RETAIL
Managing the Grocer y Industr y in an Efficient
a report by
Herbert Kotzab
Assistant Professor of International Supply Chain Management in the Department of Operations
Management at the Copenhagen Business School (CBS)
Has Supply Chain Management Taken
Control of the Grocery Industry?
After 15 years, the grocery industry is facing many
changes. Manufacturers have experienced a power shift
to retailers. Retailers have recognised their abilities in
establishing their own marketing and logistics
approaches. Both parties have shown how information
technology and co-operative management styles help
to gain competitiveness and economic growth,
although markets have become aggressive.
An example of this is that of Wal-Mart Corporation’s
distribution strategy. Wal-Mart has consistently made
improvements to its bottom line by streamlining its
distribution operations to better serve its customers.
It is not only Wal-Mart’s distribution policy, but also
the consumer focus of the policy’s execution
throughout the retailer’s operation that has translated
itself into greater profitability for the company. The
congenial partner of Wal-Mart at the manufacturer
side had been the Procter & Gamble Corporation.
Both players had launched a partnership that is seen
as the benchmark within the grocery industry:
efficient consumer response (ECR) – a strategy
where partners in a supply chain synchronise the
product flow through the distribution pipeline from
point of manufacture to point of final sale.
The key elements that make ECR the supply chain
management (SCM) approach of the grocery
industry, are the integration of business processes on
an interdepartmental and inter-organisational level
and end-user orientation by performing all activities
within the supply chain by customer requirements.
How Does Efficient Consumer
Response Work?
ECR is primarily related to strategic partnerships in the
distribution channels of the grocery industry to increase
the performance of the consumers. The US-based
Food Marketing Institute introduced, in conjunction
with the consultant Kurt Salmon Associates, the first
ECR model: a consumer-driven distribution system in
which the production is permanently managed by the
consumers’ point-of-sale activities (see Figure 1).
Consumer Response Manner
Organising the supply chain in such a manner seems
to be successful. Beyond the perspective of the
‘tough’ grocery industry that is known for having low
average margins for ECR, it can provide attractive
profit growths as shown by the following examples.
• Procter & Gamble reported higher margins (8%),
faster category turnover (27%) and greater retailer
market share (12%) effects from the implementation Dr Herbert Kotzab is an Assistant
of ECR principles within the laundry detergent Professor of International Supply-
chain Management in the
category in a European country market. Department of Operations
Management at the Copenhagen
Business School (CBS). Before his
• ICA and Lever Sweden presented results from the appointment at the CBS, he was a
ECR partnership between their companies. faculty member of the Department
Highlights were an increase in turnover of 9%, a for Retail Marketing at the Vienna
University of Economics and
reduction in the number of stock-keeping units Business Administration. In 1998,
by 20%, a higher market share of 7% and higher he was a visiting scholar at the
Center for Transportation Studies at
profits of between 3% and 16%.
the Massachusetts Institute of
Technology. Dr Kotzab is a member
• Johnson & Johnson Company representatives of various associations, such as the
Council of Logistics Management,
disclosed two-digit turnover increases in their American Marketing Association,
respective business segments. Bundesvereinigung Logistik and
Verband der Hochschullehrer fuer
Betriebswirtschaft eV. He received
• John Menzies Publishing Company implemented an MBA in Marketing and
ECR principles during the 1990s by establishing Management and a PhD from the
Vienna University of Economics and
electronic links between its distribution centres and Business Administration.
the newspaper stands of 20 of its clients. This
partnership resulted in an increased sales volume of
35%, reduced inventory levels of 10% and increased
margins of 2.1%.
The Total Effects of ECR
Within the ECR-driven channel, no inefficiencies
prevail. Each step of the channel concentrates on its
own core competencies and reduces non-value-
adding activities. A paperless information flow controls
the flow of merchandise. The four major areas listed in
Table 1 ensure the demanded end-user orientation.
The benefit of ECR is calculated for the US grocery
industry with US$30 billion. The savings potential
results from a 41% total-chain reduction of inventory
by speeding up cycle time from originally 104 days
to 61 days. The full implementation of ECR by an
every-day-low-price strategy reduces the consumer
prices by approximately 11% (see Table 1). 145
 RETAIL

