THE LONGER VIEW ON ECR

ELLIOT ZWIEBACH

As Efficient Consumer Response momentum continues to build, distributors are learning that greater patience and increased flexibility help their programs.

Many wholesalers and retailers interviewed by SN said they are learning to be less rigid in implementing and judging ECR and increasingly view the initiative as a fluid work in progress. Executives cited gains in their efforts, even if some of that growth is slower than first expected.

"If there are seven levels to achieve maximum results, then the industry is probably somewhere between levels two and three right now," said Gary Watson, director of logistics at Hannaford Bros., Scarborough, Maine. "We're still at a very basic level, but the walls between distributors and manufacturers are beginning to crumble, and ECR has brought attention to the fact that we all must synergize our efforts to remove costs so all of us can survive long-term," Watson said. According to Stan Sorkin, vice president of public affairs at Pathmark Stores, Woodbridge, N.J., ECR is a moving target, "because what may be considered satisfactory performance this year may not be satisfactory two years from now as improved technology comes onstream or as different operating standards are developed or as the industry redefines what is and is not efficient." Robert E. Stauth, chairman, president and chief executive officer of Fleming Cos., Oklahoma City, said the full benefits of ECR still remain more of a goal than a reality, with major paybacks still two or three years off. The original report on ECR, which was issued three years ago, projected industrywide savings of $30 billion within a couple of years, once 30% of tonnage was moving through the system using ECR initiatives, Stauth pointed out. "And while it's difficult to quantify current tonnage figures, it's clear the industry is not yet at that level," he said. "Achieving that level of critical mass has been more complex than most people thought -- in part because change is slow to happen and in part because of the differing priorities of individual companies." Stauth said he believes critical mass is still 18 months to two years away. For ECR to succeed requires a strong financial commitment, said Al Flaten Jr., president and CEO of Nash Finch Co., Minneapolis. "These kinds of programs involve significant investments, but unless people are willing to make those investments, they will be at a severe disadvantage." Retail and wholesale executives around the country offered a number of observations, including these:

The relationship and level of cooperation between distributors and vendors continue to grow stronger.

Wholesale distributors must often approach ECR changes slowly to accommodate the differing needs of their customer base.

Reducing product handling by improving flow-through opportunities seems to be the next phase of ECR, now that most major companies have implemented category management programs.

Several companies are seeking to boost their use of electronic data interchange to achieve paperless transactions with vendors. According to Stauth, ECR created a means for distributors and manufacturers to work together for their joint benefit. "Companies at all levels are communicating more effectively than ever before in terms of sharing information and looking for ways to take costs out of the system, and we're doing things together that none of us could have ever done individually," he said. According to Sorkin, "Most of our interactions with suppliers have been cooperative, although there are certain roadblocks that must be overcome and certain requirements that must be met. But there's been good give-and-take on both sides, and we have a good dialogue going on ways to improve the system." A spokesman for Winn-Dixie Stores, Jacksonville, Fla., said the chain is finding that suppliers are willing to work with it. "Engineering challenges are different at each supplier company, and we have to approach it one company at a time -- to find ways to work with them and operate as efficiently as we can while meeting both their needs and our own." Wholesalers are also finding that each retail customer they serve responds to ECR-inspired changes at a different pace. At Fleming, implementing its flexible marketing plan has gone a little slower than the wholesaler had originally anticipated, Stauth said, "because every individual and every customer we supply has his own learning curve. Some are more adaptable to change and understand the new concepts immediately, while others are confused and feel we were coming at them too quickly. "And there's a small group that doesn't like change at all, and we are working with them to help them understand why they need to change and how our programs will benefit them." As a result, he said Fleming has slowed implementation of its marketing plan this year. Just as critical mass is important to the overall ECR effort, it's also important within a company like Fleming, Stauth told SN. "All customers must adapt to the changes we're implementing because the maximum benefits don't happen until all trading partners are working together to pull costs out of the system. "It's not simply a matter of reducing our costs and then everyone makes more money." Supervalu is also taking its time implementing the restructuring programs it has developed under the Advantage banner, a company official told SN. "Virtually all Advantage-related initiatives represent an entirely new technical environment, which is very complex and interdependent," the official said. "Therefore, we will be careful to do it right, not just do it fast." One of Supervalu's key marketing accomplishments last year, the official said, was the rollout of category management to all major vendors and food brokers, "which has resulted in excellent sales and margin improvements for test retailers." Supervalu also introduced a new pricing program to its Denver-area customers late last year using a dead-net selling price that reflects the wholesaler's actual cost, plus a three-part fee structure that reflects its costs for storage and handling, freight and service. The company said the new pricing system will be made available to retail customers in the Southeast by early summer with the opening of the company's first upstream regional distribution center in Anniston, Ala. -- a 200,000-square-foot facility that will replenish slow-moving groceries and nonfood items and also serve as a cross-dock facility for five existing distribution centers. Supervalu said it expects to open a second regional distribution facility in Illinois early in 1997, with sites in the Northeast and Northwest to follow. The company is also expanding its EDI program, with the goal of eliminating paper purchase orders by the end of the year. The official said Supervalu will encourage vendor participation in EDI by pricing products from participating companies more advantageously at retail than products from vendors who continue to rely on paper-based systems.

