KRAFT STEPPING UP ITS ECR AGENDA

JAMES TENSER

CHICAGO -- Kraft Foods, Northfield, Ill., is pursuing broad and ambitious goals for implementing Efficient Consumer Response programs.

A key objective for the company is to expand its involvement in joint category management dramatically over the next two years, said John Bowlin, president and chief executive officer.

"We're now working with about 40 customers on joint category management in over 15 categories," said Bowlin, who addressed the Joint Industry Conference on Efficient Consumer Response here.

The company expects more than 20% of its product volume to be managed via joint category management programs by the end of 1996, up from 6% today. That figure will expand to nearly one-third of total volume, or $7 billion in retail sales, by the end of 1997, he said.

Kraft Foods, a division of Philip Morris Cos., New York, is the largest food company in North America, with annual revenues of about $16 billion.

Category management activity so far has been enabled by beefing up Kraft's sales information capability in the field, he said. In a prior interview, Bowlin told Brand Marketing that Kraft Foods had spent a large, unspecified sum on notebook computers and training for its sales organization during 1995.

The company also completed the unification of its 3,500 member direct sales organization nationwide last year. What were formerly three separate sales forces -- Kraft, General Foods, and Oscar Mayer -- have now been rebuilt into integrated, cross-functional customer business teams. These are "organized both geographically and around our top 200 customers," he said.

"Now one person -- our customer business manager -- speaks for all of Kraft Foods and has ECR resources to draw on in the field," he said.

This new structure has been fundamental to Kraft's progress in several key ECR-related areas, including continuous replenishment, promotion simplification, activity-based costing, electronic data interchange, targeted co-marketing programs and joint category management.

Bowlin said he valued the seven-step Best Practices model for category management as a "very comprehensive approach that we should all aspire to. Kraft Foods has found, however, that meeting best practices requires a large investment in time and money. For this reason he recommended that the industry consider a "streamlined, interim model."

"We found it was taking us over 100 person hours to do one of these things well," he explained. Since Kraft does business in 30 categories for hundreds of accounts, the complexity mounts rapidly.

Bowlin said Kraft has developed an interim model for joint category management that he recommends for those who want to do more categories faster. "It follows the old 80/20 rule to focus on the biggest opportunities first."

In general, he said, Kraft supports an expansion and refinement of category management to permit better understanding of the consumer. "The data don't mean anything until we translate it into meaningful consumer insights which result in action," he said.

He suggested that the industry needs to work hard toward standardizing the way it reports and talks about consumer data. Current formats and definitions, he said, are causing confusion between trading partners.

Bowlin said several of Kraft's trade partners have asked the company to work with them on activity-based costing. With "several big studies" under its belt from 1995, Kraft is now expanding ABC "throughout our organization," he said.

"We are starting to use it with several customers to help us understand the opportunities for joint supply-chain improvement," he said.

Like many companies, Kraft has been expanding its use of EDI, he said. "We are now using it on purchase orders and invoices with customers accounting for about 85% of our business."

The firm is also offering a single invoice, down from as many as nine just two years ago.

"One area where we really have to catch up is continuous replenishment," Bowlin said.

Kraft has been steadily increasing its participation in this area, to where it currently ships 5% of its product volume via CRP through 11 U.S. and two Canadian customers. It targets shipping 20% of its product volume via CRP by the end of 1996, he added. Most of the projected growth will be in vendor-managed programs.

Understanding that a CRP environment is enhanced greatly by simplifying promotions, Kraft is testing a program in Florida and Texas that has reduced the number of deals from more than 1,100 to just 35 in a three-month period, Bowlin said.

He also said Kraft would need to fund its renewed focus on consumer benefits through a "continued press for supply chain savings."

Said Bowlin, "That means we have to reach critical mass on continuous replenishment and on electronic commerce initiatives such as UCS II."

The company is working in several other areas to accomplish supply chain efficiency through resources now available to its customer business teams. Currently, Kraft has 120 people in logistics and customer service who support the CBTs, he said. In addition, Kraft is consolidating to fewer distribution points and providing expanded services, such as advance ship notices and cross-docking.

Despite the industry's high level of commitment to ECR, Bowlin said manufacturers in general, and Kraft in particular, are not yet as far along as they would like to be.

"ECR turned out to be more complex than any of us had anticipated, particularly in the area of systems," he said.

"Also, we're not yet at critical mass, by which I mean the point where we start to see big savings in our own supply chains."