Through the eyes of many European andinternational onlookers, economic development is characterized by restrained consumptionand an increasing concentration which has been the direct result of increasing mergers andcompany takeovers. Relations between manufacturers, industry and vendors have becomestrained to an extent that is now becoming counter-productive. Every market participant,every sector and every individual is trying to optimize their business processes toachieve specific objectives. This constantly results in an ineffective supply chain and abusiness that is not taking advantage of the opportunities available. The formula to evadethis vicious circle is cooperation rather than confrontation and the concept of EfficientConsumer Response (ECR). In essence, this concept is common sense with a brand nameattached to it.
Is ECR opposed to isolatedoptimization of company and departmental procedures?
The remolding of markets on a national, European and international level has resulted inrapid development and constantly increasing competition. In sourcing and manufacturing,this has been caused by high market fragmentation. For example, in Germany 5,000 companiesearn DM 230 billion in total revenues. This is an average of DM 46 million percompany which is a rather small amount on an international scale. Against this background,increasing pricing pressure and a decline in sales has required new concepts for sourcing,package engineering and logistics. This is affecting the Beverage Industry, such asmineral water providers and juice manufacturers, as well as food and confectionerymanufacturers. Rising raw material prices call for bigger sourcing units. The demands onthe pasta and meat processing industry are production process automation to increaseoutput and to reduce costs per unit as well.
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Through alliances and mergers big players are emerging for whom medium-sized companies areno match. Haggling for better conditions – a traditional ritual within this group – getsout of proportion. For instance, how can suppliers react when different German and Frenchstructural conditions are combined in order to get the ‘best of all’ conditions? Consumersare increasingly globally oriented. Therefore, on an international level, big brand nameswill gain in strength and importance.
This leads to the following questions: Canthese issues be tackled with horizontal cooperation to achieve bigger production andsourcing units? Or is the real challenge for entrepreneurs to come up with ideas forcompletely new, completely different value-added chains?
If we take a look at the development ofbusiness software systems ‘IT islands’ of the past are found: Stand-alone applicationsrestricted to a specific function. Over the last 15 years, technological development andincreasing competition has opened up new avenues. Today, the individual components areparts of networks, they communicate with each other, and are integrated into anoverall-system. This has resulted in great increases in productivity and efficiencycompared to stand-alone solutions.
The question everyone should be asking istherefore: Using the enabling technology, is ECR a handy idea for entrepreneurs to open upnew avenues and opportunities? To answer this, it is important to have another close lookat the ECR principles.
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By GlobalDataFirst, let’s take a look at the ‘softfactors’:
1. Long-term business success can only beachieved through products and services which meet or surpass consumer demands andexpectations.
2. Only efficient cooperation will lead tooptimum benefits.
This results in the following objectives(among others):
- to communicate ECR know-how
- to promote the exchange of experiences
- to promote integration
When looking at who benefits from ECR, manyother ‘soft factors’ can be found from the point of view of manufacturers, retailers, oreven of consumers. Although they doubtlessly contribute to success, these factors arerather ideal values, they cannot be expressed in figures.
In addition, there are the ‘hard factors’of the operational business to which numbers and values can be attached. For the productand the consumer – and to some extent we all are more or less consumers, – they are:price, service, variety, availability, presentation and quality.
There are essentially three factorscritical to the success of ECR: the number of active participants, uniform standards forcommunication and a comprehensive infrastructure.The ECR Europe Commission describes theseas the ‘critical mass’ of ECR methods. ECR methods can be divided into three key areas:enabling technologies; conversion technologies and standards such as identification,coding, logistic units and electronic data communications; fast entry processing andtransfer of information at any point of the value-added chain.
This leads to six essential areas andterms, which as integrated components of an information system, deliver successful ECR.
1. International Location Number(ILN)
‘The ILN is a prerequisite for efficient inter-company communication. Itidentifies the physical address of companies, daughter companies, branches etc.’ Thisnumber can then be used in forms, EAN codes and EANCOM.
2. EAN codes
‘The EAN number is an international, unique identification number which providesdetailed information on an item’. The EAN article number can be printed as an EAN bar codewhich can be read automatically.