Figure 1: Vision of the US ECR Model

A single ECR Grocery Supply Chain Without Buffers

Demand Flow

Supplier Distributor Retail Consumer

Warehouse Warehouse Store Household

Product Flow

The European ECR Approach
Based on the experiences of the US markets, managers
of leading European businesses formed ECR Europe, a
non-profit organisation headquartered in Brussels. As
the grocery industry in Europe follows different rules
to the US, the European version of ECR is presented
as being more sophisticated (see Figure 2).
The interaction of the focus areas of ‘demand’ and
‘supply’ leads to improvements of the overall supply
chain’s performance and consequently to a higher
consumer value – represented in the ECR Europe
model as a function of quality, trust, variety, service,
response time and price. The application of the ECR
practices, as suggested by ECR Europe, allows
savings of up to 5.7% – based on retailing prices –
which is equal to DM50 billion (see Table 2).
Savings in the field of operative costs have led to
reductions of 84% the rest results from inventory
reduction. The total inventory level in the different
channels is from 28 working days in the UK to 50
working days in Germany.
The Development of ECR –
The European Example
Since the first introduction of ECR in Europe, ECR
Europe could establish 14 national ECR initiatives in
Austria, Italy, Greece, Finland, Norway, Denmark,
Sweden, The Netherlands, Germany, France, the
UK, Spain, Switzerland and Ireland. Figure 3 sketches
the developments of the conference topics.
In the initial phase, ECR in Europe focused mostly on
the cost-efficiency side of ECR by introducing
‘innovative’ concepts of SCM, efficient replenishment
techniques and electronic data interchange. In the next
step, demand-side activities had been introduced, such
as category management.
Category management should help to fulfil consumers’
wishes on an optimal level by offering exactly the
products and services that consumers are demanding.
From a ‘historical marketing’ point of view these efforts
can be seen as putting the two halves of marketing
together – based on the ideas of Converse, 1954 – by
recognising both an appropriate market appearance and
a well-functioning logistics function behind.
In 1998 and 1999, the consumer orientation was fully
implemented by consumer enthusiasm and consumer-
value initiatives. The goal behind these two approaches
is to ensure that consumers are enlightened in order to
guarantee stable increases in market share and sales.
How Far are ECR Techniques Applied
Within the Supply Chains?
The implementation of ECR was and is permanently
evaluated either by the ECR member companies

Table 1: The ECR Strategies

ECR Strategies Scope of the ECR Strategies Total Savings

Efficient Store Assortment (ESA)
Efficient Replenishment (ER)
Efficient Promotion (EP)
Efficient Product Introduction (EPI)
146
Providing a complete, easy-to-shop assortment
of products desired by the consumers 1.5%
Maintaining high in-stock levels of the
required assortment 4.1%
Harmonising the promotion activities
between manufacturer and retailer by
communicating benefits and value 4.3%
Developing and introducing new products that
the consumers really want by meeting their
ultimate needs 0.9%
10.8%
 RETAIL

Figure 2: ECR Europe Model Focus Areas

Footprint Global ECR Scorecard

Demand Management Enablers

Demand Strategy & Capabilities Common Data &

Communication Standards
Optimize Assortments Optimize Promotions
Cost/Profit and Value
Optimize New Consumer Value Creation Measurement
Production Introductions

Supply Management Integrators

Supply Strategy & Capabilities Collaborative Planning

Forecasting and Replenishment

Responsive Operational Integrated Demand

Replenishment Excellence Driven Supply E-Business
Business to Business

Table 2: Top ECR Activities to Reduce Logistics Costs

90% of the savings in the field of operative 95% of the savings by reducing inventory are
costs are made by the following: made by the following:
New product introduction 17% Optimal assortment 10%
Efficient promotion 16% Continuous replenishment 24%
Synchronised production 13% Crossdocking 10%
Reliable production 17% Synchronised production 40%
Integrated suppliers 28% Integrated suppliers 11%

themselves or by other independent academic or management showed a strong commitment towards

