Efficient Consumer Response
The concepts of Efficient Consumer Response
(ECR) were initiated in the grocery sector in the US in the early 1990s and have expanded
into a global movement within the consumer goods industry. The essence of ECR is ‘to
work together to fulfill consumer wishes better, faster, and at less cost’.
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The two fundamental principles that drive
ECR are focusing on the consumer and working together. At the heart of ECR are the beliefs
that:
- companies can achieve sustained success only
when they provide customers with products and services that consistently meet or exceed
their demands and expectations. - the greatest consumer value can be achieved
only when companies work together to overcome barriers that erode efficiency and
effectiveness.
ECR has three focus areas – Category
Management (assortments, introduction and promotions), Product Replenishment and Enabling
Technologies.
Respondents were asked to rank the
importance of various issues in achieving profitable business within four areas of their
companies: Category Management, Supply Side of the Supply Chain, Demand Side of the Supply
Chain and Customer Service and Logistics.
Fig.2a – Most important ECR issues (Category
Management)
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By GlobalData
Category Management
Category Management is the process used by
trading partners to manage categories of product as strategic business units. The aim is
to improve business results by delivering better consumer value. This includes all the
activities associated with understanding consumer needs, influencing consumer demand, and
ensuring that the right products are in the right place at the right time and at a price
that will please the customer.
The aim of optimizing assortments is to
eliminate poor performance Stock Keeping Units (SKUs) – product lines that are not selling
well – and to add products that are more consistent with strategic needs. It also focuses
on shelf space mix and layout.
The aim of optimizing introductions is to
dramatically reduce the number of new product failures. The focus is to understand what
criteria trading partners and consumers use to determine whether a new introduction is a
success or failure. These are then used to screen new product ideas early in the
development process.
The aim of optimizing promotions is to
improve their effectiveness and efficiency. Attention is given to clarifying the
promotions objectives. Regular evaluations are used to build up a database of knowledge
and experience.
Evident from Figure 2a, the top ECR issues
in Category Management overall are to optimize assortments and optimize introduction.
Comparing the rankings across all countries no real pattern emerges, though France,
Germany and Italy are closer in opinion than other countries on these issues.
Over half of US respondents ranked optimize
assortments as the top issue of importance, along with Italian respondents. Though not the
top issue in France and Germany, it is still high in the priorities of these countries.
The UK, however, ranked this issue much lower than other countries. Primary producers
(38%) and wholesalers (42%) ranked this issue higher than suppliers to major outlets
(29%). Large and small companies (40% and 37%) ranked it higher than medium sized
companies (33%).
To optimize introduction is an issue high
in importance in the UK, France, Germany and Italy. It is of much less importance in Spain
and the US. This issue is the most important for suppliers to major outlets (45%). Both
optimize assortments and optimize introduction are equally important to small companies.
Over half of Spanish respondents ranked
promotions as their top issue. It is an issue of some concern in both the UK and the US
but not in France, Germany or Italy. It was ranked highly by primary producers and large
companies (32% and 33%). To optimize product range was found to have little concern in any
country.
The survey shows that, overall, the three
main elements of Category Management – assortments, introductions and promotions – are
regarded as being of equal importance to achieving profitable business.
However, there are differences between
countries. It must be remembered that ECR is in its early days and that many companies are
still exploring the concepts. Of the three areas, promotions are generally regarded as the
most challenging as this requires more ‘working together’ and the exchange of
more ‘data’. But this is the area with the greatest potential.
The survey shows just how varied the
priorities are with little consistency, even with the different levels of ECR development
in each country. A more consistent pattern should appear over the next three years, as
more ECR type activity gets underway.
Fig.2b – Most important ECR Issues (Supply
side of supply chain)
Supply side of supply chain
Looking at Figure 2b, clearly the most
important ECR issues in the supply side of supply chain are better forecasting and to
purchase competitively. Comparing across countries, the only consistency is that at least
one of the top two issues is the highest priority of every country.
Better forecasting was ranked very highly
by the US, the UK, Italy and, to a lesser degree, Spain. The larger the company, the more
likely better forecasting was ranked as their most important issue in terms of supply. It
was the most important issue across primary producers, suppliers to major outlets and
wholesalers.
