NEW ORLEANS -- Distributors are overtaking suppliers as the prime force driving Efficient Consumer Response, according to the latest ECR Progress Report.
Retailers and wholesalers are stepping up their ECR involvement just as manufacturers are backing away from some of their earlier enthusiasm and aggressive implementation strategies, preliminary findings of the report, presented at the Food Marketing Institute MarkeTechnics convention here last week, revealed.
Early highlights of the second annual ECR Progress Report, based on research conducted by Kurt Salmon Associates, Atlanta, uncovered a number of other fundamental shifts in momentum in the industry's vast re-engineering initiative:
The high levels of increased spending on ECR projects projected a year ago have failed to materialize. Instead, overall industry spending on ECR has stabilized at about $3 billion annually.
Wholesalers and smaller distributors and suppliers are now getting involved in ECR on a wide-scale basis and following the lead of larger firms.
The payback period companies are looking for from investments in ECR programs is tightening up, especially among distributors.
"One of the most interesting things to come
things to come out of this study is a shift of momentum. Two years ago most people would have said that the supplier side was leading, and even pushing, the initiative," said Peter Harding, national marketing director at Kurt Salmon Associates.
"That situation is changing. It would appear from these survey results that the initiative and momentum is moving from the supply side to the demand side of the industry," he said.
Harding stressed that the findings of the report, based on 125 survey responses, were preliminary. The full report will be presented at the Joint Industry ECR Conference March 20 to 22 in Chicago. The study, nevertheless, points to several emerging shifts in ECR momentum, he said.
Commitment among both distributors and manufacturers remains high. In the 1994 report, 85% of distributors and 87% of suppliers said their commitment to ECR was strong. Those percentages grew to 88% for both groups in the new report.
But wholesalers and smaller companies, in particular, are stepping up their involvement in ECR. Only 54% of independents and 71% of wholesalers said their companies were strongly committed to ECR in the 1994 study vs. 70% of independents and 86% of wholesalers now.
On the supplier side, commitment to ECR grew substantially among smaller companies while declining among large firms. In 1994, 82% of large suppliers said they were committed to ECR, compared with 81% in the current study. Among small suppliers, 50% were strongly committed to ECR in 1994 vs. 62% now.
A shift in intent was also evident in several other key areas, including implementation of ECR best practices and expected benefits from moving forward.
The survey identified 15 best practice elements, such as category management, scan-based promotion, continuous deal and pricing, capturing point-of-sale data, computer-assisted ordering and cross-docking, among others, and questioned companies about their involvement in these areas.
The percentage of distributors implementing ECR best practices soared from 42% in 1994 to 54% in 1995. In comparison, the percentage of manufacturers inched up only 1%, from 40% to 41%.
The report also identified a dramatic shift in expectations about the bottom-line benefits of implementing ECR.
"From the distributors' point of view, what we see is that they are increasing their estimates of the benefits they are going to achieve from their ECR investments," Harding said.
"For example, last year [distributors] projected that ECR would lead to an increase in sales of 5.4%. This year, they bumped that projection up to 6.2%. Last year they also projected an improvement in gross margin dollars of 3.4%, while this year they are projecting an improvement of 5.6%," he said.
Distributors also said ECR will result in greater expense reductions. In the 1994 report, they said ECR would result in a 5.9% reduction in warehousing expenses, a 3.3% reduction in trucking expenses, a 1.7% reduction in store labor costs and a 1.5% reduction in headquarters buying expenses.
In the new study, their expectations of expense reductions increased, to a 7.8% reduction in warehousing, a 6.8% cut in trucking, a 3% decline in store labor and a 2.8% cut in headquarters buying costs.
Supplier expectations, on the other hand, fell. They said sales gains from ECR would jump 3.8% in the new study compared with 4.5% in last year's report. In gross margin profits, the estimates dropped from 4.9% in 1994 to 4.8% now.
Suppliers in the 1994 report said their warehousing expenses would drop 1.2% vs. a rise of 0.8% in the new study. They said selling expenses would rise 0.8% last year, but now project a jump of 1.9%. They said manufacturing expenses would decline 2.2% in 1994, but revised that to 1.2% in the new report, and projected a savings of 1.2% in raw materials costs last year vs. 1% now.
"The more distributors learn, the more they are seeing the benefits and upping their estimates. Suppliers, on the other hand, who may have started earlier, are recognizing that this is a little more complex than they anticipated," Harding said.
The survey also revealed a leveling out of spending.
"In 1994, the industry invested about $3 billion on implementing ECR, and [companies] told us they planned to increase that by 50% in 1995 to $4.5 billion. Although they had these great plans, the reality is they spent about the same amount of money in 1995," Harding said.
Suppliers and distributors are also expecting a shorter payback on ECR investments. In 1994, suppliers said they expected ECR programs to show a payback in 2.99 years. In 1995, that shortened to 2.84 years. The anticipated payback period among distributors also dropped, from 2.61 years in 1994 to 2.25 years in the new report.
