Through the eyes of many European and
international onlookers, economic development is characterized by restrained consumption
and an increasing concentration which has been the direct result of increasing mergers and
company takeovers. Relations between manufacturers, industry and vendors have become
strained to an extent that is now becoming counter-productive. Every market participant,
every sector and every individual is trying to optimize their business processes to
achieve specific objectives. This constantly results in an ineffective supply chain and a
business that is not taking advantage of the opportunities available. The formula to evade
this vicious circle is cooperation rather than confrontation and the concept of Efficient
Consumer Response (ECR). In essence, this concept is common sense with a brand name
attached to it.
Is ECR opposed to isolated
optimization of company and departmental procedures?
The remolding of markets on a national, European and international level has resulted in
rapid development and constantly increasing competition. In sourcing and manufacturing,
this has been caused by high market fragmentation. For example, in Germany 5,000 companies
earn DM 230 billion in total revenues. This is an average of DM 46 million per
company which is a rather small amount on an international scale. Against this background,
increasing pricing pressure and a decline in sales has required new concepts for sourcing,
package engineering and logistics. This is affecting the Beverage Industry, such as
mineral water providers and juice manufacturers, as well as food and confectionery
manufacturers. Rising raw material prices call for bigger sourcing units. The demands on
the pasta and meat processing industry are production process automation to increase
output and to reduce costs per unit as well.
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Through alliances and mergers big players are emerging for whom medium-sized companies are
no match. Haggling for better conditions – a traditional ritual within this group – gets
out of proportion. For instance, how can suppliers react when different German and French
structural conditions are combined in order to get the ‘best of all’ conditions? Consumers
are increasingly globally oriented. Therefore, on an international level, big brand names
will gain in strength and importance.
This leads to the following questions: Can
these issues be tackled with horizontal cooperation to achieve bigger production and
sourcing units? Or is the real challenge for entrepreneurs to come up with ideas for
completely new, completely different value-added chains?
If we take a look at the development of
business software systems ‘IT islands’ of the past are found: Stand-alone applications
restricted to a specific function. Over the last 15 years, technological development and
increasing competition has opened up new avenues. Today, the individual components are
parts of networks, they communicate with each other, and are integrated into an
overall-system. This has resulted in great increases in productivity and efficiency
compared to stand-alone solutions.
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The question everyone should be asking is
therefore: Using the enabling technology, is ECR a handy idea for entrepreneurs to open up
new avenues and opportunities? To answer this, it is important to have another close look
at the ECR principles.
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By GlobalDataFirst, let’s take a look at the ‘soft
factors’:
1. Long-term business success can only be
achieved through products and services which meet or surpass consumer demands and
expectations.
2. Only efficient cooperation will lead to
optimum benefits.
This results in the following objectives
(among others):
- to communicate ECR know-how
- to promote the exchange of experiences
- to promote integration
When looking at who benefits from ECR, many
other ‘soft factors’ can be found from the point of view of manufacturers, retailers, or
even of consumers. Although they doubtlessly contribute to success, these factors are
rather ideal values, they cannot be expressed in figures.
In addition, there are the ‘hard factors’
of the operational business to which numbers and values can be attached. For the product
and the consumer – and to some extent we all are more or less consumers, – they are:
price, service, variety, availability, presentation and quality.
There are essentially three factors
critical to the success of ECR: the number of active participants, uniform standards for
communication and a comprehensive infrastructure.The ECR Europe Commission describes these
as the ‘critical mass’ of ECR methods. ECR methods can be divided into three key areas:
enabling technologies; conversion technologies and standards such as identification,
coding, logistic units and electronic data communications; fast entry processing and
transfer of information at any point of the value-added chain.
This leads to six essential areas and
terms, which as integrated components of an information system, deliver successful ECR.
1. International Location Number
(ILN)
‘The ILN is a prerequisite for efficient inter-company communication. It
identifies the physical address of companies, daughter companies, branches etc.’ This
number can then be used in forms, EAN codes and EANCOM.
2. EAN codes
‘The EAN number is an international, unique identification number which provides
detailed information on an item’. The EAN article number can be printed as an EAN bar code
which can be read automatically.
