Saving - the ECR way

How the figures add up with implementation

Savings of €18bn have been realised by companies which have embraced the ECR agenda. But there is another €70bn out there for those with the vision and drive to achieve it.

That was the message from Chris Stephens (Kraft Foods) in an upbeat assessment of the significant advantages of driving ECR implementation. He revealed the €18bn as a 3.6 per cent saving shown by topline results for 1995-2005. He said that this year there was a further cost saving opportunity of 3.3 per cent, or €28bn, and a growth potential of 4.9 per cent or €42bn.

There was more good news. Top tier adopters had achieved a service level increase of 5.7 per cent together with a finished goods inventory reduced by 10 days and 4.9 per cent lower out of stocks. Critical success factors, he explained, had been moving from pilot project to process, organisation and performance measures and, importantly, the selection of the right project partners.

But there were barriers which had to be overcome:

• understanding ECR
• top team commitment
• establishing trust
• tracking benefits
• capabilities and
• technical requirements.

The way ahead, he said, was to meet those challenges by using the Global Scorecard, changing the management toolkit and making use of ECR organisations both at country and EU level.

ECR processes aid small business

The story of how Endelein, supplier of sponge bags, was brought into the ECR family despite its modest size was told by Heiner von Brachel (GS1 Germany). He used the tale to illustrate the value of ECR to small and medium (SME) sized businesses.

It all started with a major national initiative supported by the German government called Prozeus, which seeks to “twin” companies within the ECR initiative with SME business partners. Karstadt, a major department store retailer with 170 outlets, chose to work with Endelein, a company with 200 employees and one central warehouse.

The result – in just 12 months – was the introduction of a vendor-managed inventory (VMI) which strengthened Endelein’s strategic positioning towards Karstadt and against competitors from China. The practical benefit was much improved analysis and forecasting systems to increase sales and decrease costs by just-in-time deliveries, and reduction of out-of-stocks, return shipments and inventory stock.

By the end of the second year, Endelein had reached break-even point, with profits beginning to outweigh the additional costs of the partnership. Extra profit in year three was €16,000. In outlets with VMI, turnover was up 12 per cent. There was a reduction of out-of-stocks from 12 to three days and no increase in inventory stock.

Last word from Hans-Joachim Salbach, CEO of Endelein: “Without the introduction of VMI I would not have been able to stand up to my competitors from the Far East.”

Performance checks prove popular

How are you doing? It’s a question everyone is asking themselves, but the answer is never simple. That is where the Global Scorecard comes in. Using a sophisticated, confidential questionnaire, it analyses your company’s performance and its relationship with its trading partners.

IBM’s Chris Cave Jones presented an upbeat snapshot of the Global Scorecard’s progress and outlined its value to companies as a tool for working together. The full Global Scorecard, which offers a detailed capability assessment, gave the most detailed picture, with areas for action. Two more, simple but still valuable, collaborative business tools – the intermediate and entry level scorecards – were also available.

Key Performance Indicators measuring a company’s achievement included:

• inventory along the supply chain
• service levels at different parts of the supply chain
• on-shelf availability
• lead time
• distribution costs
• data accuracy and
• perfect order rate.

Cave Jones revealed that the number of companies using the Scorecard topped the 5,000 mark in 2005, and was still rising.

Six vital ingredients

Six vital ingredients when adopting ECR principles for multiple markets and products were outlined by Procter & Gamble’s Christoph Duron. They were:

• shared vision,
• skills
• incentives
• resourcesplan
• leadership.

Lack of any one of these, he said, could lead to confusion, anxiety, false starts and frustration. At best, failure of any one could lead only to gradual change.

The need for change was underlined by the tougher environment in which traders found themselves. Price deflation was accentuated by increasing commodity costs. Shoppers were becoming more volatile and had higher expectations. Vision, he explained, was essential for all functions and product families, using ECR at all levels in the organisation and as the basis of discussions with partners.

He called for multi-functional skills and the evolution of a core competency model to equip staff for their business future. Incentives – reward and recognition - should be part of every individual’s work and development plan. Leadership should set the tone from the top and engage and energise the workforce every day. Planning should be based on deep shopper understanding together with a commitment to innovation and a focus on building value with partners.

He told delegates: “Use the Global scorecard. It is a great tool to benchmark yourself – and it gives us a common language.”

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