RETHINKING THE FUNDAMENTALS

RUSSELL SHAW

Wholesalers must look inward, as well as outward, to take best advantage of the industry's Efficient Consumer Response initiative.

The opportunity for wholesalers to play an even more vital role in the industry under ECR and provide a host of new services, ranging from electronic marketing programs to advanced inventory management systems, is considerable.

But wholesalers also face immense challenges. Carving out an expanded and profitable niche in the age of ECR will not be easy.

The first step for many wholesalers to ensure success with ECR is re-evaluating internal business practices and overall strategic direction. Wholesalers also must do a better job in becoming a proactive force for innovation and efficiency. Only then can they cash in on the opportunities inherent in ECR, executives interviewed by SN said.

"One of the main things the ECR movement is doing is forcing a realization among wholesalers that there are benefits to going through a checklist and making sure the [ECR] guidelines are being instituted throughout the industry. Maybe 'push' would be the wrong word, but the wholesalers need to be the driving force in ECR," said John Dickson, chairman and chief executive officer of Roundy's, Pewaukee, Wis.

For Dickson, that move toward becoming a "driving force" for ECR must start at home. Wholesalers must carefully evaluate all aspects of how they run their operation, determine which components of ECR are most relevant and then work hard to install them into the corporate culture of the company.

"We have to sit down and weigh the different components of ECR. From a general standpoint, each company has to identify which processes are more capital-intensive than others and then weigh the payback of changing" to incorporate those aspects of ECR guidelines, Dickson said.

One ECR initiative Roundy's is zeroing in on in particular is efficient deliveries. "Specifically, we are in a test mode in which we are doing automatic reordering off scan data, along with a direct payment program," he said.

Another key ECR area that is prompting Roundy's to rethink its operational strategy and make some substantial changes involves electronic data interchange. "We're doing quite a bit with EDI in the area of accounts payable, with direct billing and direct payments of invoices," Dickson said.

Patrick Quinn, president and CEO of Spartan Stores, Grand Rapids, Mich., stressed that wholesalers must change -- and in some cases change fundamentally -- to survive and ultimately thrive in today's business environment.

To do that, Spartan has been involved in a comprehensive business process re-engineering program involving all levels of the company for some time. It is rethinking its role as a wholesaler and looking at taking several substantial steps to expand its business and enhance profitability.

The areas it is exploring include consolidating distribution centers and supplying alternative-format retailers not directly competing with its members. It also is considering the idea of operating its own stores.

Spartan also is launching or expanding test programs in a wide range of areas, including cross-docking, activity-based costing and continuous replenishment.

Quinn said Spartan is taking a pragmatic view of how ECR affects the industry in the short term and long term, and how the company will fit in over the next decade or more.

"As part of our re-engineering process, we have developed a supermarket-model project. Part of that process involved working with five of our retail operators and committing to implementing some [ECR-related changes] with them as we look toward the future," he said.

For its part, Spartan is using its model supermarket concept to highlight the benefits of ECR initiatives to its retail partners. "It shows the ways in which category management, space management, frequent-shopper programs, new ordering processes and paperless communications between the independent and the warehouse can be done efficiently."

Scanning also is playing a prominent role in Spartan's efforts to work with retailers. To date, 248 of Spartan's 480 stores, representing about 75% of total sales, have scanning capability.

By next spring, Quinn said he expects the demonstration model supermarket project to be a reality in the five Spartan-supplied retailers. "These will be set up as real-world beta-test sites, with a goal toward implementing the technology and running it in our broader retail environment by the spring of 1996." ECR also is bringing substantial change in the way Spartan works and interacts with manufacturers.

"Continuous replenishment is a huge priority for us right now. As we fully embrace ECR and its various initiatives, it is important for each of us to identify what our needs are," Quinn said.

"As a distributor, we want to know where our manufacturers are in relation to that. We are seeing two manufacturers clearly in front of the initiative and several others close behind," he said.

Some of the manufacturers Quinn said Spartan has built especially strong ECR-related relationships with include Nabisco, Quaker Oats, General Mills, Procter & Gamble, Dial Corp. and Nestle Co.

With P&G, for example, a category management program has helped reduce the manufacturer's inventory at Spartan from $6.5 million to $4.5 million. Some $700,000 was saved by increasing the turn rate, while using EDI and implementing activity-based costing to refine pricing programs helped enhance efficiency and build sales, he said.

For other wholesalers, implementing ECR and refocusing the organization to take advantage of new business opportunities and conditions is made even more complex because of outside acquisitions.

Fleming Cos., Oklahoma City, for example, purchased competitor Scrivner earlier this year. "I think the wholesalers probably still have the most difficult position in ECR than any of the other segments of the value chain. It just isn't easy," said Bob Stauth, Fleming's chairman, president and CEO.

"ECR lends itself most favorably to the regional-chain wholesaler who has one distribution chain. With a more limited number of store locations, they can make a definite scheduling commitment toward moving forward on time" with ECR, Stauth said.

"We have the problem of multiple sites, taking what has been developed in one location and moving it somewhere else. This slows our ability to do it all within a given period of time. Still, that doesn't lessen the importance of it getting done," he added.

Stauth is adamant that Fleming take whatever internal or external steps are necessary to emerge as a stronger, healthier and more efficient company in coming years.

"I don't know if there's any way we can leapfrog to a quick solution. It [implementing ECR] is a matter of putting people against it. We are doing just that, laying out a game plan," Stauth said.

"We've given each division a game plan, and said to them, 'Here is the schedule.' We have about 13 people at Fleming working almost exclusively in developing ECR programs. At the same time, we are doing a major re-engineering at Fleming, which at this time takes precedence over ECR," he said.

Not that ECR is on the back burner. But part of the goal of the business process re-engineering program is to make ECR more attainable for Fleming. "All this is going to tie in with ECR. We think that when this re-engineering is finished, around the middle of 1996, we will have an organizational structure much more in line with our manufacturers," Stauth said.

Other wholesalers said getting ready for ECR is more a matter of fine-tuning internal and manufacturer-relations processes than totally revamping them. Once case in point is Richfood. "We are constantly working on the internal side of the business to look at and improve on what we can do," said Donald Bennett, president and CEO of the wholesaler in Mechanicsville, Va.

"We are partnering with a number of companies in several areas. We are moving forward with EDI and are doing continuous replenishment with four big companies," Bennett said.

Bennett said Richfood has been involved in various "ECR-like initiatives" since before ECR was launched. In the last five years, for example, Richfood's operating costs have dropped 10%, even factoring in inflation. "We don't think ECR has changed us enormously," he said.

Arthur Jones, executive vice president at Associated Grocers, Seattle, said the industry's ECR initiative has presented both internal and external challenges to the company.

"Taken as a whole, ECR is a broad subject. The bottom line, though, is that our response to it, while many-faceted, must involve doing an even better job in coordinating our responses to the needs of our independents -- and not just creating new volume brackets," Jones said.

At Supervalu, Minneapolis, EDI is one of the areas at the top of the ECR priority list. Earlier this year, Skip Smith, Supervalu's vice president of information and co-chairman of the ECR Integrated EDI subcommittee, said the development of new uniform communication standard transactions sets in areas such as purchase ordering and payments will help in streamlining operations.

Use of these transaction sets should result in labor savings, and represents "the best opportunity that we collectively have in the industry today to reduce inventory deductions."