Concept 4 EFFICIENT CONSUMER RESPONSE (ECR)

ECR : what’s the question ?

What’s Efficient Consumer Response - ECR - meaning ? Optimal Response to the Consumer OR Continuous Efficiency for the Consumer Efficiency and Reactivity for the Consumer

Plan of the Presentation The traditional difficulties in the distributors/suppliers relationships ECR principles ECR tools Some Examples of ECR techniques implementations in France

History of the French Mass Distribution FROM A DOMINATION OF PRODUCERS TOWARD NEW PRODUCERS/DITRIBUTORS PARTNERSHIPS Periods Economic Context Major Facts concerning production Major Facts concerning distribution Marketing Evolution Relation between Producers and Distributors 1950 - 1960 High Economic Growing End of penury Supermarket concept Production focused Domination of producers 1960 - 1970 Economic Growing Mass Production Hypermarket concept Selling focused Distributors set up new relationships with the producers 1970 - 1990 Fall off in economic growing Segmentation of Production Distributors Brands Internationalization of sales concepts Segmentation of marketing Sector-based domination of the distributors Early 1990’s Economic Crisis Market Globalization Hard Discount Marques premiers prix Mondialisation des achats Trade Marketing ECR Concept

ECR’s Strategic Positioning Vertical Competition Canal Domination (Hard Discount shops) Antagonist Relationships (hypermarkets) Horizontal Competition Traditional distribution : no competition (local shops) ECR

Toward Increasing some Antagonist Practices ? Economic Recession Consumer behavior changes ? Hard-Discount progression Modification of forces rapports

A difficult Dialog General purchasing conditions Delay penalties Reduction of the range of products ….

An unoptimized Distribution Network Co-existence of two logistic networks Distributor Warehouse Supplier Warehouse Factory Retailshops Few cases of mixed warehouses suppliers/distributors Factory Retailshops Supplier Distributor

How to establish the dialog ? Suppliers and distributors work together on the whole supply chain with common objectives : Sales development Costs reduction Customer service improving Margin per square meter Customer credit productivity Supplier Distributor

Plan of the Presentation The traditional difficulties in the distributors/suppliers relationships ECR principles ECR tools Some Examples of ECR techniques implementations in France

What is ECR ? ECR is a strategy which aims to remove all useless costs along the whole supply chain, from the producer toward the final customer. An useless cost is a cost which doesn’t represent an added value for the customer (Hammons, chairman of the FMI, 1996)

ECR principles Confidence and Dialogue - in the commercial relation - inside the federative institutions - for sharing computer data

ECR principles Non-values reduction in the transactions Reducing the system costs for increasing the value for the consumer Focusing on the final consumer sales instead of the distributor sales

The major trends of ECR action Mentality change pushed by the top managers Materials flows optimization

The major trends of ECR action Technologies using : Barcodes Integrated EDI Information technologies, www a coherent and common system for results evaluation

FOUR APPLICATION AREAS (1) PRODUCTS PROMOTIONS Or how to maximize the effectiveness of promotions for the consumer ? (2) NEW PRODUCTS DEVELOPMENT Or how to maximize the effects of new products introduction from design to distribution ?

FOUR APPLICATION AREAS (3) PRODUCTS RANGE Or how to maximize the inventory productivity and the retail shop space ? (4) REPLENISHMENT Or how to optimize the delivery times and the logistic pipeline costs ?

Cost reductions observed in the USA by implementing ECR Products range 14 % New products development 8 % Products Promotions 40 % Replenishment 38 %

Advantages of ECR implementing in France and Europe - In France, ECR can reduce marginally the costs by optimizing administrative and logistics operations - According to Ernst & Young , the ECR gains can be evaluated at 2,4 % of the sale price and according to Coopers & Lybrand at 5,7% at the European level (compared to the USA with 10% of the sale price).