3. Serial Shipping Container Code
‘SSCC is an international, exclusive identification number uniquely identifying acontainer which is on its way from sender to recipient’. SSCC is a small part of the EAN128 concept and an indispensable prerequisite for goods distribution centers and citylogistics.
4. Electronic Data Interchange(EDI)
EDI is not a technology but a tool available for companies using e-commerce to transactwith customers and suppliers.
5. EANCOM/EDIFACT
‘The United States created the worldwide, industry-independent UN/EDIFACT standard for theexchange of formatted, structured data’.
Experience gained from EDIFACT led toEANCOM which can be described as a detailed introduction guideline for a simplifiedEDIFACT message. Combining EAN tools with EANCOM provides a method for efficient,integrated data entry and communication. Apart from providing rules, descriptions andexplanations, EANCOM provides a basis of reference for EDIFACT user standards. At themoment, there are 42 message types available.
6. SINFOS master data pool
‘(the master e-data information system), apart from describing items and their hierarchy,this can be used to describe complex structures. The SINFOS item information profile andits mandatory and optional data meets the requirements of business systems for commerce,manufacturing and service industry’.
From these six pre-requisites, informationsystem requirements can be divided into three areas: hardware performance, software usedand communication systems. Once the decision has been made to participate in ECR, companyinformation systems must be checked to establish feasibility and options for integratingthe three requirements.
ECR deliverables
Efficient Replenishment refers to enterprise-wide harmonization of the entire supply chainwith a reduction in the number of ‘interfaces’. It is ‘the process of filling the shelveswith the minimum effort, at the right time and with the right product’.
Fig.1 ECR requirements for information systems
If you can demonstrate that this processcan produce significant savings through lower prices for everyone – manufacturer, sellerand consumer – then you’ve already answered the inevitable question: Why EfficientReplenishment? To take an example from an existing user: the Coca Cola Retailing ResearchGroup puts supply costs from manufacturer to retailer at an average of 9.6 percent.Assuming that total sales in the European Food Industry are approximately 700 billion eurofrom the Institute of Grocery Distribution (IGD) based on 1994 figures, this gives you astarting point of roughly 70 billion ECU, from which you can easily calculate potentialsavings of sufficient interest to demonstrate the need for action.
Roland Berger, a major German consultancydefines the objectives of the Efficient Replenishment project as follows: ‘To definebusiness processes that place a stronger emphasis on the wishes of the consumer, thatpromote the cooperation and the exchange of information required between businesspartners, and that demonstrate how optimum product availability can be achieved throughoutthe supply chain while keeping both inventories and handling to a minimum.’
The essential focus is on the supply chainas a whole, rather than its separate elements, which are affected by a wide range offactors that can be very different depending on product, shelf life, the type ofproduction, volume, geographical origin and so on. An analysis of ‘trade-offs’demonstrates that ‘to benefit the consumer and all other partners’, you must optimize interms of costs, inventories, capacity use and service level. The real, tangible benefitsof Efficient Replenishment for all participants in the process are:
- optimization of stock capacities
- efficient use of the vehicle pool
- reduction in customer returns
- avoidance of delivery bottlenecks through ‘intelligent, cooperative sales forecasting’
These visible, measurable successes canonly be achieved through the implementation and integration of Enabling Technologies,which are the key factors if you limit your perspective on the problem to technology andimplementation. First of all, however, processes have to be analyzed and redefined. Inparticular, the key processes that define the activities that occur at decisive pointsacross the supply chain and that together constitute the ECR concept. A few examples fromthe range of possible methods and activities might include:
Computer-supported purchaseorder processing:
- order processing using aggregation
Cross Docking, a method ofdelivery from manufacturer to outlet that avoids all intermediate storage:
- CRP – Continuous Replenishment Program, an optimum order quantity generated by the manufacturer
- an electronic goods receipt system, mainly in outlets
- exploitation of Point of Sale (POS) sales data
- sequential picking in which containers are loaded as defined in the layout from the outlet in combination with Space Management
- item-specific sales forecasting
- manufacturers merchandise information system
The tasks of cooperative management -mostly activities undertaken by the manufacturer – are concerned with planning andimplementing these requirements.
