Instruments of Efficient Consumer Response (ECR)
The instruments of ECR are supply chain management (cooperation field logistics) and category management (source: CPFR, Prof. Dr. Dirk Seifert, Galileo Business, formerly Procter & Gamble). The main design approaches of the ECR concept are the orientation towards the needs of the consumer and the process-oriented and cross-economic optimisation of the value chain (efficient response).
Background of ECR
The basic idea of ECR was born in the early 1990s in the USA by US magnates such as Wal-Mart on the retail side and Procter & Gamble on the manufacturing side as a response to declining productivity increases, sales stagnation, cost and margin pressure.
Significant competitive advantages in the interest of consumers were achieved through cooperative partnerships between retailers and manufacturers. In Germany, ECR is organised in GS1 Germany, the service and competence centre for cross-company business processes in the German consumer goods industry.
Goals of ECR
Supply Chain Management as the logistics pillar of the ECR concept offers comprehensive approaches to optimise the value chain. The main objectives in the area of supply chain management:
- cross-company optimisation of interfaces along the process-oriented value chain
- “Win-win situation” for industry, trade and consumers through cooperation ECR concepts provide efficient solutions for cheaper goods and significantly reduce stock shortages in the trade
- The process chain from planning to production and logistics works consumer-related on the basis of the joint exchange of information on sales, inventory and production data and the vision of the “Consumer Driven Supply Chain”
Financial implications of supply chain optimisation through ECR
Against the background of total supply chain costs in industry of over 20% of turnover and in retail of over 44% of turnover, ECR activities are aimed at the following success factors:
- Increase in turnover due to reduction / avoidance of stock shortages (“out of stocks”)
- Increase in stock turnover Reduction in inventory of pre- and finished goods
- Reduction of capital commitment costs
- Increase in turnover and profit
- Order and billing optimisation
- Optimisation of the order, delivery and invoicing process Production optimisation
- Reduction of destruction costs of pre-finished and finished goods Reduction of costs of inventory-relevant special promotions
Collaborative Planning Forecasting and Replenishment (CPFR)
The CPFRconcept was first published by the VICS (Voluntary Interindustry Commerce Standards Association), an American committee between industry and commerce. The most important representatives on the retail side were Wal-Mart, Walgreen and on the manufacturing side US companies such as Gillette, Johnson & Johnson, Procter & Gamble.
“Creating collaborative relationships between buyers and sellers through co-managed processes and shared information. By integrating demand and supply side processes CPFR will improve efficiencies, increase sales, reduce fixed assets and working capital and reduce inventory for the entire supply chain while satisfying consumer needs”(Source: VICS)
Concept of the second ECR generation
CPFR represents a consistent and more complex further development of the ECR idea in the sense of increasing the efficiency of business processes within the value chain. CPFR as a “second-generation ECR business concept” and its sub-components planning/forecasting requires not only an intensive exchange of information at the logistics level but also the involvement of the sales, marketing and finance departments.
It is an innovative business model with outstanding efficiency benefits (Ralph Drayer, CPFR expert and former Chief Logistics Officer of Procter & Gamble: ” The key barrier of CPFR and it is a lot we had found with ECR, is you have to have trust and leadership, understand the benefits and be willing to take the pain of transition, resource and support it. CPFR is a new business model, it’s a radical change from the way things are done today” (Source: CPFR, Dirk Seifert, Galileo Business)
CPFR as a strategic approach
CPFR, which stands for Collaborative Planning, Forecasting and Replenishment, is a cross-industry initiative to improve the supplier-manufacturer-retailer relationship through jointly managed planning processes and shared information” (source: ECR Europe)
Shared forecasts and permanent data adjustment manage the planning process. CPFR relies much more than the ECR idea on strong networking of (top) management and employees on the one hand, IT systems and process chaining on the other hand, in order to be able to better control and optimise the entire value creation process. This requires a basis of trust and a strong culture of cooperation in the companies involved.
The consultants and interim managers of F&P Executive Solutions AG have already supervised several scientific studies in the field of CPFR with outstanding results. We are not only able to describe these innovative instruments theoretically but also to implement them. Our industry experts have many years of experience in project management in all functional areas. In our case studies you can learn more about successful projects of our partners.