the case for ecr - gs1globalscorecard.gs1.org/gsclive/download/case_for_ecr_summary.pdf · the case...

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The Case for ECR

A review and outlook of continuous ECR adoptionin Western Europe

ECR Europe Academic Partnership and IBM

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IBM Global Business Services

Key Messages

• The European grocery industry has the potential to derive a €28billion benefit in cost and inventory reduction by adopting fully ECRworking practices

• Since 1995, 3.6% of consumer sales value has been saved throughsuccessful ECR implementation across the region

• A further 3.3% of retail sales value could be saved by full adoptionof ECR

• Potential sales growth of 5% is available by better meeting shopperneeds

• Today’s top tier ECR adopters enjoy 6% better service levels, 5% higher on shelf availability and 10 days lower finished goodsinventories than low or non adopters of ECR practices

T H E C A S E F O R E C R - A R E V I E W A N D O U T L O O K O F C O N T I N U O U S E C R A D O P T I O N I N W E S T E R N E U R O P E

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The Case for ECR: ObjectivesThe study was commissioned by the ECR Europe Board to coincide with the 10thAnniversary of the first ECR Europe conference in Geneva in 1996. Key aims were:• To establish how much of the savings and benefits originally forecast for ECR

adoption have been realised over the past decade• To measure the current level of potential savings and benefits still available• To drive implementation of successful ECR practice by capturing key learnings

from top tier adopters

ContextThe study was co-led by the ECR Europe Academic Partnership and IBM GlobalBusiness Services. Research took place from November 2004 to March 2005with highlights presented at the 2005 ECR Europe conference. The final report isavailable for the 2006 conference in Stockholm. In compiling findings, the authorsused the following data sources:• GCI’s database of ECR scores and KPI values on www.globalscorecard.net• Extensive interviews and case studies• Published research• Value chain analysis conducted on a small sample of European companies

At the inaugural ECR Europe conference in Geneva in 1996, Coopers & Lybrandpresented findings from Value Chain Analyses carried out across the region. Thisestimated a potential operating cost reduction of 4.8% with a further 0.9% derivedfrom inventory reduction, making a combined potential impact of 5.7% ofconsumer prices.

In 1999, ECR Europe’s Transport Optimization Study estimated that an additional1.2% of sales value could be saved by improving transport usage and vehicle fill.This made the total potential from ECR 5.7% + 1.2% = 6.9% of consumer prices.

Key Findings: 2005The study found that 3.6% of consumer sales value had been saved so far fromECR adoption - just over half the 6.9% potential identified. Going forward, a fur-ther 3.3% of retail sales value is still “available to save” by full implementation,amounting to €28 billion:

Supplier Manufacturer Retailer

Value Chain

Consumer price reduction = 5.7%

Operatingcosts = 4.8%

Inventorycosts = 0.9%


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In addition, sales could be increased by up to 4.9% by better meeting consumerneeds through improved product, information and service offerings in store.

ECR Practices considered in the study ECR comprises a number of collaborative working practices between retailers andsuppliers which focus on fulfilling consumer needs better, faster and at less cost.The following processes are considered in the analysis:

Potential Impact by ECR PracticeCost SavingsThe following chart details the breakdown of potential further cost savings acrossthe industry in Europe by each ECR improvement area, with the split betweenretailers and suppliers identified.

Dry grocery Fresh Total

Starting cost € bn 848

Cost reduction € bn 25

% Cost reduction % 3.0%

Starting inventory € bn 89 7 96

Inventory reduction € bn 25.1 1.4 26.5

% inventory reduction % 28% 18% 28%

Annual inventory cost € bn 2.5 0.1 2.7

% 0.5% 0.0% 0.3%

Total Cost impact € bn 18.2 9.5 27.7

% 3.3% 3.2% 3.3%


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Inventory ReductionIn addition, the study identified further cost savings through reductions in inven-tory. The breakdown is shown below by each ECR improvement area and howthese reductions are distributed between retailers and suppliers.

