15 QUAKER OATS CUSTOMERS USE CRP

JOHN KAROLEFSKI

CHICAGO -- Quaker Oats Co. now has 15 customers -- representing 15% of its volume -- on a continuous replenishment program, said John Boynton, vice president of finance and customer service for the company's U.S. grocery products.

The company, based here, began CRP two years ago with only two customers, he added. "Continuous replenishment implementation has been a significant part of our [Efficient Consumer Response] relationships," he said, speaking here at the annual convention of the Food Marketing Institute.

Boynton did not announce specific economic benefits of CRP. However, such programs typically reduce inventory costs, save operational costs, create extra sales volume and improve gross margin return on investment.

He said Quaker and its customers "realized results similar to those documented in the ECR Best Practices report that will be published shortly."

These benefits follow an investment that Quaker made in the program, according to Boynton.

"We estimate that we've experienced $20 million in up-front, one-time sales shortfalls as we've implemented CRP with our customers," he said. "As you know, these sales shortfalls occur as customers reduce their distribution center inventory by approximately 50% and double their inventory turns under CRP.

"Those are big numbers," he went on to say. "We are willing to

incur those costs and investments because we are convinced that the ECR benefits over the medium- and long-term will more than offset the short-term costs."

According to Boynton, some of the keys to the mutual success of these relationships have been senior management involvement and commitment, and using cross-functional teams.

"The concept of cross-functional teamwork, not only in Quaker but across Quaker with our customers, has been very important given the total business system impact of moving to CRP," he said. "A lot of people believe that CRP is just one distribution center to the next distribution center. In fact, we find that it's very important to have the entire business team involved in implementing CRP, not just the logistics experts," he said. Boynton also said that Quaker has been working for the last year with almost 20 customers on various category management projects, although this program is less developed than CRP.

The "open collaboration and sharing of information" required for category management and CRP, he said, can produce a "triple win" for the consumer, the customer and the supplier. Boynton said Quaker views its ECR implementation strategy as a multi-year project requiring investment in people deployment, technology and execution. The supplier is investing $10 million to $20 million per year behind this effort, he added. "Precise measurement of ECR costs and benefits can be very challenging given the value chain interdependencies that occur, not only within our company from one function to another function, but across our company with our trading partners," he said. "Nevertheless, we remain confident that the ECR costs and investments will pay back over the medium term." Quaker is embracing ECR strategies for two reasons, according to Boynton: one, the company decided it couldn't achieve its financial objectives with a business-as-usual approach, and two, it sees a very challenging environment for the rest of the decade. "By that I mean specifically we expect increased consumer demands for value," he said. "We certainly are experiencing increased customer expectations for value and service, and we are certainly seeing tougher competition."