ROCHESTER, N.Y. -- Wegmans Food Markets here is developing a financial scorecard designed to measure the value Efficient Consumer Response initiatives bring to itself and its vendors.
The retailer is currently working on its software-based model with several manufacturers, including Quaker Oats, Chicago, and General Mills, Minneapolis. The model is expected to be completed by the end of June.
Once Wegmans completes the financial scorecard, the retailer plans to have the 10 vendors that have already completed its manual scorecard process participate in the software version. These vendors are from the dairy, frozens, dry grocery, health and beauty care and general-merchandise areas.
Wegmans' model takes into account gross cost of product sold, net cost of product sold, estimated retail sales, gross profit and other income, in order to determine net profitability before Wegmans' operating costs.
The model also analyzes variables for a variety of ECR programs, including efficient replenishment and category management, to determine the value created or the associated cost for Wegmans or the manufacturer.
"Our model is designed to come up with total profit generated from a manufacturer before [Wegmans'] operating costs, but we also want to know what are the associated vendor impacts," said Mike DeCory, ECR coordinator at Wegmans, who spoke at a scorecarding seminar at the Fourth Annual ECR Conference, held in Atlanta last month.
He explained that the point of this process is to know where the gains and losses are for all parties involved, not just for Wegmans to achieve gains on every single initiative. If that were the case, then manufacturers would not want to work with Wegmans.
For example, "maybe doing electronic funds transfer is a cost to us, but maybe we're willing to do that as a gain for General Mills," DeCory said.
"But maybe we'd pick it back up in what we get off of efficient receiving technology, which may be some cost to General Mills," he added. "The scorecard is never going to balance because it's not a balance sheet. There must be some wins in there for the companies we work with."
DeCory explained Wegmans' model is somewhat similar to the ECR Profit & Loss Calculator, a software model that was also previewed at the ECR Conference. Both deliver maximum value when the users understand and share their costs.
Wegmans has reached a level in the scorecard process where it is developing its own model because it knows its costs and is willing to share them.
"We're willing to say, 'By doing these activities this is what we're making,' " DeCory said. "We know that Quaker wants to make money off Wegmans and Quaker knows that Wegmans wants to make money from them. We're not naive to those facts.
"A lot of retailers are afraid to say thanks for turning on that advance ship notice 856 for me because you just saved me $100,000 in efficient receiving time," he added. "Everyone is afraid the manufacturer will say, are you passing that on to the customer? A lot of people would rather stick the benefits in their pocket. Then it's Efficient Response, not Efficient Consumer Response."
Wegmans began disciplined scorecarding in August 1997. So far, 10 manufacturers have gone through the process and another seven vendors and brokers are scheduled to participate in scorecarding with Wegmans.
DeCory said that while this system is subjective, it is a great starting point. The ECR financial scorecard from Wegmans brings this process to the next level, "and that's where the process really begins to add value."