Revenue GrowthFinally, the study identified further sales growth through improved shopper satis-faction. This is broken down by each improvement area of ECR in Europe:

Cost reductions by ECR improvement concept in millions of Euros

Cost reductions by ECR improvement concept in millions of Euros

Cost reductions by ECR improvement concept in millions of Euros D1 Demand strategy & capabilities

D2 Collaborative shopper value creation

D3 Optimize assortments

D4 Optimize promotions

D5 Optimize new product introductions

S1 Supply strategy and capabilities

S2 Responsive replenishment

S3 Integrated, demand-driven supply

S4 Operational excellence

E1 Common identification standards

E2 Electronic message standards

E3 Global data synchronization

I1 Collaborative planning & forecasting

I2 Cost/profit & value measurement

D1 Demand strategy & capabilities














D1 Demand strategy & capabilities















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Is there a link between ECR adoption and businessperformance?The study analysed KPI values held in GCI’s database. Despite inventory reduc-tions and service level increases obtained through ECR adoption, there is stillroom for improvement. There is also a wide range in performance levels acrosseach indicator:

The study included analysis of capability scores self-entered into the database byEuropean companies from August 2001 to March 2005:

Whilst some companies achieve high levels of ECR implementation, averagescores are 50% to 60%.

Detailed analysis of the data revealed that there is indeed a co-relation between ahigh ECR score, as measured by the scorecard and business performance, asmeasured by the key performance indicators. Researchers from St GallenUniversity found that:• Top tier ECR companies’ service levels are on average 5.7 percentage points

higher compared to low or non adopters of ECR.• Top tier ECR adopters have on average 10 days less finished goods inventory

(for dry grocery categories) in their warehouses than low or non adopters ofECR.

Unit of measure

Number of datapoints

20th centile

Average80th

centile

KPI02 Service Level / Unit Fill Rate % 225 93.0 95.1 99.1

KPI03 On-Time Delivery % 203 83.2 90.8 98.8

KPI04 Raw Materials Inventory Cover days 69 11.0 27.8 33.7

KPI05 Manufacturer / Supplier's Finished Goods Inventory Cover days 140 22.0 34.5 45.0

KPI06 Retail Distribution Centre Inventory Cover* days 10 21.9

KPI07 Retail Store Inventory Cover* days 8 37.9

KPI08 On-Shelf / Point-of-Sale Out-of-Stocks % 119 2.4 9.1 9.3

KPI09 Lead Time hours 219 48.0 67.9 96.0

KPI10 Distribution Costs (% of sales value) % 171 2.6 5.8 6.3

KPI13 Invoice Accuracy % 193 84.4 88.5 97.2

KPI14 Perfect Order Rate % 79 73.0 83.0 95.0

* Dry Grocery Only, data extracted from www.globalscorecard.net for “Europe” between 1/1/2004 and 24/11/2005

0% 20% 40% 60% 80% 100%


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• Top tier ECR adopters’ on-shelf availability is 4.9 percentage points abovethose for low or non adopters. As a result, top tier ECR adopters have approxi-mately half the out-of-stock levels of low or non ECR adopters

Case Studies The research included a detailed analysis of 37 case studies drawn from the ranksof both fast and slow ECR adopters. Whilst this evidence is anecdotal, neverthe-less several themes emerge:• Inventory levels have steadily declined over the past 10 years and service

levels improved. Further improvements are anticipated.• Category Management has been broadly implemented with improvements in

shelf layout, pricing, promotions and assortments. In many cases, this has ledto significant increases in sales and market share.

• Significant improvements in master data accuracy have led to an increase ininvoice pass rate. Many companies consider further improvements could bemade.

