SPARTAN STILL SEEKING TO OFFSET LOST PROCUREMENT REVENUE

MARK TOSH

CHICAGO -- Spartan Stores, which began streamlining its business practices in mid-1992, is still seeking to recover all the revenues it has subsequently lost by reducing forward buying and diverting activities, an executive of the wholesaler said here.

Steve Biondo, organizational development manager at Spartan Stores, Grand Rapids, Mich., said the wholesaler still believes that diminishing forward buying and diverting is "a good idea" and will make the company more efficient in the long run. However, the cooperative wholesaler has not yet offset the revenues it has lost by revising its procurement practices.

Biondo spoke at a workshop during the Food Marketing Institute's annual convention and educational exposition. His comments about forward buying and diverting came in response to a question during the workshop, "Organizational Change: ECR Applications."

"We have not seen the kind of recovery [at this point in time] that we need to see as we move forward," he said. "As you leap forward, sometimes your results come down as you change and your processes change."

Spartan executives are "convinced" the wholesaler will achieve either the cost savings or alternative revenues that are required to offset revenues lost through the reduction of forward buying and diverting. The data is not yet available to confirm this, Biondo said.

"We intuitively know it's right to" reduce forward buying and diverting, he said. "We have seen the effects of it in other industries

and we have numbers from other industries. We do not have numbers yet within our organization, although we do have goodwill demonstrated towards us from our manufacturing partners."

Supplier partners of Spartan "are coming to the table with other resources" to help Spartan with its effort to re-engineer its business practices, Biondo said. "That, at this point in time, speaks volumes to us," he said.

Spartan also is developing "alternative sources of revenue" through acquisitions and other transactions to further offset the reduced forward-buying and diverting revenues.

Through a companywide re-engineering, Biondo said, Spartan has reduced the number of internal business processes from more than 400 to slightly more than 100. A management team overseeing the re-engineering has sought to better understand the needs of both Spartan's customers and its suppliers.

The re-engineering process at Spartan began before industry trade groups organized the Efficient Consumer Response cost-cutting project in early 1993. A number of Spartan's cost-cutting efforts overlap with ECR ideas.

"We said the ECR debate isn't a debate at all," he said. "It's a moot point. ECR is being done already by mass merchandisers. We said, 'Here's the benchmark we're prepared to hit.' "

After completing a months-long initial study, Spartan is now about 12 months into its actual re-engineering effort, Biondo said. This is about one-third of the time the wholesaler expects is required to complete the project.

Jerel Golub, director of trade and inventory effectiveness at Price Chopper Supermarkets, Schenectady, N.Y., told attendees at the same workshop that successful implementation of ECR depends on a company's ability to manage organizational change. ECR requires companies to develop cooperative relationships among departments to achieve better business practices, Golub said. For most companies that implies making significant changes in existing operating procedures. Success will depend on a company's ability to manage organizational change.

"The specific activities which you implement are extremely important, but your ECR initiative will fail if you don't recognize that it must be approached as a very structured process," he said. The process must attempt to minimize the potential chaos that any large-scale change can have on an organization if it's not managed properly.

Golub also is a co-chairman of an industry subcommittee working on the ECR project. Golub's subcommittee, the Holistic Work Group of the Best Practices Committee, undertook a study of the human and organizational sides of ECR. The study is expected to be published in September.

An executive summary of the study was released at the FMI convention.

The study identified 11 key principles and eight common barriers to implementing ECR. Among the barriers were unrealistic expectations, a lack of leadership involvement by key individuals and choosing the wrong starting point or destination.

Golub said he believes one key to implementing ECR "lies in the realization that most of the ability to do ECR already exists within our current organizations." Many companies already have much of the technology ECR requires, but they need to learn to harness it.