If these seem familiar, then, Ambwani points out, that's what ECR or efficient consumer response is all about. And, companies involved in getting those products on the shelves for customers need to take heed about the opportunity cost of not having their products on shop shelves when customers come looking for it.

It has been four years since the ECR movement was kicked off in India by the coming together of some of the country's top FMCG players, catalysed by EAN India, the standards organisation. EAN, headed by Ravi Mathur, facilitated the formation of a core group by bringing together retailers, manufacturers and other supply chain trading partners.

Efficient Consumer Response, which began in the US in 1993, is a global movement in the FMCG industry focusing on supply chain management, a movement that is slowly seeping through Indian industry (Catalyst, April 4, 2002).

ECR has devised improvement concepts in areas of demand and supply management and enabled<164><165> the spread of technologies such as bar coding, electronic data interchange and electronic funds transfer.

The ECR experience across the world projects significant benefits for companies: a 5-30 per cent increase in sales, 25-40 per cent reduction in inventories, 40-50 per cent reduction in obsolete stock and 5-10 per cent lower operating costs. Says Raghu Pillai, President, Retail Business, RPG Enterprises and Co-chairman, with J&J's Ambwani, of ECR India: "ECR as an initiative is moving forward, there's a lot more interest; though these things take time it will bring efficiencies to the system. Right now, members are ascertaining the levels of inefficiencies and people in the supply chain need to work together to iron them out."

Indeed, interest in the ECR movement has grown manifold. The Indian chapter was founded in 1999 by companies including J&J, HLL, P&G, Godrej, Nestle, PwC, Transport Corp, retailer FoodWorld and EAN India. This number has burgeoned to 33 member companies that are now part of the ECR movement. The objective is to streamline the operations of the FMCG sector and make it more responsive to consumer demand. ECR India fosters standardisation of the supply chain and collaboration within the industry. In the bargain, it has got business rivals to share critical data and even work together in the same forum. The recent ECR India conference in Chennai discussed the findings of four different workgroups that were established to assess the supply chain inefficiencies of the local FMCG industry.

Out-of-stock

That the movement has gained pace has to do with some of the findings that one of the workgroups set up by ECR India came up with. The OOS or out-of-stock project by the workgroup covered key stock keeping units (SKUs) of the top FMCG players on a Friday across all FoodWorlds. The findings were startling: on an average, 37 per cent of the top SKUs for six top FMCG players - Nestle, HLL, Colgate, J&J, Cadbury, P&G - were out of stock. If re-stocking happens only the following Monday, it's an opportunity lost for companies as weekend purchases are at the peak. It means a Rs 12-crore loss of sales per year for just FoodWorld counters, and the estimated loss for the organised FMCG industry is Rs 6,000 crore. The reported loss due to OOS in the US is $35 billion a year. As J&J's Ambwani points out, "This finding came as a major shock, that the most important SKUs for these companies could have such a high OOS level." Adds FoodWorld's Vice-President (Merchandising and Marketing), K. Radhakrishnan, "The data which FoodWorld is throwing on the table is making people sit up. It's also galvanising people to see value in it. Today, FMCG companies don't have a measure for actual ground demand the following week; companies today don't know whether they've met consumer demand - the supply chain today has to be demand-driven rather than supply-driven and organised retail can provide them the data to do that."

The findings by the ECR workgroup on OOS point out that a mere sales target achievement does not give a guarantee that a company has sold to the maximum potential of its customer requirement. Meaning that a company may have met its internal sales target of goods to a particular retailer but if he's going to be stocked out soon, the supplier isn't doing a good job of meeting consumer demand, points out N. Sriram, Manager (Demand Planning), Nestle India, who headed this workgroup. This is the biggest challenge for any manufacturing company - to make stocks available at the right place so that demand is not unfulfilled. In this context, the project goal for this workgroup has been outlined as "to consolidate, monitor the `real output' of business operations in terms of responsiveness to the customer. The objective is to benchmark, provide information to individual organisations to do root cause analysis of gaps in service".

