Main

ECR
Contents
Summary
Introduction
Category management
Product replenishment
Enabling technologies
Conclusion
Bibliography

Introduction

Traditional logistic chain management is characterized by independent links, which fulfil their own specific task. This type of management is identified by optimization of each link independently. However this can result in inconsistency when one link adopts a strategy, which conflicts with the strategy adopted by the previous or next link. The results are high logistic costs and low consumer service levels, which eventually can result in less competitive power for every link and thus for the whole chain.

Despite the fact that most companies are optimizing their links in the chain, practice proves that this is not sufficient [van Goor, 1996a]. The market is becoming more dynamical and that also counts for relationships with suppliers and consumers. Therefore modern companies must also have an eye for logistic developments outside the walls of their own company. This is where Efficient Consumer Response (ECR) plays an important part.

The goal of this paper is to answer the following three questions:

• What is ECR?
• What is new about ECR?
• Is the adoption of ECR really necessary?

What is ECR?

Efficient Consumer Response (ECR) is a global movement in the consumer goods industry. The ECR Europe Executive Board expresses the ECR vision as: "working together to fulfil consumer wishes better, faster and at less cost" [ECR Board, 1995]. We therefore will use the following definition of ECR:

Efficient Consumer Response (ECR) is the realization of a simple, fast and consumer driven system, in which all links of the logistic chain work together, in order to satisfy consumer needs with the lowest possible cost.

Eighteen companies, divided equally between retailers and manufacturers, belong to the ECR Europe Executive Board (ECR Board). All are significant players either globally or in their home countries. The list includes the following retailers: Ahold/Albert Heijn, Metro/Asko, Rewe, Auchan, Promodes, ICA, Tesco, Safeway, La Rinascente, and the following manufacturers: Unilever, Sardus, Procter & Gamble, Nestlé, Mars, Kraft Jacobs Suchard, Johnson & Johnson, and Coca-Cola. Many other companies are actively involved in projects initiated by the ECR Board.

Focus areas of ECR

ECR has a few starting points. Firstly the definition shows that consumer demand plays an important part. The chain has to ensure continual improvement of consumer satisfaction, products, and quality. Secondly, the definition also shows that maximum efficiency of the total logistic chain is required. The realization of the two starting points cannot be done without accurate information, which must be available when needed. To keep the costs low, it is preferred that this information and communication is paperless. To accomplish these aspects of ECR, three focus areas can be distinguished [Coopers & Lybrand, 1996]:

1. Category Management,
2. Product Replenishment, and
3. Enabling Technologies.

Category Management

Here the objective is to maximize the effectiveness of the demand creation process. This comprises:

1. Product Introductions,
2. Product Promotions, and
3. Store Assortment.

ECR looks at both how effective trading partners are in their internal activities and how well they work together and use their joint capabilities to maximize consumer value. Of great importance is Category Management Infrastructure, which sets goals in organization, strategic intent and systems on how trading partners communicate with each other and take decisions.

Product Replenishment

The focus here is on ensuring the slickest possible flow of products to the retailers' shelves. This supports joint Category Management with a physical supply chain that is flexible and responsive enough to react quickly to changes in demand. Rapid and efficient product replenishment contributes to cost savings through minimizing the amount of inventory in the system while meeting required service levels.

Again, a critically important issue is how trading partners work together to achieve these objectives. ECR seeks to make a quantum leap in costs and responsiveness through well integrated planning which avoids activities that magnify variations in demand which stress the supply chain. Standardization of information and communication can also save a lot of time and money.

Enabling Technologies

Category Management and Product Replenishment, and especially the joint aspects between retailers and manufacturers are confronted with a few barriers. To overcome these barriers Enabling Technologies are needed to make Category Management and Product Replenishment work.

Source: Coopers & Lybrand.

A lot of data about demand and supply at SKU level will need to be moved around and manipulated to determine optimum solutions. Electronic Data Interchange and Electronic Funds Transfer are two ways to do this on the scale required. Item Coding and Database Management are necessary to track products accurately at SKU level. Finally, Activity Based Costing (ABC) ensures that decisions are taken based on the actual cost of doing business and not on what accountants or others assume [Kotler, 1994].

If you have any suggestions, comments, or links related to any of my subjects, please send E-mail to: S.Bhulai@few.vu.nl.