3. Serial Shipping Container Code
‘SSCC is an international, exclusive identification number uniquely identifying a
container which is on its way from sender to recipient’. SSCC is a small part of the EAN
128 concept and an indispensable prerequisite for goods distribution centers and city
logistics.
4. Electronic Data Interchange
(EDI)
EDI is not a technology but a tool available for companies using e-commerce to transact
with customers and suppliers.
5. EANCOM/EDIFACT
‘The United States created the worldwide, industry-independent UN/EDIFACT standard for the
exchange of formatted, structured data’.
Experience gained from EDIFACT led to
EANCOM which can be described as a detailed introduction guideline for a simplified
EDIFACT message. Combining EAN tools with EANCOM provides a method for efficient,
integrated data entry and communication. Apart from providing rules, descriptions and
explanations, EANCOM provides a basis of reference for EDIFACT user standards. At the
moment, there are 42 message types available.
6. SINFOS master data pool
‘(the master e-data information system), apart from describing items and their hierarchy,
this can be used to describe complex structures. The SINFOS item information profile and
its mandatory and optional data meets the requirements of business systems for commerce,
manufacturing and service industry’.
From these six pre-requisites, information
system requirements can be divided into three areas: hardware performance, software used
and communication systems. Once the decision has been made to participate in ECR, company
information systems must be checked to establish feasibility and options for integrating
the three requirements.
ECR deliverables
Efficient Replenishment refers to enterprise-wide harmonization of the entire supply chain
with a reduction in the number of ‘interfaces’. It is ‘the process of filling the shelves
with the minimum effort, at the right time and with the right product’.
Fig.1 ECR requirements for information systems
If you can demonstrate that this process
can produce significant savings through lower prices for everyone – manufacturer, seller
and consumer – then you’ve already answered the inevitable question: Why Efficient
Replenishment? To take an example from an existing user: the Coca Cola Retailing Research
Group puts supply costs from manufacturer to retailer at an average of 9.6 percent.
Assuming that total sales in the European Food Industry are approximately 700 billion euro
from the Institute of Grocery Distribution (IGD) based on 1994 figures, this gives you a
starting point of roughly 70 billion ECU, from which you can easily calculate potential
savings of sufficient interest to demonstrate the need for action.
Roland Berger, a major German consultancy
defines the objectives of the Efficient Replenishment project as follows: ‘To define
business processes that place a stronger emphasis on the wishes of the consumer, that
promote the cooperation and the exchange of information required between business
partners, and that demonstrate how optimum product availability can be achieved throughout
the supply chain while keeping both inventories and handling to a minimum.’
The essential focus is on the supply chain
as a whole, rather than its separate elements, which are affected by a wide range of
factors that can be very different depending on product, shelf life, the type of
production, volume, geographical origin and so on. An analysis of ‘trade-offs’
demonstrates that ‘to benefit the consumer and all other partners’, you must optimize in
terms of costs, inventories, capacity use and service level. The real, tangible benefits
of Efficient Replenishment for all participants in the process are:
- optimization of stock capacities
- efficient use of the vehicle pool
- reduction in customer returns
- avoidance of delivery bottlenecks through
‘intelligent, cooperative sales forecasting’
These visible, measurable successes can
only be achieved through the implementation and integration of Enabling Technologies,
which are the key factors if you limit your perspective on the problem to technology and
implementation. First of all, however, processes have to be analyzed and redefined. In
particular, the key processes that define the activities that occur at decisive points
across the supply chain and that together constitute the ECR concept. A few examples from
the range of possible methods and activities might include:
Computer-supported purchase
order processing:
- order processing using aggregation
Cross Docking, a method of
delivery from manufacturer to outlet that avoids all intermediate storage:
- CRP – Continuous Replenishment Program, an
optimum order quantity generated by the manufacturer - an electronic goods receipt system, mainly
in outlets - exploitation of Point of Sale (POS) sales
data - sequential picking in which containers are
loaded as defined in the layout from the outlet in combination with Space Management - item-specific sales forecasting
- manufacturers merchandise information system
The tasks of cooperative management –
mostly activities undertaken by the manufacturer – are concerned with planning and
implementing these requirements.
