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ECR's transparent legacy: like manufacturing processes, buying models continue to move toward opposite poles. Your company's future could depend on which side it chooses.

I first heard the word "transparency," or more importantly the thought process behind the word, from Durk Jager, former Procter & Gamble CEO, in early discussions on whether the grocery industry should heed David Jenkins' challenge to launch a body of work later named ECR (Efficient Consumer Response).


Critics and colleagues would likely both agree that despite its continuing success in the European Common Market, ECR is all but dead and buried in North America. But I wonder, could the thousands of people and documents just have disappeared from more than a decade of truly historical work? We will leave it to the industry historians and university case studies to determine why ECR failed in America. What is important now is how you think about ECR's legacy--transparency.

I believe we are at what is often referred to as a tipping point, a point where we will have two supply chains, two buying processes and two product manufacturing strategies. Each of your companies must decide to choose one or the other, or perhaps both. So let me describe both, and then you decide. But choose wrong, and you're gone.

Transparency in its earliest view surrounded the supply chain. Could we share demand knowledge from the store shelves, back room, warehouses and factory floors to reduce the hundreds of days of inventory on thousands of packaged products throughout the supply chain? Wal-mart, through its Retail Link, was the first and still is perhaps the only grocery retailer actively sharing store POS movement data with suppliers.

But change is in the air. According to a report by Willard Bishop Consulting in Barrington, Ill., traditional grocery store formats will account for less than 50% of the grocery and consumables market by 2008. Combine this 50% with the 50% of consumable dollars that have gone to foodservice meals, and meals purchased away from home and you now have a traditional food retail industry that represents only 25% of shoppers' total food and consumables dollars.

Some manufacturers will continue their traditional product push cycle of long production runs and channel stuffing. Others will acquiesce and make more private label products to keep their plants at maximum efficiency and their branded products on the retailers' shelves.

But a new breed of manufacturers that have reduced their plant line excess capacity and developed lean production technologies will use transparency within the supply chain to make every item every week, if not every day.

Can you imagine the cost competition between manufacturers that make and store hundreds of days of inventory versus those that hold less than a week's worth of products?

In a similar vein, the two buying processes will continue to polarize. Dead-net pricing with all monies applied to cost of goods will drive against the deal/diverter/deduction heavy loading process that makes most of its money on the buy side instead of the sell cycle. Ask most manufacturers where their growth is, and transparency is usually part of the buying process.

This same divergence of our industry is occurring at the supply chain level. One side makes money through the artificial need to store and handle excess inventories, while the transparent supply chain limits its rewards to all parties until the shoppers make their purchases. Nobody gets paid until the customer rewards us all with a purchase.

I think many of you will try to live in both worlds. However, I am not smart enough to know if that is possible. What I do know is that manufacturers and retailers that share consumption data for better in-stock positions with less inventory are taking business away from those companies that sell in a blind supply system. Companies like Information Resources, Inc. and Catalina Marketing have been trying to help retailers set up Retail Link-type systems for years, but few retailers have progressed to the point that they can provide daily POS data in a usable form.

Even now, the earlier vision of transparency has moved on from the supply chain to include the shopper. Unless retailers are willing to share consumer insights tied back to data sharing, manufacturers cannot drive brand categories to the retailer's best customers. Scan-based trading, warehouse consignment of goods and shared best shopper data are the new tools of this transparent growth engine. Do you know how your company will survive?

Patrick Kiernan is president of Day/Kiernan & Associates; senior counselor for the Grocery Manufacturers of America; and is affiliated with The Center for Food Marketing at St. Joseph's University in Philadelphia and the Institute for the Future in Menlo Park, Calif. He can be reached at
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Title Annotation:FUTURE FORCES
Author:Kiernan, Patrick
Publication:Grocery Headquarters
Date:May 1, 2005
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