Plan of the Presentation The traditional difficulties in the distributors/suppliers relationships ECR principles ECR tools Some Examples of ECR techniques implementations in France

ECR tools Automatic Ordering and Barcodes Reading EDI - Electronic Data Interchange - Cross Docking ABC – Activity Based Costing - Category Management CRP - Continuous Replenishment -

Automatic Ordering principles Products ordering according to each sales unit from the distributor warehouses or directly from the producers Technical solution : barcodes scanning

The advantages of Automatic Ordering Clear, accurate informations about the warehouses and the retail shops outputs Removing errors which increase the inventory levels Improving the check-out productivity Removing the repetitive tasks without added value

ECR tools Automatic Ordering and Barcodes Reading EDI - Electronic Data Interchange - Cross Docking ABC – Activity Based Costing - Category Management CRP - Continuous Replenishment -

Electronic Data Interchange – EDI - EDI allows to share commercial, logistic, administrative and financial data between the companies information systems in a business relationship framework Essential tool for information sharing between distributor and suppliers

E.D.I. Invoices Shipping orders Products specifications CODES Orders Payments Sales reports Movements CODES

EDI advantages Lead-time reductions by : - communication times reduction - inventory level reduction - reducing losses and dysfunctions Fostering of customer loyalty thanks to more stable and improved dialogs Improvement of the company trade image, modernity and effectiveness

EDI advantages Cost reductions for the “emitter” by : reduction of the costs of keyboarding of data, treatments, documents preparation, transmission, reception acknowledgements,… Cost reductions for the “receiver” by : reduction of the cost of re- keyboarding of data, verification, correction, treatment and calculation, documents,….

ECR tools Automatic Ordering and Barcodes Reading EDI - Electronic Data Interchange - Cross-Docking ABC – Activity Based Costing - Category Management CRP - Continuous Replenishment -

Cross-Docking characteristics Paletts prepared by retail shops Shipments consolidation by retail shops Using EDI The final customer is clearly defined A perfect marking quality by using barcodes A mastering of the shipments plannings A new warehouse concept

The new warehouse concept Traditional Cross-docking

ECR tools Automatic Ordering and Barcodes Reading EDI - Electronic Data Interchange - Cross Docking ABC – Activity Based Costing - Category Management CRP - Continuous Replenishment -

ABC Activity Based Costing A new approach of analytical Accounting Passing from a vertical view of the enterprise centered towards the functions, to a horizontal view centered towards the processes

ABC Activity Based Costing New competitiveness management factors : Customer delivery times Part of replenished products Degree of freshness of the products Customer information Part of invoices sent by EDI etc.

Differences between ABC and classical Accounting Focusing on the direct production costs calculated by an arbitrary dispatching ABC Method Integration of indirect costs most important for the consumer like : Product Quality Delivery times etc..

ABC Activity Based Costing The PRODUCTS USE ACTIVITIES WHICH USE RESOURCES

ECR tools Automatic Ordering and Barcodes Reading EDI - Electronic Data Interchange - Cross Docking ABC – Activity Based Costing - Category Management CRP - Continuous Replenishment -

Category Management Thinking in terms of Product Groups instead of Individual Items Organizing according to the Consumer point of view Suppliers and Distributors work together and consider their activities as strategic Concretely : associating different products in a same consumer Universe ?

ECR tools Automatic Ordering and Barcodes Reading EDI - Electronic Data Interchange - Cross Docking ABC – Activity Based Costing - Category Management CRP - Continuous Replenishment -

CRP Continuous Replenishment Program Shared supplying management Technique which consists in communicating the distributor stock movements and the product movements to the Suppliers in the objective to generate suggestions of new orders

Tools for CRP Integrated EDI system Optical reading in the warehouse and in the retail shops Specific CRP software Supply chain value analysis Common performance indicators

Techniques for CRP implementation First technique : Replenishment scheduled by the distributor : the distributor sends his replenishment schedule to the supplier Remarks : - the distributor is still controlling the supply chain - the manufacturer can better schedule his production - this technique can reduce a little bit the inventory costs 5

Techniques for CRP implementation Second technique : Replenishment scheduled by the supplier or by an external service provider: the distributor sends his replenishment schedule to the supplier Remarks : Total transparency of the Information Systems Reducing Stock levels, Out of stocks Best technique for fresh products This technique needs Efficient Logistic and Information Systems 5