Collaborative guidelines

This workgroup identified key collaborative issues between manufacturers and retailers which affect non-competitive issues covering data sharing, new product launches, inventory record accuracy, planning and forecasting, replenishment processes, financial reconciliation and damages handling. The workgroup found that the IRA or inventory record accuracy needs to be the focus area for both suppliers and retailers. As L.V. Vaidyanathan, Division Manager, P&G, who headed this workgroup, points out, often, for various reasons, the inventory position shown in a retailer's system may not actually reflect what is actually on the shop shelves. The root causes of the IRA issue are: goods returned from the stores, shrinkage/ pilferage, billing errors, physical stock-taking errors, delay in passing stock-taking entries. Pointing out that IRA is not a piffling matter, Vaidyanathan says the US retailing industry suffers a $70-billion loss of sales or 2 per cent of total business because of this.

Shrinkage among Indian retailers too is also very high - 0.8-1.2 per cent or Rs 2-3 crore annually for large retailers. Shrinkage of a retailer's inventory can happen due to various reasons: staff or customer pilferage being the chief reasons. The top categories that are susceptible to shrinkage are: skincare & haircare (22 per cent), shaving needs (11 per cent), confectionery and batteries (13 per cent), masalas and oils (14 per cent). A reduction in out-of-stock can happen through elimination of a mismatch in IRA, as a 100 per cent inventory record accuracy will mean no mismatch in physical versus book stocks and consequently lower out-of-stock situations and lower inventory to hold as well at the retailer end.

Data flows

The key to supply chain efficiency is the adoption of global supply chain standards. Without standards, data has to be mapped several times with different trading partners. This workgroup highlighted the importance of adopting global product identification standards and global product classification standards for uniform and common categorisation as basic building blocks. A. Ganesh of HLL, explaining the findings of this workgroup, says the objective is to evolve a set of classification rules and a solution that is global, compatible and flexible. Today, he says, manufacturers and retailers have different internal classification systems. So, the need is to build a product classification system that would act as the interface between the retailer and the manufacturer.

Logistics

Logistics costs are a significant component of end cost and companies are on the lookout to build efficient and lean supply chains to service consumer demand better. As J&J's MD, Ambwani, points out, the company is always on the lookout to pare down these costs. It has a backhaul arrangement with Nestle where the arrangement consists of a shared transporter, Transport Corporation of India, which delivers goods for Nestle as well as J&J from the manufacturing locations to warehouses. Most of Nestle's production locations are centred around Delhi while J&J's is around Mumbai. As both these locations are big markets for both the companies, TCI optimises the transportation costs between these two locations. The benefits are faster turnaround times, with lower cost. Not to mention quicker stocks of each company's products on shelves in both cities. Similarly, J&J is looking at an arrangement with another large non-competing FMCG player to use the same trucks from its factories in Mumbai to move goods South. "The advantage," says Ambwani, "is that we don't have to wait to produce enough to fill a container before a truck leaves out factory; with two companies sharing a container, supplies to key markets are faster."

The essence of the logistics workgroup is to draw up standards in the field of logistics and to drive possible cost savings through collaboration across industry. In the Indian FMCG industry today, there is a glaring lack of standardisation - each manufacturer has its own carton sizes and pallet sizes as a result of which there is a lack of load optimisation in transportation.

The initiatives of the four workgroups is expected to help streamline processes in the FMCG industry and fulfil ECR India's mission of removing unnecessary costs from the supply chain and make the sector, as a whole, more responsive to consumer demand. As J&J's Ambwani says, "In moving the product in the supply chain from one player to another until it finally reaches the consumer, everything we do translates to costs which eventually the consumer pays for." If the ECR movement helps in reducing costs and eventually the price to the consumer, he would be voting with his feet for ECR to work.

The need for ECR

THE FMCG sector is witnessing fundamental shifts. Markets are stagnating; competition is growing and becoming more complex; technology is rapidly developing; international and environmental issues are coming to the forefront; more and more companies are concentrating on their core business and business itself is becoming more and more global. At the same time, consumers are becoming increasingly sophisticated and demanding.

To be able to cope with these developments, companies must have an eye for developments outside their own company. In-company measures appear insufficient to respond to the growing complexity of the market and consumer needs. Companies will, therefore, need to team up with their trading partners. By working together, they are able to combine capabilities on serving the consumer better, faster and at lower levels. This is the essence of the ECR movement.

The ECR strategic initiative works to overcome traditional barriers between trading partners, thus eliminating internal barriers that result in costs and time that add little or no value to consumers. ECR is focused on the application of leading edge management methods, available technologies and global standards to reduce costs and response time, while increasing the quality of products and services that are provided to consumers.

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