Seizing the challenge of ECR
The USmay have initiated Efficient Consumer Response (ECR) or Efficient Foodservice Response(EFR) but the gap between the US and Europe is small and closing quickly. So says RichardSherman, senior vice president of strategic research with Numetrix. "In some waysEurope is even more advanced, because debate surrounding the European Union and singlecurrencies has made the whole continent more open to the possibility and opportunity forchange."
"Europe has gone from uninformedoptimism to informed pragmatism," adds Phil Turnbull, principal with Kurt SalmonAssociates in the UK. "It has also realized the need to shift its emphasis away fromthe supply side to look at demand. Joint category management is the issue that we expectto see the industry focus on much more in future."
The two men present an interestingperspective on the progress of ECR from both sides of the Atlantic. While there aresimilarities there are also significant differences. The original ECR survey in the USrevealed 140 days of stock in the supply chain. The UK has just 20 days of stock. The USalso has a much stronger tradition of using promotions to stimulate demand. The effect ofthis is to 'block up' warehouses and stores.
Four key strategies
"Of the four key strategies involved in ECR, efficient promotion has been the leastwell developed in the US," comments Richard Sherman, "whereas efficient storeassortment and efficient replenishment have been more widely achieved. From ourperspective, the key to gaining the most benefit from ECR practices is to improve theexchange of information within and between organizations. The major costs in the supplychain occur at the boundaries between organizations and structures."
Currently the US is more comfortable withthe notion of sharing information between customers and suppliers. Retailers in Europe areinclined to charge their suppliers for sales information, rather than make it freelyavailable. However, Richard Sherman adds a word of caution. "It is a myth to thinkthat consumer demand can be used to drive production on a daily basis. Demand is toovolatile. What is needed is better decision support technology to make better use of thedata that is out there."
Bass benefits from ECR
He cites the example of the brewer Bass, which has modelled its entire supply chain frompublic bar to farm field. Drawing data from its JBA System 21 package, Bass uses Numetrixdecisions support technology to decide when to brew, when to ship, when to buy rawmaterials, and how to react to out-of-plan situations. "This approach correspondsbest to the ECR vision of integrating information from the point of sale to point oforigin to optimise the flow of materials to optimal consumption," says Sherman.
The experience of Bass, and other companiesthat have reaped most benefit from ECR, is that the commitment to make it work must comefrom board level and be shared throughout the organization. The statement is simple andobvious. Achieving that commitment is more difficult, and will require dramaticorganizational changes within companies. Traditional relationships between salesman andbuyer will no longer be relevant. EDI transactions will take care of ordering. Stores willhave more contact with IT departments, production and distribution than they do withsales. The whole organization must become more customer focused.
Invest in IT says KSA
"The change will be met with some opposition," says Phil Turnbull. "InEurope there is less than 50 per cent acceptance of ECR in production." Nonetheless,change will come. "It is the retailers that have mainly made the IT investment thatlets them address ECR. Stores are starting to look at category management issues, usingPoS data to decide what to stock, where to position it in stores, and requiringdistribution centers and suppliers to make deliveries store-friendly."It's aprocess that manufacturers are going to have to come to terms with and manage with care.An executive of Kraft is quoted as saying, "It is clear that our presentorganizational structure is not made to suit category management."
However, this is the area that suppliersmust address. Andrew Cooksey of Van Heyningen Brothers (VHB), suppliers of tomatoes, herbsand cress to most of the UK multiples says, "It is the category management aspect ofECR that is most critical and relevant to us. The traditional role of buyer and seller haslargely disappeared. There's a team made up of people from both the buyer andsupplier for each of the key functions such as logistics, commercial, technical, stockcontrol and so on. That's an incredible network to manage."
The JBA Sales Order Processing module and EDI have also saved VHB up to $62,000 per yearby improving the pallet de-hire information. Usually, when VHB's hauliers deliverpalletted produce to the depots, they pick up an equivalent number of empty pallets. Ifthe depot has too few for an equal exchange, VHB has to notify GKN, from whom the palletsare hired. It used to take two or three days for the pallets to be taken off hire. Bytaking the information from the sales order processing module and transmitting it to GKNvia EDI, the time-scale has been reduced and the savings have been achieved.
Greater efficiency from EDI
To achieve this turnaround, extreme efficiency is required of the supply chain. Everyweek, the major multiples send to VHB a predicted delivery program for the following week.The orders come through on EDI and are fed automatically into the JBA Sales OrderProcessing module. This saves work and reduces errors compared with a manual entry system.
When the first confirmed order comesthrough on Monday, the produce will be picked and checked for quality. Loose produce ispacked into six kilogram trays. Pre-packed produce is wrapped in cellophane. All produceis delivered on the same day, passing straight through the supermarket's warehouse tothe stores, ready for sale on Tuesday.
The EDI package and its integration withthe JBA software is central to operating efficiency. As VHB's IT manager John Dalynotes, "On a day to day basis, the JBA Sales Order Processing modules are invaluable.Since we now have order processing totally integrated with EDI for the major multiplecustomers, we require less resource to do the job. The whole process is much quicker,meaning we can meet and beat our customers' deadlines. The key is to reduce the timebetween order receipt and despatch to the absolute minimum. The JBA software means we havebeen able to achieve this."
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