BANG FOR THE BUCK

Seeking to ward off the perception that the industry's enormous Efficient Consumer Response initiative has stalled, top executives told SN that a primary goal for 1998 is to raise ECR's profile by demonstrating the bottom-line impact of specific practices on companies' balance sheets."On an industry level, we need to refocus and reinvigorate the whole initiative," said Jim Swoboda, director of strategic

Seeking to ward off the perception that the industry's enormous Efficient Consumer Response initiative has stalled, top executives told SN that a primary goal for 1998 is to raise ECR's profile by demonstrating the bottom-line impact of specific practices on companies' balance sheets.

"On an industry level, we need to refocus and reinvigorate the whole initiative," said Jim Swoboda, director of strategic business development for Spartan Stores, Grand Rapids, Mich.

"The challenge -- which the ECR Operating Committee understands -- is that there is a lot of skepticism in the industry about where the payback is for the time, effort and money that's been spent on these initiatives."

An ECR working group has been developing a tool, scheduled to be unveiled at the Fourth Annual Efficient Consumer Response Conference in Atlanta, March 18 to 20, that is designed to quantify the results an individual company should get by implementing specific best practices.

"Taking ECR activities and using a model to determine the impact on a company's profit-and-loss statement is an opportunity to demonstrate to senior management that the effort and resources being put into various ECR initiatives will in fact deliver value," said Joe Andraski, vice president of customer marketing operations for Nabisco, Parsippany, N.J. Andraski serves on the ECR Operating Committee and is co-chairman of the Continuous Replenishment Process Improvement Group.

Such a tool has not been available before, Andraski added. The reason for developing it was simple. "Nobody can challenge that ECR advocates want to streamline, simplify and come up with business practices that are going to make the industry stronger, yet we're not getting enough positive reaction," said Andraski.

"The bottom line is all this stuff is great, but when the CEO looks at the profit-and-loss statement he says, 'Where's the payback? I don't see it,' " he added.

An ECR working group has been developing the tool and is currently populating it with data, Andraski said. One "axis" contains the broad range of ECR initiatives, such as continuous replenishment, efficient receiving at the store and warehouse levels and category management.

"The other axis has the actual activities, for example, in the replenishment initiative, one would be transportation to the warehouse, another would be warehouse handling," Andraski explained.

"With each of these activities, there's a cost and a benefit. There will also be a piece of the model where a company inputs information, such as their annual sales and gross margins. It acts as a calculator to show the impact on a business," he added.

Virtually any type of organization -- manufacturers, wholesalers, retailers and brokers -- can use this tool, according to Andraski. "If companies have their own numbers to plug in, they can use it as a model. Some companies will be looking for an 'industry' number, so we'll come up with some numbers derived from actual companies' real numbers. They will be a default value within the tool."

The tool's use of activity-based costing principles will also help separate the benefits of ECR initiatives from other improvements a company may have made. "The impact on top management is they will see the total business benefit, as opposed to just the efficiency benefit," said Ralph Drayer, vice president of ECR at Procter & Gamble Co., Cincinnati.

This more holistic approach will also strengthen ECR's case to top management, said Drayer, a former co-chairman of the ECR Best Practices Committee and currently part of the CRP Process Improvement Group.

"When CRP programs began to be implemented, for example, companies only looked at the obvious -- the improvement in inventory turns, not the improvement in the return on assets," said Drayer. "With efficient assortment, few companies looked at the total profit-and-loss impact of optimizing assortment by considering the sales increases that may have been achieved."

In general, executives noted that for ECR to gain a second wind, it needs to better document what it has already accomplished. One way this will occur in the coming year is through expanded use of ECR scorecards.

A new, simpler version of the scorecards is scheduled to be published this month, said Peter Harding, vice president at the consulting firm Kurt Salmon Associates, Atlanta. KSA has done much of the work of monitoring the ECR initiative's progress since its 1993 inception.

As part of its efforts to simplify the scorecards, KSA surveyed 80 manufacturers, retailers, wholesalers and brokers to determine the industry's level of ECR progress, said Harding.

Among the survey findings, KSA discovered that companies have implemented one-third of all ECR practices. "This doesn't translate to a fully quantitative measure on critical mass, but it does indicate that strong progress has been made," he said.

In addition, surveyed companies said they had done pilot tests on two-thirds of all ECR practices. "The biggest obstacle to implementing these programs is information technology needs," said Harding. "It takes a fair amount of time to put new systems in place."

For example, while many companies have established the basics of using electronic data interchange, they are "falling behind" in use of more sophisticated types of business communications, such as advance ship notices and Uniform Communications Standards II, said Harding.

Spartan's Swoboda agreed that EDI usage is no where near its full potential, and identified maximizing its use as a strong goal for 1998.

"At Spartan, we have the infrastructure for full EDI use; we're capable of the primary seven transaction sets, but we're not doing all seven with any one of our vendors at this time," he said.

If other companies are experiencing similarly sparse EDI usage, he added, "there obviously hasn't been the payback on this. It's no where near critical mass."

One reason for the slower-than-expected progress may be the mounting pressure to address the imminent year-2000 computer systems issue, Swoboda said. "So much of what ECR needs requires some new technologies to be developed, and it's competing with the resources needed for us all to stay in business beyond Jan. 1, 2000."

ECR as an initiative could also benefit by focusing on an often-ignored group: consumers. The industry should not solely highlight ECR's impact among trading partners, said Mark Baum, executive vice president of the Association of Sales & Marketing Cos., a trade association for brokers based in Fairfax, Va.

"We should also demonstrate the value passed through to consumers, who ultimately are, or should be, the beneficiaries of all these ECR initiatives," he said.