Benefits of ECR Shoppers: Analysis of a recent ACNielsen study shows that shoppers rate retailerswho have adopted ECR higher than non adopters of ECR across a number ofdifferent attributes:• Well presented displays of products• Attractive and interesting store deals and promotions• Wide product selection and variety• Have everything I need in one store• Better selection of high quality brands and products• Always have what I want in stock• A store where it’s easy to quickly find what I want

Suppliers: From case study interviews, suppliers report that ECR has:• helped improve supply chain operations• helped improve their brand image and drive sales• allowed top tier ECR adopters to increase their understanding of retailers’

needs and become preferred collaboration partners• allowed top tier ECR adopting suppliers to invest in supporting capabilities

Retailers: Interviewees report that participating in ECR practices with suppliershas:

• helped improve supply chain operations• helped improve their brand image and sales

At the same time, competition has intensified in most markets. Many retailershave adopted ECR working practices simultaneously in a market which has led toa keen focus on the customer. As a result, the shopper is the clear winner.

Collaborative Working Relationships: Many of the companies interviewed alsoreported that ECR has improved working relationships between trading partners.


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• Increased, linked knowledge enables both parties to create higher consumer value• Jointly, retailers and suppliers have become more responsive and flexible• Partners have increased levels of trust and fairness in their business relation-

ship• Retailers and suppliers show greater commitment to joint problem solving

Critical Success FactorsFrom extensive interviews and case studies covering successful and unsuccessfulECR adoption, the study highlights a number of key findings for companies whoare embarking on ECR or trying to improve their adoption of collaborativeprocesses.• Pilot projects are the predominant “entry point” to ECR adoption. Such projects

have a high level of visibility within an organization and frequently lead to greateracceptance of ECR. They can, however, be a drain on resources and companiesfrequently get stuck when trying to scale up from pilot to normal working practice.

• The selection of project partner influences the success of the ECR pilot. Sometrading partners are just not willing to work in a collaborative manner eitherthrough refusing to share information or through failing to implement the recom-mendations of the pilot.

• Pilot projects which require dedicated, multi-functional resources should bequickly adopted into normal working practices. This will frequently require changesto the organization and changes to performance measures. Without this, pilotstend to wither and organizations revert back to previous ways of working.

Key barriers to overcomeThere are many barriers to successful ECR adoption. Companies should recognizethese in advance and put in place plans to mitigate their effect. • There are substantial differences in understanding the term “ECR”. Do not

expect that all participants share a common definition. Make sure that themeaning is discussed internally, with the trading partner and that the scopeand expectation of the ECR project is clearly understood by all parties.

• Some ECR concepts are perceived as being overly complex. It is important thatthe business environment and capabilities of both trading partners is accu-rately assessed with realistic expectations set for the scope of the collabora-tion and the desired outcome.

• Top management commitment to collaborative business practices is essen-tial and needs to be integrated into staff incentive programmes.

• The level of trust required for full ECR adoption between trading partners isoften missing. Do not attempt to adopt all ECR working practices at once. Startwith projects which yield results even without high degrees of trust. Graduallywin trust with the trading partner so that projects requiring deeper collabora-tion can be initiated. Do not do anything which will jeopardize the hard wontrust of the trading partner.

• ECR adoption should be tracked and the benefits reported internally toprovide the momentum to overcome an organization’s natural resistance tochange. The Global Scorecard and key performance indicators can be used forthis with the advantage of external benchmarking.


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• Companies often lack the specific capabilities required to start. ECR Europeand local ECR organizations have educational material of which companies cantake advantage. Ultimately, those who fail to adopt ECR will miss out on thebenefits often enjoyed by their competitors. Sometimes it takes a crisis tocreate the sense of urgency needed to start.

• Technical requirements to automate some parts of ECR are still missing.GS1 and GCI have developed and encouraged the use of standards to supportECR. These are more developed on supply side and still evolving in somedemand side functions. Companies should be prepared to adopt them andencourage their trading partners.

• Companies frequently forget to integrate ECR thinking into their businessstrategy.

Finally, it is important to have a realistic view of what ECR can and cannot do for acompany. ECR cannot fix a broken strategy or compensate for poor products. Onthe other hand, failure to adopt ECR can hinder the successful implementation ofa company’s strategy and can prevent otherwise successful products reaching theconsumer.