research institutions. The studies identify the state of
the art of the execution of the suggested standards;
rules and processes within the related supply chains.
In 1996, the Joint Industry Project on Efficient
Consumer Response published its second progress
report on ECR. The results showed that over 50% of
the respondents had fully or partially implemented
some ECR practices. More than 90% of the high-level
Figure 3: Conference Themes and Topics from 1996
to 1999
ECR-Europe Initiatives
Consumer Value Initiative, Paris 1999
Consumer Enthusiasm, Hamberg 1998
Category Management,
Amsterdam 1997
ECR. The study predicted reaching the critical mass
of 30% of all industry volume to be treated under
ECR in 1997. In 1998, the Joint Industry Project on
Efficient Consumer Response presented its 1997
ECR Industry Benchmarking Survey that was based on
an ECR scorecard approach. The calculation of a
special ECR maturity index that specifies the level of
ECR implementation is shown in Table 3. The
maturity indices in 1999 show a slow growth in the
various areas except category management, where
most of the efforts have been applied.
Tracking surveys on a European level show the same
results. The studies provide the information of a broad
top-management support of ECR within the
organisations and huge knowledge of the effects, but
still low application of the principles. As these studies
are conducted on a national level, there are problems
in comparing the results of the different countries.

Supply Chain In order to generate more valid results on the ECR

Management, progress, also on a global level, Pricewaterhouse
Genf 1996
Coopers introduced the idea of a global ECR
scorecard at the recent fifth Official ECR Conference
in Torino (http://www.ecrscorecard.com). The
scorecard should be used to evaluate the different
148 ECR movements worldwide (see Table 4).
 Managing the Grocer y Industr y in an Efficient Consumer Response Manner

Table 3: ECR Maturity Index in the US

ECR Field 1997 1999 Change (%) Goal in three years

Efficient replenishment 38 38 – 90
Category management 33 46 39.4 95
Efficient promotion 31 21 -32.3 93
Efficient assortment 30 37 23.3 93
Efficient product introduction 25 25 – 92

Vendors and retailers can apply the scorecard for self-
assessment procedures and for evaluation of the
trading partners. The approach is structured around
the existing ECR improvement concepts. The
scorecard approach can help the organisations
involved to clarify the gap between their current and
their desired state.
What is Next?
As ECR was introduced as the strategic ‘weapon’ to
dramatically change the way business is performed in
the grocery supply chain, several studies have indicated
that companies can gain huge savings potentials. The
rules to adopt can be condensed as follows:

Table 4: Global ECR Scorecard – The Example of the Assessment of Optimal Assortments

Global ECR Scorecard – A Capability Assessment Tool, Detailed Descriptors

Concept D2. Optimise Assortments
Alignment of assortment strategies with the needs and business goals of each category – then selection or elimination of specific products, including
execution and evaluation of this assortment strategy.

