True ECR: In search of better consumer value
Elsevier Food International Vol.8, No.1, February 2005
Pascal Kuipers
ECR is a joint supplier/retailer initiative to fulfil consumer wishes better, faster and at less cost. Drastic technologic improvements since 1996 – when ECR Europe’s first conference was held – raised the potential of speed and efficiency in the industry. But what about better fulfilling consumer wishes?
During the second ECR Europe Conference, which was held in Amsterdam (1997), Richard Hill, partner at Andersen Consulting (currently known as Accenture), gave a visionary presentation. He identified the need to move from “A world of re-engineering and reconfiguration, where cost reduction is the focus, to a world where innovation and insight are the key drivers for business growth, improved consumer loyalty and further stimulation of demand.” Hill advocated a shift from ‘product categories’ to ‘consumer categories’, which are consumer-oriented categorisations of the future, attracting consumers with similar shopping motivations.
Hill also questioned companies’ motivation to embrace ECR initiatives. In his view too much emphasis was placed on working together to increase efficiency and reduce costs, while ‘fulfilling consumer wishes better’ did not receive proper attention. “Consumer profitability will be more important than measuring product profitability,” he said back in 1997. “It’s a future which takes efficiency for granted and replaces it by innovation.”
Real ECR
Hill foresaw in 1997 that despite the benefits of collaboration in the supply chain, real ECR happens on the demand side – in the commercial relation between manufacturers and retailers. Blessed are the benefits of collaboration to increase the operational efficiency of logistics and reduce costs. But this requires a different – lower – level of openness and trust between hitherto adversary partners than real ECR, like category management and collaborative customer relations management. Retailers and suppliers granting each other insight into strategic commercial plans need a level of trust that is even now, eight years after Hill’s speech, unknown in the industry.
At the time, Hill was as right as he was wrong. He was right in looking at the real benefits – the evolution of category management and the potential of collaborative CRM did prove him right – but he was wrong in his timing. Trying to run before you can walk cannot lead to success. The business climate in the mid-1990s hardly allowed the pace of development the visionary consultant had in mind.
During the inaugural ECR Europe Conference in Geneva in January 1996, Jan Andreae, the then president of Dutch retailer Albert Heijn and co-chairman of ECR Europe, already tempered possible overheated expectations of the dawning of a new era of retailer-supplier collaboration. “ECR is by no means a tea party,” he declared. “In the end there are still purchasing conditions that need to be negotiated.”
Supply side
ECR Europe deliberately took a pragmatic stand in 1994/1995, when planning its first conference. Because ‘efficient replenishment’ (ER) was perceived as the least threatening to company and industry relationships, this basic ECR strategy was chosen as the logical launch pad for ECR Europe. The other three efficient strategies, promotion, assortment and product introduction, were kept for a later stage.
Another recommendation for ER was, that the supply side offered concrete opportunities for cost reduction and therefore helped a lot in preparing managers’ minds for the concept of ECR. For this reason, all kinds of estimates and predictions were made to quantify concrete benefits of ECR (see box). This happened in the first years of ECR Europe, until the third conference in Hamburg (1998).
Concrete examples were indeed needed as in 1995 a quarter of retailers and 41 per cent of manufacturers that had been surveyed by the consultancy Kurt Salmon Associates (KSA) had no plans whatsoever to start implementing ECR initiatives. Massimo Visconti, director of KSA in Italy, presented these results in Geneva.
Another speaker at the first ECR Europe conference, Gerd Krampe, board member of German retailer Asko, warned delegates that most companies completely underestimate the time, work and resources needed to achieve ECR objectives. In addition, he said that most companies have to deal with a significant shortage in the skills and talent demanded by ECR, particularly in the understanding of what modern information systems can deliver.
Demand side
Clearly the lowest hanging fruit to reap was on the supply side but despite its pragmatic stand, ECR Europe quickly developed its demand-side learnings as well. During ECR Europe’s Amsterdam conference (1997) it began with category management, which was further discussed a year later in Hamburg (1998). The Paris conference in 1999 looked at Efficient Product Introduction.