Efficient Unit Loads (EUL) – anintegrated solution for packaging and transport
Efficient Unit Loads (EUL) is the logical conclusion of Efficient Replenishment, but isalso a multiplier or divisor in the implementation of ECR and therefore an importantelement of the entire supply chain. It defines the effect on costs regardless of whetherEUL influences total potential savings by more or less than a seventh. EUL is stillgenerally misunderstood and rejected. It’s actually quite clear: a loading unit is made upof multiple products, different types of packaging and a variety of transport containers,which may be transferred, redistributed, packed or unpacked many times. Many people areinvolved in shipping, transport, acceptance and receiving. Efficient Unit Loads make itclear that you cannot achieve tangible success with a narrow focus.
EULs often represent a connection betweendifferent elements of the supply chain. Standardizing them means raising nationalstandards to the international level, which is hindered not only by problems ofcommunication, but also by differing weights and measures and Units of Measure (UOMs), andby the fact that reaching a consensus would require considerable investment. Which is whyATKEARNEY, a leading consultancy, calls for ‘shifting the focus away from just half of thesupply chain and realizing that to achieve the optimum, you must look at the supply chainin its entirety’.
Fig.2 A typical flow of goods
The final analysis
Efficient Consumer Response is an initiative designed to turn conventional conflictstrategy into a strategy of cooperation using new practices, methods and technologies. Theidea is supported by big international names in retailing such as Metro, Albert Heijn,Tesco, Promodés, Rinasente, and in industry including Coca-Cola, Danone, Kraft JacobsSuchard, Sardus Group and Unilever. What would appear to be an Olympic idea – cheaper,faster, better for the benefit of the consumer – is a vision driven by great expectations,promising benefits in areas from capacity optimization to improved stockroom conditions,optimized production processes, avoidance of out-of-stock situations and efficientacceleration of the flow of goods. The initiative will require the willingness of topmanagement to radically alter attitudes, build mutual trust, exchange know-how andequitably distribute quantitative benefits.
If management meets this challenge, itwould mean a genuine about-turn in conventional business practice. Even where today’sheadlines read ‘Food Industry under pressure to cooperate, Price Waterhouse predicts awave of mergers’ (Lebensmittelzeitung No.28, 10. July 98), what is meant is stillhorizontal cooperation, the formation of new but bigger islands, or the attempt by sectorsto maximize as a reaction to the same tendency among retailers. This does not increasetransparency as is understood by ECR. On the contrary. The challenge and the turnaroundlie in forming completely new value-added chains.The objectives should be defined as:
- Vertical communication or even cooperation, i.e. between producer, manufacturer, distributor, retailer and consumer
- Analysis and redefinition of all the processes involved in the flow of goods
- Industry and enterprise-wide optimization with the objective of achieving larger contribution margins
The BVE defines ECR as follows: ‘ECR is ajoint strategic concept within industry and trade to react efficiently to consumer demandwhile simultaneously avoiding unnecessary distribution costs’, and has set a good examplewith a pilot project, ‘Logistics Cooperation’. The aim of this project was ‘efficientcombination of small shipments and their concentrated delivery’. The project synchronizedthe most important operational, administrative and IT processes. Delivery cycles and timesand standardized labeling were coordinated.
‘The data gathered from the companiesinvolved gave reason for optimism’ reported the BVE in its annual report. Even in thefirst phase, ‘the number of deliveries to retailers could be reduced by 30 percent’ at thesame time increasing delivery quantities by 50 percent. The ‘BVE Logistics Forum’ will nowwork on these and other ECR solutions.
This example shows that the challenge isnot in the ECR vision itself, but rather in the need to take action. To use the availableEnabling Technology tools, to review existing processes in the light of EfficientReplenishment and Efficient Unit Loads and to engender synergies through honest opennessand the highest possible level of transparency throughout the entire flow of goods. Inshort: to realize the ECR vision through best business practice.
Literature:
Edition ECR Deutschland der Centrale für Coordination GmbH, CCG, Member of EANInternational, Köln
GeschŠftsbericht 97 derBundesvereinigung der Deutschen ErnŠhrungsindustrie e. V., Bonn
Lebensmittelzeitung, VerlagsgruppeDeutscher Fachverlag, Frankfurt am Main