Score General Meaning
0 Nothing planned
1 Plans agreed but
implementation has
not yet been started
2 Pilot tests being
conducted
3 Rollout of
implementation
started
4 Fully implemented
Considerations
Assortment Planning
The process of optimising the
assortment mix to fulfil the
needs of target consumers.
No clear understanding of the
role of the category in meeting
corporate objectives or of individual
products within the category.
The category role is understood
but little understanding of the
role of products. Recognition
of the value that trading partners
provide, but not yet involved in
the assortment decisions.
Some consumer and market data
used to make segment decisions.
Developing an understanding of
the role of categories, brands and
products. Involvement of trading
partners is limited.
Clear understanding of products
in meeting category objectives.
Some trading partners are involved
and a wide range of consumer,
market and trading-partner
information is used.
Clear understanding of the impact
of assortment on the category, other
categories and corporate objectives.
Routine involvement of trading
partners using joint information.
Assortment Execution
The process to translate the
assortment plan into efficient/
effective implementation.
No consistent process exists.
Measures are not defined or
collected to assess.
Systems and processes are being
developed to formalise the
assortment execution process and
some efforts to measure and
co-ordinate assortment execution
are being developed.
Some efforts to implement an
effective assortment execution
process exist – limited success.
Slow shelf implementation or
manufacturer range adjustments,
high remnant inventories.
An assortment execution process
has been implemented and is
usually followed. Improvements
in compliance and inventories are
being realised.
A highly effective assortment process
is routinely used. It is a short cycle
from assortment decision to
complete implementation. Remnant
inventory is almost eliminated.
Assortment Evaluation
The degree to which assortments
are evaluated jointly against
a common set of objectives.
No efforts to evaluate the impact
of assortment decisions on
consumer satisfaction, inventory,
cost and out of stock.
An understanding exists of the
need to measure assortment
effectiveness. Some basic analysis
is routinely conducted.
Assortments are evaluated based
on a traditional costs-and-volume
basis. Some reviews with trading
partners are conducted.
A broader set of results and
process measures are evaluated
related to category objectives,
such as category growth, consumer
satisfaction, market basket or
closure rate. Joint reviews with
trading partners include
consumer data.
An agreed set of measures are
evaluated jointly by trading
partners and related to the
category and corporate objectives.
These targets are routinely
being met.
 RETAIL
• centralise;
• standardise;
• co-operate;
• view in a holistic and systematic way;
• integrate;
• pull instead of pushing; and
• postpone.
ECR is expected to develop further. Formerly, the
approach concentrated on the logistical and/or SCM
issues of replenishment, category management and
consumer value and the upcoming of electronic
business models, such as e-commerce, Internet-based
distribution channels, etc. will push ECR into
another dimension of business growth.
Other industries are doing likewise. The movement
for such collaborations among channel members has
spread to the food services – efficient food service
response – and healthcare industries – ‘efficient
healthcare response’ – promising huge savings within
these industries. ■
References:
D Biggs (1999), “Efficient Consumer Response. Where We've
Been and Where We’re Going”, Presentation at the Council of
Logistics Management Annual Conference.
R Celada and S Mei (1998), “Category Management at
Johnson & Johnson”, Presentation at the third official ECR
Europe Conference, Hamburg, 1–2 April 1998.
A de Luca and G Swoyer (1999), “Customer and Supplier
Satisfaction Through Supply Chain Integration”,
Presentation at the Frontiers of Global Supply Chain
Management MIT Executives Forum, Paris, 15–16
November.
ECR-Danmark (1999), Måling af ECR, implementering, –
holdninger og-barrierer, second official ECR conference, Bella
Centret, 28 October.
ECR-Espana (1997), Results of Phase I of ER in Spain.
The Vision of ER-Spain, Opportunity Framework and
Pilot Projects Definitions, ECR-Espana, Barcelona.
ECR-Italy (1997), “The supply chain pilot projects
results”, Management Summary Report, ECR Italia,
Milan.
ECR-Scorecard, (2000), ECR Global Scorecard,
http://216.247.25.35/Default.asp
ECR-Austria, (2000), Efficient Consumer Response,
http://www.edi.org/ecr/start.html
ECR Europe, (1996), “European Value Chain Analysis”,
150 Final Report.
ECR Europe (1997), CEO Overview – Efficient
Consumer Response.
D Fleury ( 1997), “Best Practices Category Management –
Category Tactics”, Presentation at the second official ECR
Europe Conference, Amsterdam, 13–14 March.
N Hven and J De Soysa (1998), “Joint ECR-Europe Project
Lever/ICA”, Presentation at the third official ECR Europe
Conference, Hamburg, 1–2 April.
Joint Industry Project on Efficient Consumer Response
(JIPOECR) (1998), 1997 ECR Industry Benchmarking
Survey, Grocery Manufacturers of America.
Joint Industry Project on Efficient Consumer Response
(JIPOECR) (1996a), ECR 1995 Progress Report,
Grocery Manufacturers of America.
Joint Industry Project on Efficient Consumer Response
(JIPOECR) (1996b), The ECR Scorecard, Grocery
Manufacturers of America.
H Kotzab, (1999), “Improving supply chain performance by
Efficient Consumer Response? A critical comparison of
existing ECR-approaches”, Journal of Business
and Industrial Marketing, Vol. 14, Issue 5/6,
pp. 364–377.
K Salmon (1993), Efficient Consumer Response.
Enhancing Consumer Value in the Grocery Industry,
FMI, Washington.
K Salmon (KSA) (1999), ECR Outlook 1999 – Eine
Studie von ksa zum Status und zur Weiterentwicklung
von ECR in Europa, Düsseldorf.
J Schmitz Whipple, R Frankel and K Anselmi (1999), “The
effect of governance structures on performance: A case study on
Efficient Consumer Response,” Journal of Business
Logistics, Vol. 20, No 2, pp. 43–62.
G Stalk, P Evans and L Shulman (1992), “Competing on
Capabilities: The new Rules of Corporate Strategy”,
Harvard Business Review, Vol.70, No 2, pp. 57–69.
M Tosh (1998), “What’s up with ECR?”, Progressive
Grocer, December, pp. 8–12; 21.
C Troyer (1997), “ECR Past, Present & Future. Carrying the
Learning Forward”, Presentation at the Council of Logistics
Management Annual Conference.
Websites
http://www.fmi.org
http://www.ecrnet.org
http://www.ecr-central.com
http://www.ecrasia.com