Leading-edge distributors and suppliers charging ahead with aggressive continuous replenishment programs are reaping the rewards of lower inventory, faster turns and improved service levels.
Looking ahead, companies at the forefront of the CRP movement also envision basing replenishment needs on point-of-sale scanning data rather than warehouse withdrawal information.
Some distributors are even detecting a trend among CRP manufacturers to offer incentives to help wean the industry from reliance on forward-buying practices.
While the realized benefits of CRP have already been substantial, significant issues remain. These include the speed of industry implementation to achieve critical mass and who would be best to manage the programs: distributors or suppliers.
According to industry surveys, about one-half of retail chains and manufacturers, and 25% of wholesalers, are now involved in CRP programs to some extent, with some firms reporting up to 50% of volume shipped via such programs.
Giant Food, Landover, Md., is one retailer committed to CRP. By the end of March, the 175-store chain had 32 CRP vendors -- representing about 41% of its volume -- involved in CRP, said Dave Herriman, senior vice president, grocery, pharmacy and bakery.
This compares with about 20 vendors representing approximately 25% of grocery volume eight months ago.
Giant's primary CRP categories are dry grocery, health and beauty care and frozens. It's also acquiring a small amount of prescription drugs on CRP. The major advantage of CRP, Herriman said, is reduced inventory levels and delivery lead times and increase inventory turns.
Herriman attributed Giant's increase in CRP vendors, in part, to manufacturers "coming to grips" with the issue of forward buying.
"I think more manufacturers are coming to the table," he said, noting that many suppliers are "passing on the savings" they realize through the CRP process. That, in turn, is prompting other suppliers to consider similar strategies.
The practice of diverting, however, which is also frequently cited as a major obstacle toward wider acceptance of CRP, remains a substantial sticking point, Herriman noted. "Manufacturers still will not address the issue of diverting," he said, adding that the idea of retailers acting on their own to stamp out the practice is "nonsense."
Mike Smith, vice president of integrated logistics at Oshawa Foods, Mississauga, Ontario, said many manufacturers have cut back recently on the number of forward-buy deals they offer, but have improved the terms of those deals.
"I think that's probably why diverting is still big," he said.
Oshawa, which sold its distribution operations to third-party operator Tibbett & Britten Group Canada, Etobicoke, Ontario, is actively recruiting manufacturers for CRP projects.
Smith estimated the company has 30 suppliers on CRP now, including large companies such as Quaker Oats, Kraft Foods and Lever Bros., which represent 25% to 30% of its stockkeeping units.
A year ago, Oshawa had about 20% of its SKU base on CRP programs, he noted.
One of the company's objectives now is to increase the number of items that are cross docked. Oshawa carries about 8,500 SKUs in its warehouses and 25,000 in its stores, including about 10,000 direct-store-delivery SKUs.
"We believe nearly every item can be cross docked," he said. Wal-Mart Canada, which operates only general merchandise stores in Canada, uses its warehouses to store only about 6,000 of its 76,000 SKUs. The rest are cross docked, he said.
"If you can cross dock general merchandise, which is not perishable, why can't you do it with produce?" he asked. "That's kind of our benchmark."
One of the company's other goals is to implement retailer-managed CRP, which has been put on hold while an outside consultant completes a study of Oshawa's distribution system. Spartan Stores, a cooperative wholesaler based in Grand Rapids, Mich., endorses the concept of CRP, but wants to manage the inventory replenishment process itself. The distributor currently does not have a single vendor-managed inventory program in place, according to Jim Swoboda, director of logistics and distribution technology.
"We tried that and found we did it better ourselves. We fully subscribe to the business process known as CRP, but we believe we are in the best position to manage that effort. Given that inventory is our biggest financial asset, we want to manage that," he said.
One reason wholesalers have more difficulty adopting CRP, Swoboda stressed, is in judging how manufacturer promotional programs will impact smaller, independent retail customers.
For example, a wholesaler cannot be certain what amount of product an independent is going to pull from the wholesaler on any specific promotion.
"A chain can plan in advance quantities by each store and bring that in and ship it. That piece of inventory management is crucial to optimizing a CRP program," Swoboda said.
Spartan, though, is pushing its "cost-to-serve" program as a means of achieving supply chain efficiencies. The program is based on determining what activities add costs for the manufacturer and how prices should change for distributors who find ways to reduce those costs.
"We have been pushing, for more than two years now, that cost-to-serve programs are the cornerstone to making Efficient Consumer Response a reality," Swoboda said.
Many manufacturers, for example, ship products from their plants to their own distribution centers, which results in added costs for shipping, unloading, storing, picking and reshipping.
If a wholesaler can take product directly from the manufacturer's plant, the prices charged should reflect the savings that result for the manufacturer, who now doesn't have to involve its own distribution center in the process, he said.
"Thus, a wholesaler who can take truckloads directly from the plant is no longer paying the price for the manufacturer's distribution center activities," Swoboda added. Hannaford Bros., Scarborough, Maine, is also looking at alternate ways to bring efficiency to the supply chain.
Hannaford is now working with two third-party warehouse operators, one in Boston and another in Mechanicsburg, Pa., to handle less-than-truckload shipments ordered from about 20 different manufacturers.
The orders are then consolidated into full loads for delivery to Hannaford's own warehouses.
"We have found significant savings in inventory, an improvement in turns and improved on-time reliability of the arrival of loads," said Gary Watson, director of transportation and logistics.
"We have also seen from our third-party and our manufacturers a cost savings as a result of this, which has helped lower the net-landed cost of the product as it is put through the system."
Hannaford is now "actively going to be going out and pursuing more third-party opportunities, especially in the frozen-food arena."
One of the stumbling blocks Hannaford has had to overcome involved finding an ordering system that would allow the chain to order from several different vendors at the same time under one master vendor list.
"This is another form of efficient replenishment," Watson said. "It allows you to gain the efficiencies of consolidating multiple vendors at one time under one order and shipping that into your distribution facility."