In Amsterdam, Enrico Toja, vice-president of Johnson & Johnson, warned that “Companies who delay development of their demand-side ECR capabilities, will be the losers in the next millennium. The learning curve for category management cannot be significantly reduced by waiting to learn from others’ experiences. Therefore don’t wait and start now.” And for those companies who took his warnings to heart, Toja had a comforting message: “Implementing category management is a long and sometimes painful journey. If you start now, the wounds will be healed in two years’ time.”
Two years later, at the 1999 Paris conference, it was as if Hill’s 1997 prayers had been answered. For the first time the conference was given a title – Consumer Value – and delegates were told to forget about the distinction between supply and demand and look at ECR from an integrated chain perspective with one point of view: providing consumer value.
The Paris conference also distinguished itself from the earlier events by combining hard and soft factors. It paid attention to the feelings, emotional responses and attitudes of people across the supply chain. Now the 2005 ECR Europe conference returns to Paris with the title ‘Better Consumer Value’, it is good to notice the important groundwork which has been done in the early conferences and which was explicitly expressed in Paris in 1999: the human side of ECR. An indispensable asset for real ECR.
Human side
“We will not achieve advantage unless we put the time and money into the human side just as we put time and money into the technology, systems, equipment and processes of ECR,” said Alois Lindner, general manager of Henkel Iberica, during a session in Paris. There, the human side was characterised as “the emotional capital of business and the corner stone of competitive advantage.”
Richard Furlong, director of personnel at Bird’s Eye Walls in the UK, stated during this session that changing a business culture is “a major long-term challenge” and that cultural differences are a major cause of frustration and setbacks in ECR implementation. Addressing this correctly is crucial internally – the impact of ECR on vested interests of individuals or departments within companies – as well as externally – gaining a level of trust needed to make real ECR work.
“Years after the first conference of ECR Europe, they were still there, traditional managers unwilling to change and share information with their business partners,” says Friso Coppes (Ahold) who, between 2002 and 2004, was conference co-chair for, as he puts it, the three B’s: Barcelona, Berlin and Brussels. “I know from experience that there are companies where the CEO embraces the ECR vision but where this notion is lacking further down the organisational ladder. Now, after ten years this is finally going to change. It’s all a matter of mindset. Of people.”
“The consumer goods industry must become again a key industry which is innovative and attractive to future generations to work in”, says Toja. “The technology exists. Now we must change our mindset. Create trust, learn together, collaborate and grow the cake.”
“The only true test of the ECR vision is whether consumers have noticed the difference,” said Hill back in 1997. Also in 2005 and beyond, that is what ‘Better Consumer Value’ is all about.
Quantifying ECR savings over the years
• “ECR can save the European grocery industry 5.7 per cent of cost, of which 4.8 per cent is operating costs reduction and 0.9 per cent is lower inventory cost. All this adds up to some US$33 billion.” Conclusion of the Value Chain Analysis of Coopers & Lybrand – currently part of PWC – in Geneva, 1996
• “ECR improvement activities in the US will take at least US$30 billion of expense out of the USA grocery marketing/distribution channel, which is equal to eight to nine per cent of total sales value.” Willard R. Bishop Jr, president of Willard Bishop Consulting in Geneva, 1996
• “ECR savings add up to 6.1 per cent, with 5.2 per cent coming from operational cost reductions and 0.9 per cent from lower inventory costs.” Coopers & Lybrand in Amsterdam, 1997
• “In Italy, 7.8 per cent of cost reduction is possible; 4.5 per cent results from improved bilateral business relations and 3.3 per cent can be realised within the Italian industry at large. Consumer prices in Italy can be lowered by 3.3 per cent. That equals to US$5 billion and an even more impressive figure when expressed in Italian lire!” Enrico Toja (Johnson & Johnson) on the VHS tape ‘ECR Europe at Work’ (1996)
• “Savings up to 7.3 per cent are possible.” ECR Europe’s co-chair Heinz Wiezorek (Coca-Cola Germany) in Hamburg, 1998
• “There is a real prospect of saving ECU3.6 billion (0.8 per cent of grocery market value) by improving process efficiencies of promotions across Europe.” Massimo Visconti (Principal at Kurt Salmon Associates) in Hamburg, 1998
• “Wal-Mart recorded a US$2.6 billion reduction in net working capital via customer-driven collaboration with suppliers, cutting lead times by 70 per cent and reducing inventory levels by over 50 per cent.” John Owen (vice-president of Wal-Mart) in Hamburg, 1998
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