Logistic corresponding models 7

Logistic corresponding models 7

Logistic corresponding models 8

Expected Advantages of CRP Reducing stock levels, out-of-stock, production in spurts Increasing the Customer Service Level Improving the real demand knowledge for better sales forecasting and better production planification Optimizing the trucks loading and the deliveries Reduction the administrative costs (EDI reduces errors) and also transportation and labor costs Improving the inventory management and the turnover of products Improving Freshness and Products Quality Removing repetitive tasks without added value Increasing sales thanks to a better availability of products in the shops, ... 9

Plan of the Presentation The traditional difficulties in the distributors/suppliers relationships ECR principles ECR tools Some Examples of ECR techniques implementations in France

Example of ECR implementation : CRP between UNISABI (Mars Corp Example of ECR implementation : CRP between UNISABI (Mars Corp.) and PROMODES (now CARREFOUR Group) La règle de la gestion partagée fonctionne dans les entrepôts LOGIDIS (service provider - filiale du groupe PROMODES responsable de l'approvisionnement des magasins Continent et Champion). Ces derniers transmettent quotidiennement à UNISABI le nombre de palettes livrés aux magasins et une fois par semaine, l'état de leur stock. En fonction du niveau de stock agréé par PROMODES, de la rotation des produits de l'entrepôts vers ses magasins, de la tarification habituelle et des optimisations logistiques (des camions de 25 tonnes ou 33 palettes au sol), UNISABI détermine une commande. PROMODES est averti de la livraison par fax et renvoie par Allegro une validation administrative de l'opération (99 % des propositions de commandes sont acceptées). Selon les entrepôts, PROMODES a réduit significativement ses ruptures de stocks, ses stocks de 30 à 45 %, ses litiges d'environ 50 %. D'autres tests sont en cours. UNISABI entend diminuer ses stocks lorsque cette méthode de réapprovisionnement représentera 30 à 40 % de son activité.

Example of ECR implementation : Category Management at CASINO CASINO centralise dans un même service les échanges d’informations entre l’amont et l’aval. Le Category Manager dispose d’un niveau d’informations sur l’évolution des prix et sur leur prix de revient. Il doivent gérer les compromis entre les impératifs d’achat, de logistique et de marketing. Au coeur du remaniement de la structure achat, ils sont donc les précurseurs d’un nouveau métier qui donne une longueur d’avance au distributeur.

Example of ECR implementations : the end of promotions for BARILLA Products En s’inspirant des méthodes qui ont fait le succès de Procter & Gamble et de Wal Mart, le n°1 italien des pâtes en termine avec les promotions jugées coûteuses pour faire partager les économies réalisées aux consommateurs. Cette politique d’EDLP (Every Day Low Prices) permet d’améliorer la valeur des produits en éliminant les cadeaux et promotions qui gonflent les prix d’environ 7 % et intéressent en réalité qu’une minorité de consommateurs. Un sondage réalisé pour BARILLA révèle que 80 % des clients ne participent pas aux promotions et autres opérations mais en partagent le coût. Tout en continuant à renforcer la coopération avec la distribution, essentiellement au travers d’une amélioration de la logistique, BARILLA baisse ses prix de 12 %.

Example of ECR implementations : cross-docking at Procter and Gamble Chaque facture émise par Procter & Gamble coûte de 35 à 75 $ à son client. Auparavant les conditions de paiement et de livraison variaient en fonction de la catégorie de produit et les commandes ne pouvaient être passées que pour une catégorie à la fois. Les distributeurs étaient donc contraints de travailler avec Procter & Gamble comme s’il s’agissait de cinq entreprises différentes. Aujourd’hui, la société simplifie les procédures de passation de commande, de livraison et de facturation et uniformise ses conditions de paiement. Les distributeurs peuvent ainsi regrouper plusieurs catégories dans leurs commandes et à condition de remplir un camion de livraison complet, bénéficient d’une simplification de leurs propres procédures administratives.

CONCLUSION In Europe, about 5.7 % price reduction In the USA, an operational ECR system contributes to a 10% price reduction of the products. In Canada, it has been evaluated that 65% of the total cost reduction is due to the Continuous Replenishment Planning (CRP) technique. In Europe, about 5.7 % price reduction In France, only 2.4 % price reduction What about Korea ?