with 5% of the category would not be able to affect the category," he said.
So how has the dance been so far? Wegman said the chain has brought CRP to bear on about 50% of its grocery business so far. He added that he could judge the progress in terms of increases in gross margin and other simple measurements, "but it should be more a comparison of how it is helping you reach your vision."
For a wholesaler such as Spartan Stores, the crucial dance partners are its retailers, according to Pat Quinn, president and chief executive of the Grand Rapids, Mich.-based firm.
"Much has been said and implied about wholesalers and independent retailers in relation to ECR," Quinn said. "Will they flourish or even survive in an ECR world? We say yes, and it is certainly preferable to the way we have been operating for the last 10 years."
In fact, Spartan found some of its practices so antiquated that, during a project to improve its billing system with help from IBM, the wholesaler soon carved a path to a total re-engineering of its business. "Our inspiration was the growth of alternative formats; we began to realize the future would be very different," he explained.
Spartan assembled cross-functional teams to piece together a new direction, by dissecting the essence of its business into 307 different processes and setting a goal of winnowing that down to "103, with the right technology," Quinn said.
And like Wegmans, Spartan soon saw the emergence of ECR and the subsequent industry self-evaluation projects coinciding with its own efforts. But with 500 independent stores to serve, Spartan had to sell its makeover to its retail board. The project's quick acceptance, he said, "was a clear signal that the independents are ready to make a commitment to ECR."
Quinn said his company and its retail partners are "on target" with adapting ECR to their operating structure. "I will say it is a long process, and there are still some 'old culture' people to deal with," Quinn added.
Spartan's approach so far is along two paths: a "model supermarket project" and "model vendor project" to identify and develop system requirements for making each side of the business more efficient.
Quinn said Spartan is "working on eight different vendors" for the latter project, including direct-store delivery suppliers and brokers, to determine its requirements for business partners, such as the capability to have all transactions flow through Spartan's systems and having EDI capability where possible. He said the profile for system requirements emerged from "10 weeks of intense teamwork."
The retail project, meanwhile, is composed of a working committee with three Spartan staffers and four independents, and has been meeting two days a week for five months. This team developed its own set of system requirements and Spartan is now searching for a system to fulfill
them. "The largest internal silo," Quinn added, "will be the trust issue. Retailers will have to share data with us, and also see technology not as an expense but as an opportunity." One such Spartan retailer, Paw Paw Shopping Center, of Paw Paw, Mich., had internal obstacles of its own to deal with, according to Marvin Imus, vice president of the one-store family business. "We've played the forward-buy game for many years," he said. "We had to ask ourselves, do we want to push product or pull product through to the consumer?" Aware of the changing competitive climate, Paw Paw chose the latter, and realized a close partnership with Spartan was the only way it could muster enough resources to compete with large chains in the ECR world. "We have to really get together and trust each other," Imus said.
He joined Spartan's model store project, and also sits on the industry's joint Wholesale, Independent Retail Task Force. In both forums, Imus said, "We've thrown out into the open all the problems and concerns, what we each have liked and disliked; talked, argued about what is going on and where we are heading. Some things don't apply, and some things are awfully hard to accept," he added, but in his committee work there emerged four crucial components to working with partners for ECR: "communication, trust, confidentiality and commitment."
Imus said, so far, each partner has had some necessary roles defined. While the retailers are charged with capturing and transferring data to the wholesaler or manufacturer, "we've found it's more efficient to deal through the wholesaler," he said, "who is becoming an information broker as well as a product broker."
Working in concert with Spartan, Paw Paw has used the Spaceman space management program to reset 20 store sections, achieving increased turns and higher gross margins. "But you have got to have clean data and get it up to the wholesaler," Imus said.
Imus also addressed the question on the minds of some, "Who gets the $30 billion" in projected savings from ECR? "It will not go into my pocket," he said. "I will pass it on to my customers, because if we are competitive, at least we can stay in the game."