“It’s good food and not fine
words that keeps me alive.” – Molière 1672.

Some of the results of the 1998 Food
Industry Survey show no surprises, or can be interpreted to accommodate a prior
expectation. For example, closer integration is probably expected in companies such as
‘suppliers to major outlets’, where EDI is used extensively. They may be
answering that they have done it because it is important. Instead of the hard
negotiations, we hear of ‘win-win’ situations. Supply chains compete, not

‘New routes to market’ scored
fairly low, perhaps because of already well established routes. However, many ignore the
Internet at their peril. One prediction states that, ‘If home shopping takes 15% of
the channel, 40% of retail outlets will vanish!’

Perhaps the third most important message
from the survey, (after closer integration and improve product quality) is improve
business flexibility to change. This may not be peculiar to the Food industry, but does
seem to contradict the new routes to market. This may be an acknowledgement that the
industry is in a state of dynamic change (or uncertainty at the company level), or indeed
in fear. The industry has to seize the new opportunities or be reactive to new

In the ECR Category Management area, the
key message is about getting the right kind of product to market as efficiently as
possible. A generally recognized view, developed as long ago as 1989, suggests that
‘late to market’ can lose 33% of your profit, and/or product failure. The
alternative is a loss of only 4% profit and a better chance of product success by going
50% over budget!

Across all surveyed businesses, (that is,
primary producer, supplier to major outlets and wholesalers), ‘Better
Forecasting’ was the highest in the supply side of ECR. This is very relevant, and
affects even the biggest players. For example, a large cereal manufacturer used to buy all
the grain required for the next year up front and store it. This ensured that production
could run with no concern about raw material shortage. However, it was very inefficient in
cost terms. Subsequently, the company went onto the spot market, and still achieved their
aims at reduced cost.

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Interestingly, ABC does not rate in the
questions for rank the most important, but when you look at the top two or three, it soon
comes to the foreground. Coupled with CAP, it appears that these are important, but not
priorities. This may change.

On the ‘Demand Side’ of ECR,
‘Continuous Replenishment’ and ‘Co-managed Inventory’ were high. One
would expect these two issues to complement each other. Intermediate Warehouses for
smaller companies did not seem so important as one would expect, as they may not be able
to give daily deliveries to outlets. There may be more room for consolidators in this
arena. (In Japan, because retail space is so expensive, many companies are delivering
twice a day!)

With product life cycle and vendor managed
inventory (and co-managed inventory if you can partner), accurate information can achieve
more efficiency, profit and customer service.

However, there comes a point of diminishing
return, for example, in terms of management time and effort in ‘partnerships’,
joint category teams and sourcing third party information, when it can be
counter-productive. The time is coming when, once again, a universal change is required in
supply chain mechanisms.

If we are running Vendor Managed Inventory
(VMI), the chances of more than one date code existing on the shelf is fairly high,
(despite the daily deliveries of short-life product). Many consumers will aggravate this
phenomenon by picking the longer life item, and perpetuate a reduced total sales

To track this properly, we need to capture
the item and the sell-by-date. Most retailers will do a sell-by-date check on a daily
basis, but the first a producer or distributor knows about out-of-date stock is when there
is a small spike in the re-order pattern and a credit note request. Indeed, if the
retailer absorbs this, there might even be a delayed dip in sales, especially as the
reduced item is often removed from inventory and sold under a price point bar code.

There are many such anomalies in raw data,
so we should be very careful, if not cynical, not just in the interpretation of the data,
but as to what the true sales volume potential really is, and how to achieve it!