Industry StandardsAs mentioned, the failure to adopt standards is a barrier to ECR implementation.GCI conducts an annual survey of standards. Results below for Europe for 2004 &2005:

Results show wide implementation of product identification standards, but identifi-cation of shipping containers is still relatively immature. The adoption of electronicorders and invoices is low when expressed as a percentage of the total number(not by value). At the time these results were gathered, data synchronization wasonly used by a minority.Across the industry, standards are required to enable scalability and the rapidattainment of critical mass - the point at which the benefits from ECR start to out-weigh the costs.

IImmpplleemmeennttaattiioonn MMeeaassuurreess Unit of measure

Number of data points

20th centile

Average80th

centile

IM01 % of consumer units allocated GTIN % 265 98.0 95.3 100.0

IM02 % of checkouts that can scan a 13 digit barcode % 82 100.0 98.5 100.0

IM04 % of cases / cartons / inners allocated a GTIN % 264 90.0 89.2 100.0

IM05 % of pallets/unit loads labeled with SSCC % 231 0.0 53.5 100.0

IM06 % of item exceptions to GTIN allocation guidelines % 189 0.0 4.1 5.0

IM07 % of shipping or receiving locations that have been allocated a GLN % 258 5.0 72.1 100.0

IM08 % of orders transacted via EDI or XML % 280 15.0 50.3 80.0

IM09 % of invoices transacted via EDI or XML % 275 0.0 43.5 80.0

IM10% of sales with synchronized master data between trading partners via standardscompliant data pools

% 254 0.0 15.6 26.0

IM11% of GTINs that are catalogued consistently with Global Product ClassificationStandards

% 245 0.0 22.0 80.0


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Managing change: The ToolkitAdopting ECR requires change in the way people and organizations work. The Casefor ECR introduces a tool called the ECR Implementation Pyramid to support.

As many top tier ECR adopters have found, a great place to start the ECR journeyis via the GCI Scorecard toolkit. This comprises a set of capability scorecards anda benchmarking tool for Key Performance Indicators. These can be completed byindividual companies, trading partners, ECR organizations at country or regionallevel and global organizations such as the Global Commerce Initiative. These tools help organizations evaluate the current level of ECR adoption, setfuture targets and evaluate impacts. Further details are available on the websitewww.globalscorecard.net.

ConclusionTen years into the implementation of ECR practices in Europe, just over half of thebenefits and costs savings originally forecast have been realized. Top tier adoptersreport improved relationships with trading partners and more satisfied customersas measured by sales and market share growth. This is supported by the correla-tion between ECR capability and Key Performance Indicator scoring identified inthe GCI scorecard database. Whilst industry observers suspected that this wouldbe the case, this is the first time that this has been conclusively proven on a largescale.

Looking to the future, there is still considerably more to be gained from new andcontinued adoption of ECR practices. The “size of the prize” remains some 3.3%of retail sales value - around €28 billion. In addition, potential sales growth ofsome 5% has been identified from ensuring the shopper continues to be servedbetter and faster. This is particularly significant for suppliers and retailers whooften compete in mature, static categories across Europe.

The past ten years, together with the opportunity for the future is summed up byone of the interviewees in the study:

“When I look back, it seems unbelievable how inefficiently we had been in work-ing with one another. But thanks to ECR, our relationship with retailers hascompletely changed. We plan our business jointly, we talk directly to each otherand we simplify the flow of goods. Organisational interfaces between retailersand suppliers have become more efficient and standardised. Finally we serveour consumers better. Let’s keep on anticipating and sharing our strategies towork quicker and better towards excellence.”(Jean-Marc Tilliard, Unilever, France)

AlignMeasures

& Incentives

Align Goals& Objectives

Cultural Intervention

Plan

Evaluate

Dr. Joerg S. Hofstetter, University of

St.Gallen, [email protected]

Chris Cave Jones, IBM Global Business

Services, [email protected]

ECR Europe Academic Partnership,

[email protected]

ECR Europe, [email protected]

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