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Efficient Consumer Response (ECR): Adding Customer Value to the Supply Chain using Collaboration

Last modified: November 9, 2015

Efficient Consumer Response is All About Going Beyond the Customer’s Value Expectations

Efficient Consumer Response is a strategic concept created by the processed food distribution industry in the U.S. aiming to recover competitive strength. Whether a company can survive depends on whether the company can provide customers with higher values.

“ECR (Efficient Consumer Response)” is a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers. By aiming to improve the efficiency of a supply chain as a whole beyond the wall of retailers, wholesalers, and manufacturers, they can consequently gain larger profits than each of them pursuing their own business goals. Companies who compose the supply chain can reduce the opportunity loss, inventory level, and entire cost, as well as increase monetary profitability by sharing the purpose of “customer satisfaction”.

“ECR” is a strategic concept compiled by a consulting firm “Kurt Simon Associates” at the request of organizations concerning the U.S. processed food distribution industry, aiming to recover the competitive strength for surviving the turbulent time of the industry when discounters emerged in the U.S.

For “Efficient Consumer Response”, re-engineering, such as eliminating or adding business operations is performed by checking all business operations of a supply chain of companies by a criterion of whether they contribute to providing higher values to consumers. This aims to provide better convenience, better products, better quality, better selection of goods and build a win- win collaborative relationship among companies concerned (i.e. every company of a supply chain wins and gains profits). The first target of ECR is to re-engineer business processes. To realize the reengineering, information technology such as EDI (Electronic Data Interchange) that is used for accurate and timely exchange of information between companies is necessary. Characteristics of Efficient Consumer Response is that reengineering is performed considering final results given to consumers from unified business processes and that can be realized by information technology.

It is said that whether a company carried out Efficient Consumer Response or not obviously decided the fate of the company, either growth and prosperity or change or out of business.

Efficient Consumer Response

 

Efficient Consumer Response has advantages for all members in the supply chain. Some are general advantages resulting from overall improvement in efficiency of the supply chain. Others stem directly from the specific strategies used to implement ECR. General advantages of Efficient Consumer Response include improving the efficiency of the supply chain and reducing costs.

Additionally, Efficient Consumer Response decreases time and eliminates costs in the core, value-adding processes of the supply chain through four specific strategies:

  • efficient store assortment,
  • efficient replenishment,
  • efficient promotion, and
  • efficient product introduction.

Efficient assortment ensures that the range of products carried by a retail store satisfies the consumer and that store space is utilized efficiently to increase retailer and supplier profitability. Where space is at a premium, efficient assortment has the potential to significantly help supply chain members reduce costs.

Efficient replenishment aims to provide the right product, to the right place, at the right time, in the right quantity, and in the most efficient manner possible. This Efficient Consumer Response component is supported by a free flow of accurate and timely information, integrated with the flow of product, throughout the grocery supply chain. Efficient replenishment can be most beneficial to the grocery industry where channels of distribution are rather long.

Efficient promotion, another specific strategy of Efficient Consumer Response, ensures that trade promotions and consumer promotions used by members of the supply chain are more cost efficient.

However, due to the complex, unique nature of promotions, efficient product introduction ensures that manufacturers, wholesalers, retailers, and consumers collaborate together closely to develop better products quicker and less expensive. The marketplace is exposed to an extremely large number of new products; since products could be returned, wholesalers and retailers made little effort to stock only those products that met consumer needs.

Involving and collaborating with the consumer early in the process and continuously monitoring (Point of Sales) POS activity to detect trends in sales can help develop better products.

Perceived Barriers in Efficient Consumer Response

The barriers to ECR implementation can be grouped into two categories:

(1) the lack of capabilities (both skill and technology related) and

(2) the attitudes of wholesalers, retailers, and manufacturers toward collaboration and the attitudes of company personnel.

Adopting a new technology, and crossing the paradigm shift to Efficient Consumer Response collaboration, usually demands new skills and implementing Efficient Consumer Response may require substantial training and education of company personnel, who need to be comfortable using sophisticated computer hardware and software. In the grocery industry, where computerization is not widespread, the lack of computer technology and skilled people may be a barrier for ECR adoption.

Efficient Consumer Response also requires management information system (MIS) resources and the integration of systems across companies in the supply chain. Partners need to have compatible hardware and software, communication protocols, and support and maintenance of their systems and also need to work together to implement ECR.

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