H-E-B, PUBLIX LAUD ECR EFFECTS

DAVID ORGEL

DALLAS -- Efficient Consumer Response isn't just the province of logistics or management information systems managers; it is an engine driving the executive suite.

That was the message of top supermarket executives at H-E-B Grocery Co. and Publix Super Markets, who explained how their companies are being transformed by ECR and how the charge is being led from the top.

The executives keynoted the concluding event of the Joint-Industry Conference on Efficient Consumer Response here, a forum that culminated two years of work by all segments of the supermarket business.

Among the points made by the executives:

For H-E-B, San Antonio, ECR means not only that systems are installed and best practices stressed. It also means no more perks from vendors, higher salaries to reduce turnover and more guarantees for consumers, according to James F. Clingman Jr., executive vice president and chief operating officer.

For Publix, Lakeland, Fla., ECR has led to an intensive focus on category management, people management and changing the organizational structure, said Mark C. Hollis, president and chief operating officer.

The speakers said companies are adopting ECR in myriad ways, but stressed the important thing was to try something.

"I beg you to take the ECR issue very seriously," Clingman said.

"Our industry could be dead in 15 years unless we reinvent ourselves. There are so many formats doing things more efficiently, quicker, better, and exciting the customers more. Doing the things that got us here will cause us to fail in the future."

H-E-B has traveled a four-year road to remake its organization, a journey that started before ECR was officially born. The chain has made much progress although it certainly has more to do, Clingman said. It began in 1990-91, when the signs were ominous for the organization's future.

"We looked at our company and saw a cloudy horizon ahead." In particular, he said, the chain needed to lower prices, improve fresh products, boost customer service and create its own brand. H-E-B moved on a number of fronts to create tools to achieve its goals. It brought in category managers and installed new buying systems to assist them. Today the force has grown to 42 category managers, who use state-of-the-art systems.

"We created a system where the category managers can literally have a P&L on a category group, a subcategory group, down to a stockkeeping unit, by SKU by store. That is a very powerful tool," Clingman said.

On the compensation front, H-E-B changed the salary and incentive system for distribution and procurement employees, and boosted new employee salaries to slow turnover. To improve consumer perceptions, the company created a freshness guarantee: "If a customer comes to a store and finds something out of date, we give them a fresh one free," Clingman said. The chain also launched in-stock and low-price guarantees, and partnered with the state and federal governments to ensure better safety measures for fresh foods.

H-E-B severely changed its ethics policy vis-a-vis suppliers. "We said no more free lunch," Clingman explained. "We're not going to play golf with you or hunt with you or go to the Super Bowl with you. We want our relationship at the bargaining table trying to hammer out all the waste and all the redundant junk we've been charging the customer for. We moved to net-net costing."

The chain embraced logistics enhancements by improving its cross-docking and implementing a state-of-the-art direct-store delivery system. It also created a "paperless selection process" in the warehouse to "get rid of the paper and all the mistakes." Cost reduction is being accomplished through careful attention to activity-based costing principles, which have already turned up savings potential at the checkouts and in stocking procedures.

The store is also spending more on management training and fostering more communication among its staffers.

The chain's moves have reversed its problems and put it on a good course, Clingman said. The company has experienced three years of double-digit sales growth, improvements of 5% to 7% a year in like-store sales, an all-time-high rating from customers in price reputation and product appreciation, a compounded 8% productivity improvement and a 2% reduction in cost of goods.

But "two things are very disappointing to us," Clingman said. First, customers said the chain's service ratings still weren't very good. "What happened is we increased our sales per foot in the stores but the customers don't like the crowdedness, and we have to figure out how to handle that."

Second, shrink remains at an unacceptable level in the general merchandise and perishables departments, Clingman said. He said the company will have to use activity-based costing principles to drive down costs and improve values for customers.

At Publix, Hollis had decided to put heavy emphasis on category management, and has made himself the principal driving force. His goal is clear-cut: "We want to be the best of class by December of 1995. We set a goal in early 1994, so we've given ourselves two years to accomplish it."

Publix has implemented a new organizational structure it calls "Leadership Interdependence." It is both a vertical and horizontal structure. Most of the business development managers have not only supervisory responsibility for category managers, but they also have cross-functional responsibilities for specific initiatives that affect all other categories. For instance, one business development manager might oversee category managers for health and beauty care, housewares, household and paper and pets while at the same time holding task management for category planning and supplier relationships. That manager would become the in-house expert in the latter two areas.

Hollis also criticized the industry's diverting and forward-buying traditions, asserting that both practices add no value for customers. However, he said that Publix won't unilaterally pass up these opportunities in all cases if it means compromising the chain's competitive position.

"Forward buying adds nothing to value or productivity, but we'll do it if it's necessary to remain competitive," he said.