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Efficient consumer response is no simple matter, but its advantages are impressive, according to HBS visiting scholar Dirk Seifert. Seifert, who has held senior positions at Bertelsmann, Procter & Gamble, and Bayer, recently conducted extensive research into efficient consumer response (ECR) in Europe, Germany in particular, and has identified key success factors for implementing it. As he explains in an email interview, it's a process that links consumers, suppliers, and retailers in an untraditional but mutually beneficial way. His new book, Collaborative Planning Forecasting and Replenishment: How to Create a Supply Chain Advantage, will be published in April and includes case studies on Wal-Mart, Procter & Gamble, and other companies. Seifert recently presented his latest findings to the HBS marketing faculty in a unit seminar.
Lagace: What is Efficient Consumer Response in a nutshell, and why is it important in marketing? What weaknesses does it address?
Seifert: Efficient Consumer Response is a vertical collaboration concept, whereby suppliers and retailers work closely together in order to fulfill consumer needs better, faster, and at less cost. The ECR concept suggests improvements on the supply side (collaboration area logistics) and demand side (collaboration area marketing). For example: On the demand side, suppliers and retailers are using category management in order to manage categories as strategic business units. Selected categories help to achieve certain objectives like increasing customer frequency, turnover, or profit. On the supply side, the ECR concept reengineers the whole supply chain. Currently, the flow of goods in the supply chain is based on the push principle. [But] by creating a seamless information flow among all key players in the supply chain, it is possible to transform it to a supply chain that is based on the pull principle, with positive effects on efficient use of production, reduction of out-of-stocks, and customer satisfaction.
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Q: What was the scope of your research and how did you investigate ECR? Did any of the results surprise you?
| As soon as top management is convinced of the huge benefits of ECR, the necessary 'top sponsorship' is provided. |
| — Dirk Seifert |
A: The study focused on the identification of major success factors for the implementation of ECR. It also investigated the competence of leaders in implementing important ECR components like category management and supply chain management. The study was mainly based on fifty-two personal interviews with leading ECR experts from suppliers, retailers, and major consulting companies. Examples of suppliers include Coca-Cola, Colgate-Palmolive, Henkel, Johnson & Johnson, Kraft Foods, Procter & Gamble, etc. Major German and international retailers interviewed include Wal-Mart, Metro, Rewe, and Tengelmann. Participating consulting companies include A.T. Kearney, Boston Consulting Group, McKinsey & Company, etc.
I was surprised that the relationships between suppliers and retailers are still very much based on confrontation rather than collaboration. For example, most experts regard category management as a highly valuable component of ECR, but the actual quality of collaboration between retailers and suppliers was judged as poor.
Q: You mentioned in a seminar you gave recently at HBS that ECR is a win-win-win process for consumers, retailers and suppliers. How so? How does each group benefit?
A: Two examples:
a) Supply Side: ECR helps to reduce out-of-stocks. Suppliers and retailers benefit from higher sales and inventory turnover. Consumers find the products they are looking for and show higher customer satisfaction rates in studies done before and after introducing ECR.
b) Demand Side: Category management ensures that categories reflect consumer needs. Categories are defined based on consumers' perception. Unnecessary SKU's (stock keeping units) are eliminated. Consumers take advantage of more convenient shopping and new created categories, like baby care, which offer better value and the right assortment for strategically important target groups like young families. Suppliers and retailers increase sales and greatly benefit from higher consumer loyalty.
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Q: What success factors did you uncover in the implementation of ECR? Which success factors are most important in your view and why? Which factors are easiest and which are most difficult to put to work?
A: The most important success factors are the involvement of top management to embrace cultural changes within the companies; mutual trust of collaboration partners (e.g., trust to exchange sensitive data like market and consumer research as well as point-of-sale data); and implementation of highly capable information technology (e.g., data warehouse, electronic data interchange, etc.). Also important are enabling technologies, without which it is almost impossible to increase efficiency along the supply chain or to provide the necessary data for category and consumer analysis.
The study revealed that as soon as top management is convinced of the huge benefits of ECR, the necessary "top sponsorship" is provided, but it is difficult to establish mutual trust in a business environment that was based on confrontation for many years.
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Q: What are potential barriers to ECR in Europe?
A: The major barrier for ECR in Europe is the lack of mutual trust between suppliers and retailers.
Q: Your research was focused on Europe, especially Germany. German retail chains are very centralized. What impact does centralization have on the implementation of ECR? In other words, how might ECR be applied elsewhere in the world among suppliers and retailers that are less centralized?
A: Centralization is positive for the implementation of ECR because you usually have a strong headquarters that might provide the know-how and power to implement ECR. In countries with less centralization, [the implementation of ECR] might be the best way to establish a strong association sponsored by suppliers and retailers, which would provide the necessary know-how for all members who are interested in the ECR concept.
Q: How do you see ECR developing in the future?
We are calling it Efficient Consumer Response of the second generation. (Please see exhibit below). On the supply side, ECR will develop toward Collaborative Planning, Forecasting and Replenishment. Suppliers and retailers generate a joint sales forecast and optimize the whole supply chain based on the forecast. I will publish a book on that subject in April 2002 (ISBN: 3-89842-267-4).
On the demand side, we will see a new development called "Collaborative Customer Relationship Management," whereby retailers and suppliers jointly manage all relevant customer touchpoints and are able to take advantage of huge synergy potentials in their marketing spending and customer relationship management.
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Q: What is your next project?
A: Together with Professor Quinn Mills of Harvard Business School and Dr. Alexander Kracklauer from Procter & Gamble, I will publish a book on collaborative customer relationship management; the book will be on the market in fall of this year. It includes case studies and best practices from major American and European companies in this new emerging field.
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