CANCUN, Mexico -- The Efficient Consumer Response initiative confers on retailers a special responsibility to differentiate between vendors who are offering ECR-related value-added services such as electronic data interchange and those who are not, said a Kraft General Foods executive. John Haedicke, vice president of activity-based management for the Northfield, Ill.-based firm, said ECR also sets up a conflict of goals between manufacturers and retailers, but one that may be ameliorated through partnering.
Haedicke, who co-chaired the recently issued ECR report on value-chain analysis, was a speaker at a session on ECR presented at the Pan American Retailers Executive Conference, a meeting sponsored by the trade group Asociacion Latinoamericana de Supermercados. ALAS is an umbrella group of several trade associations in Latin America.
In his talk to the 200 meeting attendees here, Haedicke said that, in a sense, retailers and wholesalers have a responsibility to learn to recognize the non-price value inherent in product and service offers made by ECR manufacturers as compared to offers made by non-ECR manufacturers -- and to channel business accordingly.
"Let's take a look at a manufacturer who is an ECR manufacturer, and at another who isn't," he told the session.
"The non-ECR manufacturer may, in fact, be a cheaper supplier when you look at case price alone. But if you have a manufacturer who has made investments -- for example in continuous replenishment -- that manufacturer may be able to stage pallets properly so they can be sent to your warehouse, then cross-docked right to your store.
"That manufacturer may also be linked by electronic data interchange directly to you."
The bottom line, Haedicke said, is that value-added services rendered by the ECR manufacturer may be such that the net cost of doing business with that vendor's products is less, despite the presence of a higher per-case cost. "What I'm saying here is that retailers have a lot of responsibility to measure manufacturers appropriately; to properly find out who is doing a good job for them, and who is doing a bad job for them.
"If a manufacturer is doing things the ECR way with you, if he is helping keep inventories low and turning them quickly and if he is offering the right product assortment for the shelf, that can be worth a lot." And, he said, such manufacturers should be encouraged down the road to intra-industry efficiency. "If I'm a manufacturer that has invested millions of dollars in ECR efficiencies and I don't get any reward from the retailer, what's my incentive to keep going?" he asked. Also during his talk at the conference late last month, Haedicke highlighted the dichotomy that exists between the goals of manufacturers who want to adhere to the principles of ECR and the efficiency goals of ECR-driven retailers and wholesalers. "Here's a problem we have," Haedicke said. "Manufacturers ask themselves, how do we increase our productivity? "Well, what we do to increase productivity is to increase the flow-through of production, which means we are using our capital more effectively. We try to reduce costs by increasing the efficiency of our labor. It comes down to this: The more product we push through, the more cost-effective the activity becomes.
"But," he said, "the goal [of driving productivity] is in direct conflict with [what retailers and wholesalers seek]. They tell their folks to turn product very quickly and keep inventory levels low because that helps reduce costs.
"We've got a problem here. Because of unbalanced performance measures, there is as much as four months of product in the grocery distribution supply chain, according to the ECR report.
"Four months," Haedicke repeated. "That is a scary, scary number to manufacturers. "Look at it this way: If there is that much excess inventory and the continuous supply chain is implemented, then we have to shut down our plants for four months."
Indeed, Haedicke pointed out that some manufacturers have already halted production for a time in a bid to wring out excess inventory. Although Haedicke offered no specific solution to the challenges highlighted during his talk, he said the chief task facing the industry is to get started with ECR by forming proper partnerships. "ECR is probably the most important thing you can do to ensure your future survival," he said. "It's not difficult, but there are some basic things to do to get started and the No. 1 place to start is forming partnerships. Partnerships provide the key to understanding how to get ECR going."