To purchase competitively was ranked highly
by Germany and France and was an important issue for the UK. It was the most important
issue for small companies and an issue of concern to medium sized companies (29%) rather
than large companies (18%). To have integrated suppliers is more important to primary
producers and suppliers to major outlets while wholesalers are least concerned with this.
Finite scheduling is only of any importance
to Spain and France. It affects primary producers, suppliers to major outlets, small and
medium-sized companies. Synchronized production is important in Spain and Germany with
wholesalers ranking it highly (24%).
The single most debated issue at the
operational end of ECR is the role and accuracy of forecasts. This survey reflects this
concern, and shows that it is the biggest issue in most countries. This is the most common
area where information is exchanged and where there is the most ‘dialogue’
between partners. Competitive purchasing is an on-going business objective and has a high
priority across all countries.
Supplier integration is also important in
most countries. On the other hand, it is lowest in France where the concept of
partnerships has not yet been widely accepted.
Fig.2c – Most important ECR Issues (Demand
side of supply chain)
Demand side of supply chain
Evident from Figure 2c, are the varied
responses from each country showing no strong trends. Overall, the preferred techniques
are continuous replenishment and co-managed inventory.
Continuous replenishment is very highly
favored by Germany with over three-quarters of respondents ranking it first in importance.
Over half of UK and French respondents also ranked it highly. However, US respondents did
not consider this issue of much importance. Instead co-managed inventory was ranked as the
most important by over half the respondents in the US, Spain and Italy. The smaller the
company, the more important continuous replenishment becomes. Over half of suppliers to
major outlets and wholesalers ranked this issue as their first choice. Intermediate
warehousing was ranked highly, relative to other countries, by the US and France. The UK,
however, ranked it well below the market average. It was an issue for approximately only a
quarter of wholesalers.
The two areas that are a priority with
retailers are continuous replenishment and co-managed inventory. Retailers want smaller,
more frequent deliveries so that these more closely match consumption by the consumer.
They also want the supplier to take more responsibility for the amount of product in the
supply chain. Suppliers clearly see these as being extremely important to achieving
profitable business. However, German suppliers do not rank co-managed inventory as being
so important. This reflects their cautious view of partnerships.
Fig.2d – Most important ECR Issues (Customer
Service & Logistics)
Customer Services and Logistics
Overall, looking at Figure 2d, the most
important issue for suppliers is transport and distribution planning. As with previous
issues, top preferences tend to correspond across several countries, but there the
similarity ends.
Transport and distribution planning was
ranked very highly by over three-quarters of French respondents and over half of Spanish
respondents. It was also a top issue for Germany and the UK. Yet Italy rated this issue of
equal importance as schedule manipulation and progression. Over half of wholesalers ranked
transport and distribution planning highly. However, when looking at the two most
important issues ranked together it becomes equally important to other suppliers. The
smaller the company the more important this issue is.
CAP (Customer Account Profitability) was
ranked as the most important issue by the US. Germany and the UK also consider it a much
more important technique whereas France and Italy barely rate it. It is also of serious
importance to large companies (35%) who ranked it as their most important issue while
small to medium sized companies follow the overall trend by choosing transport and
distribution planning as their most important (49% and 39%). Suppliers to major outlets
also ranked CAP highly (28%).
Integrated electronic commerce is the most
important issue for Italy with over a third of all respondents ranking it as their first
choice. This issue is more important to medium sized companies.
Schedule manipulation and progression was
ranked highly by Italy and the US relative to other countries. Activity Based Costing
(ABC) was of relatively low importance to all countries, but the US, indicating a low
usage. It was also of relatively more importance to large companies (15%).
Transport and distribution planning is
ranked as the highest factor in most countries in Europe. This reflects the difficult
environment that companies face there. The pressures come from national and EU legislation
as well as from customers and environmental pressure groups. The pressures include waste
and packaging collection and disposal, restrictions on noise and emission levels, road
congestion, vehicle travel and access restrictions and modal selection (road versus rail).
The low ranking from the US reflects the
different road transport environment that exists there and the lower concern about the
efficient use of energy and the impact on the environment.
Customer Account Profitability is one of
the more ‘advanced’ concepts of ECR. It is not yet widely practiced and this is
reflected in the range of responses.