Nash Finch is developing new software to use in the client-server-based information system that will replace its old mainframe computers later this year, Flaten told SN. He said the company is developing its own software "because there is no canned program we can put in for retail grocery stores or distribution centers, although there are a lot of bits and pieces of other programs that we will use." He said Nash Finch has already purchased the hardware and software for the new system, "and we're on the threshold of full implementation." The company expects to begin phasing in the new system this summer, he said, although it is likely to be a year before it's fully installed at all corporate and affiliated stores and warehouses. Flaten estimated the installation will cost about $200 million, "and we expect to see paybacks within the first year." Regarding logistics, Flaten said Nash Finch has been working for more than a year to improve its receiving and handling procedures, "and we're waiting for the technology to catch up with our ideas. There's no software available for what we want to do, so we've been designing a software model, and we expect to begin installation next spring." Hannaford is concentrating most of its efforts on improving flow-through distribution techniques -- including continuous replenishment, cross-docking and other methods -- to reduce product handling, Watson told SN. One such effort is the chain's Joint Optimization Relations -- a program of working with manufacturers "to synergize expertise and efforts to mutually remove costs," Watson explained. "We're developing stronger relationships with manufacturers to test a variety of programs on the supplier end, and we're also working with our own buyers, warehouses and stores to try different methods of reducing the number of times products are touched." Although Hannaford has been testing various flow-through programs for more than six months, "we're still at a very baseline level now, just trying to learn what we can," he said. One of the tests encompasses third-party order consolidations -- a program in which Hannaford clusters orders from multiple vendors that are handled by third-party distributors so that the combined orders fill a truck, "which gives each vendor the benefits of a full truckload rate from point to point; reduces the third-party's administrative costs through improved productivity, and improves the reliability of orders coming to us, which reduces our warehouse inventory and handling." The order consolidation program, which has been tested for a year at Hannaford's Northeast stores, will be expanded to encompass its Southeast stores later this year, Watson said. At Pathmark, the priority has been "to establish category management and then expand to other systems that make category management more effective and efficient," Sorkin said. Category management of groceries and nonfood was implemented during the past year, he noted, with the balance of product categories scheduled to come on-line within 18 months. Pathmark also hopes to expand use of EDI to all purchases within the same time frame, Sorkin said. Currently, EDI is used for 50% of all purchase orders. He said the chain has been using cross-docking for promotional items for more than 10 years and is currently expanding the program on a test basis to encompass additional vendors and product categories. Pathmark will also start testing a continuous replenishment system with some manufacturers later this year, Sorkin said. "We have a very high-turning distribution center, and we want to see if continuous replenishment works." American Stores Co., Salt Lake City, is reportedly investing about $6 million per quarter in its ECR-oriented Delta project, and industry sources say they expect the company to begin seeing substantial benefits from its efforts during the second half of 1997. One of the chain's primary goals is to procure products more efficiently. It is already procuring liquor and tobacco centrally and is scheduled to add dry groceries to its national procurement and logistics program this summer, followed by the addition of perishables next year. The company said the program is an attempt to enhance and coordinate branded and private-label strategies and logistics by enabling American to strike national deals with major vendors while retaining merchandising and promotional control at the local level. Winn-Dixie is also interested in the cost of goods -- more so than it is in achieving specific efficiencies, a chain spokesman told SN. "We are working with suppliers to improve our efficiency, but our top priority is to purchase merchandise at the lowest price possible," the spokesman told SN. "It would certainly be wonderful if there was no conflict between those aims, and we're working to meet both goals. But our primary concern is buying product at the lowest possible price." Certified Grocers of California, Los Angeles, is attempting to create a "virtual chain" among the member-owned cooperative's independent members, Al Plamann, president and CEO, explained. "Integrated retail chains have a built-in advantage over our organization because they can manage product flow through the distribution system and achieve significant cost advantages," Plamann said. "For Certified and its members to be competitive, it's necessary for us to create an efficient, state-of-the-art distribution system that keeps us on an even footing with competition and provides us with efficiencies to create a seamless flow of information." To achieve that goal, Certified is introducing a new impact-pricing system that simplifies fee schedules in order to add incentives for members to order less from outside sources and more through Certified, Plamann said. The company is also developing an interactive ordering system to give retailers better information, he added. Certified also plans to upgrade its internal information system from a mainframe to a client-server-based technology. And at the member level, it is trying to convince successful independents that they must implement systems "as basic as scanning" to enable them to remain successful, Plamann added.