CHICAGO -- The lion's share of an estimated $4.5 billion to be spent industrywide on Efficient Consumer Response initiatives this year will be invested in information technology.
That finding, along with several other conclusions about ECR investments and benefits, was outlined in a new ECR Progress Report released here this month during the Food Marketing Institute convention.
In a survey conducted on behalf of the Joint Industry Project on ECR, 372 respondents characterized the status of their ECR initiatives and plans for the year ahead. Respondents indicated investments in information technology ranked first in priority for ECR projects, whose implementation costs would reach $4.5 billion in 1995, up from an estimated $3 billion spent in 1994.
Respondents at chains, whose combined annual sales volume ranges from $90 billion to $100 billion, said investments in ECR programs would jump 71% this year compared with 1994; 63% of those polled said wholesale and headquarters information systems will represent a major element of that investment.
Other survey respondents, 75% of manufacturers and 85% of brokers, also indicated information technology would represent a major element of ECR initiatives. About three-quarters of wholesaler respondents, who face the challenge of supporting many different systems of retail customers, cited store-level systems as a top priority. Asked to gauge the effect of ECR programs, retailers said they expected sales to rise by 5.4% and gross margin dollars by 3.4% as a direct result. In sharp contrast, wholesalers estimated gross margin dollars to dip 1.5%, most probably due to the loss of income generated from forward buying, according to the report's authors.
Further, wholesalers and retailers expect ECR to result in reduced operating costs in all areas while cutting warehouse inventories by 13% and retail inventories by 7.5% on average.
The report also examined ECR financial expectations and found that chains anticipated programs to deliver a payback in 2.37 years, the shortest projected return on investment among industry players. By comparison, wholesalers estimated ECR programs' ROI at 2.63 years; wholesaler-supplied retailers, 2.85 years; manufacturers, 2.88 years, and brokers, 3.17 years.
The ECR Progress Report was prepared by Kurt Salmon Associates, the Atlanta-based consulting firm that drafted the original ECR report released in 1993. The original report estimated that widescale adoption of ECR best practices could eliminate nonvalue-added costs from the distribution channel and deliver an estimated $30 billion in savings industrywide.