Efficient Unit Loads (EUL) – an
integrated solution for packaging and transport
Efficient Unit Loads (EUL) is the logical conclusion of Efficient Replenishment, but is
also a multiplier or divisor in the implementation of ECR and therefore an important
element of the entire supply chain. It defines the effect on costs regardless of whether
EUL influences total potential savings by more or less than a seventh. EUL is still
generally misunderstood and rejected. It’s actually quite clear: a loading unit is made up
of multiple products, different types of packaging and a variety of transport containers,
which may be transferred, redistributed, packed or unpacked many times. Many people are
involved in shipping, transport, acceptance and receiving. Efficient Unit Loads make it
clear that you cannot achieve tangible success with a narrow focus.
EULs often represent a connection between
different elements of the supply chain. Standardizing them means raising national
standards to the international level, which is hindered not only by problems of
communication, but also by differing weights and measures and Units of Measure (UOMs), and
by the fact that reaching a consensus would require considerable investment. Which is why
ATKEARNEY, a leading consultancy, calls for ‘shifting the focus away from just half of the
supply chain and realizing that to achieve the optimum, you must look at the supply chain
in its entirety’.
Fig.2 A typical flow of goods
The final analysis
Efficient Consumer Response is an initiative designed to turn conventional conflict
strategy into a strategy of cooperation using new practices, methods and technologies. The
idea is supported by big international names in retailing such as Metro, Albert Heijn,
Tesco, Promodés, Rinasente, and in industry including Coca-Cola, Danone, Kraft Jacobs
Suchard, Sardus Group and Unilever. What would appear to be an Olympic idea – cheaper,
faster, better for the benefit of the consumer – is a vision driven by great expectations,
promising benefits in areas from capacity optimization to improved stockroom conditions,
optimized production processes, avoidance of out-of-stock situations and efficient
acceleration of the flow of goods. The initiative will require the willingness of top
management to radically alter attitudes, build mutual trust, exchange know-how and
equitably distribute quantitative benefits.
If management meets this challenge, it
would mean a genuine about-turn in conventional business practice. Even where today’s
headlines read ‘Food Industry under pressure to cooperate, Price Waterhouse predicts a
wave of mergers’ (Lebensmittelzeitung No.28, 10. July 98), what is meant is still
horizontal cooperation, the formation of new but bigger islands, or the attempt by sectors
to maximize as a reaction to the same tendency among retailers. This does not increase
transparency as is understood by ECR. On the contrary. The challenge and the turnaround
lie in forming completely new value-added chains.The objectives should be defined as:
- Vertical communication or even cooperation,
i.e. between producer, manufacturer, distributor, retailer and consumer - Analysis and redefinition of all the
processes involved in the flow of goods - Industry and enterprise-wide optimization
with the objective of achieving larger contribution margins
The BVE defines ECR as follows: ‘ECR is a
joint strategic concept within industry and trade to react efficiently to consumer demand
while simultaneously avoiding unnecessary distribution costs’, and has set a good example
with a pilot project, ‘Logistics Cooperation’. The aim of this project was ‘efficient
combination of small shipments and their concentrated delivery’. The project synchronized
the most important operational, administrative and IT processes. Delivery cycles and times
and standardized labeling were coordinated.
‘The data gathered from the companies
involved gave reason for optimism’ reported the BVE in its annual report. Even in the
first phase, ‘the number of deliveries to retailers could be reduced by 30 percent’ at the
same time increasing delivery quantities by 50 percent. The ‘BVE Logistics Forum’ will now
work on these and other ECR solutions.
This example shows that the challenge is
not in the ECR vision itself, but rather in the need to take action. To use the available
Enabling Technology tools, to review existing processes in the light of Efficient
Replenishment and Efficient Unit Loads and to engender synergies through honest openness
and the highest possible level of transparency throughout the entire flow of goods. In
short: to realize the ECR vision through best business practice.
Literature:
Edition ECR Deutschland der Centrale für Coordination GmbH, CCG, Member of EAN
International, Köln
GeschŠftsbericht 97 der
Bundesvereinigung der Deutschen ErnŠhrungsindustrie e. V., Bonn
Lebensmittelzeitung, Verlagsgruppe
Deutscher Fachverlag, Frankfurt am Main
