TOP-TO-TOP 1994-05-02

Robert Brown

In the 1960s when I was studying arcane subjects such as industrial engineering and operations research, we spent a great deal of time on EOQ, short for Economic Order Quantity. The primary purpose was to figure out how to minimize the cost of producing and delivering a product to the purchaser. It is therefore with some pride that I realize my undergraduate professors were 25 years ahead of their time when I read about Efficient Consumer Response.

As I understand ECR, a group of key industry executives got together to draw some insightful opinions about how consumer packaged goods companies deliver products to the American consumer. While I don't necessarily know all the components of ECR, a couple of key points are:

1. Reduce inventory levels.

2. Eliminate costly paperwork with programs such as electronic data interchange.

3. Eliminate or reduce unprofitable promotions via an everyday-low-price strategy.

Let's start with reducing inventory levels. I've been hosting in-house seminars for manufacturers for 17 years now and you know the saying, "If I had a dollar for every time I've heard a salesperson say, 'A loaded buyer is a loyal buyer.' " Manufacturers encouraged retailers to forward-buy in the hope that it would push the competition out, increase their shelf space, improve display execution or simply win that trip to Hawaii. However, with the exception of the trip to Hawaii, the other objectives often fell short, since the retailer simply built more space. Unfortunately it wasn't in-store; it was in a warehouse.

As for EDI, it is retailers who are insisting that manufacturers produce weekly forecasts, sent via modem, of base consumer demand for retailer warehouses. Additionally, the retailer decides how much incremental volume to order to support a promotion.

Lastly EDLP. I believe it was Wal-Mart, Kmart and Food Lion who basically said to the manufacturers, "It's not good enough to offer me a deal during your deal period. We want the offer to be available all year long and let's call it an annual plan."

Yes, I will agree there are manufacturers who are finally beginning to realize that 100% on deal is not a favorable position to be in. Pay-for-performance is the way to go. They also know they need to be the low-cost producer, and this does not necessarily mean the lowest price.

The packaging of all these and other revolutionary concepts under a nice slogan such as ECR has certainly caused industry intellectuals to ponder a totally new question. Perhaps the emperor in the fairy tale did have a new set of clothes on after all. I only wish my professor and I had realized how far ahead of our time we were when we studied that lower inventories, efficient production, eliminating wasteful spending, using modern technology to replace labor and delivering a quality product at a low price was the way to operate. I can't help but wonder: If we had called these insights ECR in 1970, would I have retired a rich man by now instead of writing articles?

Robert Brown is president of SPAR/Burgoyne, a merchandising, information services and research company based in Tarrytown, N.Y.