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Adoption of efficient consumer response key issues and challenges in australia


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Adoption of efficient consumer response key issues and challenges in australia

  1. 1. Introduction Research paperAdoption of efficient Efficient consumer response (ECR) is an EC-enabled grocery industry supply chainconsumer response: key management strategy designed to improve the competitiveness of the industry by promotingissues and challenges in strategic initiatives in the area of productAustralia replenishment, store assortment, product development and introduction, andSherah Kurnia and promotion. These four strategic initiatives are supported by two programs:Robert B. Johnston (1) category management (CM); and (2) continuous replenishment program (CRP).The authors These are, in turn, supported by a number ofSherah Kurnia is a Lecturer and Robert B. Johnston is electronic commerce (EC) enablingan Associate Professor, both in the Department of technologies, such as automaticInformation Systems, The University of Melbourne, identification, electronic data interchange,Victoria, Australia. computer-aided ordering, cross-docking, and activity-based costing (Kurt SalmonKeywords Associates, 1993; ECR Central, 1997). ECR has the potential to remove significantElectronic commerce, Supply chain management, costs from the grocery supply chains throughAustralia better cooperation and coordination of the activities of trading partners within supplyAbstract chains, which is mainly enabled by timelyEfficient consumer response (ECR) is an electronic information sharing using EC technologies.commerce (EC)-enabled grocery industry supply chain As a result, efficiency at all levels withinmanagement strategy, which is designed to make the supply chains can be increased, leading toindustry more efficient and responsive. Despite the many reductions in inventory levels and operatingbenefits obtainable from ECR, the adoption rate has been costs (Kurt Salmon Associates, 1993).slow in many regions. At this stage, there is no well- Despite the many benefits obtainable fromdeveloped theory of adoption of technologies at this wide ECR, a number of studies indicate that thescale that can explain this slow uptake. This paper adoption rate of ECR has been slow in manyexplores the experiences of the Australian grocery regions such as the USA and Europe (Kurtindustry with ECR adoption. In order to obtain a more Salmon Associates, 1995, 1996, 1997;reliable snapshot of ECR adoption practices, barriers and Greenbaum, 1997). At present, study of ECRperceptions, this study employs a combination of adoption is not very well developed and therequantitative and qualitative research methods. Since the is no well-developed theory of adoption ofAustralian grocery industry has a unique structure, technologies at this wide scale that canimportant observations obtained from this study enrich explain this slow uptake. As pointed by aprevious ECR adoption studies. number of authors (Damsgaard and Lyytinen, 1998; Johnston and Gregor, 1999; KurniaElectronic access and Johnston, 2000), existing technology adoption models deal inadequately with theThe Emerald Research Register for this journal is complexity of inter-organisational systemsavailable at and trajectories of adoption will depend on industry structure and environments. InThe current issue and full text archive of this journal is addition, Kurnia and Johnston (2000)available at demonstrate that differences in costs, benefits and risks experienced by adopters are an important barrier to adoption. Therefore, data need to be gathered on experiences ofSupply Chain Management: An International Journal adoption of inter-organisational systems, suchVolume 8 . Number 3 . 2003 . pp. 251-262# MCB UP Limited . ISSN 1359-8546 as ECR, in countries with diverse industryDOI 10.1108/13598540310484645 structures and environments. 251
  2. 2. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262 To complement previous ECR adoption and cooperation between manufacturers andstudies in other regions, this paper aims at retailers. In addition, lack of understanding ofexploring the key issues and challenges in ECR was also observed from the surveyECR adoption, based on the experiences of findings. The observations obtained from thethe Australian grocery industry in ECR multiple-case study not only confirmed theadoption. Australia has a very different survey findings but also providedmarket structure to other countries, in which explanations of and causes for these. Fromthe consumers are fewer in number with these observations, additional insights intovarious cultural backgrounds and dispersed the key issues and challenges in ECRover a wide geographical area. In addition, the adoption were obtained.Australian grocery industry is dominated by In the next section, a brief description of thevery few key retailers and, therefore, the research methodology for each part of thisgeneral motivation to embrace ECR appears study is presented. We then discuss someto be pressure from these large retailers. The observations obtained from the survey anduniqueness of the Australian grocery industry show how the findings of the multiple-casethus enables this Australian study to study provide deeper explanations for thepotentially enrich the findings of previous survey observations. Finally, we conclude thestudies of ECR adoption. paper by summarising the key findings and This study examined adoption levels, briefly discussing the implications of these forbenefits, perceptions and barriers to ECR the study of inter-organisational systemadoption in Australia using a combination of adoption and future research.quantitative and qualitative researchmethods, in order to obtain generalisableobservations while also obtaining deep access Research methodologyto contextual aspects of ECR adoption. Forthis purpose, a survey of the industry, The survey research methodcomplemented by a multiple-case study along A mail survey was chosen in this study toa number of supply chains within the enable us to reach a wide range ofindustry, were conducted. Each method has organisations within the industry. The unit ofits own merits and disadvantages. The survey analysis is individual organisations.method allows generalisable findings to be Managers, or any individual with specificobtained, and the significance of these knowledge on ECR-type implementations,generalisations can be rigorously tested. were requested to answer the questionnaire.However, it does not allow for an in-depth An initial inquiry letter describing the projectunderstanding of the observations because of and seeking participation was sent out to thethe exclusion of the context and the senior executive of all organisations listed innecessarily narrow unit of the analysis that is the Grocery Industry Marketing Guide 1998confined to individual organisations. While (Retail World, 1998) to identify companiescase studies provide an in-depth interested in ECR studies. Only those whounderstanding of the phenomena of interest, registered some interest in ECR studies werethe results obtained are less likely to be included in the target population. Thosegeneralisable, because of the limited number companies that are not interested in or awareof participants that can be practically included of ECR studies were expected not to be ablein a study. Thus, employing both survey and a to complete the questionnaire.multiple-case study, as a strategy of In total, 52 companies indicated theirtriangulation, gives us a reliable view of the interest in participating; two of the majorkey issues and challenges in ECR adoption in retailers were interested in ECR studies butAustralia. were not willing to participate in this study The findings of the survey demonstrate because they had just participated in anotherAustralian retailers are leading manufacturers by Coopers and Lybrand (1998), whichin ECR implementation, experiencing more aimed to develop an ECR scorecard and thebenefits from ECR than the manufacturers, industrys level of maturity in implementingand having more power than the initiatives to improve supply chainmanufacturers. They also show that each performance. While the target population forgroup has different interests and perception of this study was from 54 organisations, thethe program and that there is a lack of trust actual questionnaire was only sent out to 52, 252
  3. 3. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262 since the remaining two expressed their companies, indicating the small number of unwillingness to participate at the early stage. the Australian companies involved in ECR at The number of returned questionnaires was this stage (Coopers & Lybrand, 1998). Given 42. this fact, the small sample involved in this Table I depicts the locations of the study arguably constitutes a major part of the participants and the numbers of entire population of the Australian companies questionnaires sent to each location, as well as involved in ECR. Thus, the small sample of the numbers of questionnaires returned from this study should by no means invalidate the each location. The majority of participants are findings of the survey, although it reduces the located in the two most densely populated chances of obtaining results with high states: New South Wales (NSW) and Victoria significance in the statistical tests of the survey (VIC). The 42 respondents consist of 59 responses. The fact that the findings of the percent manufacturers, 14 percent brokers, 7 case studies conducted after the survey were percent retailers, 10 percent wholesaler and found to be congruent with those of the 10 percent retailers, as shown in Table II. survey further indicates the validity of the Despite the small sample size, the survey survey findings (Eisenhardt, 1989; Gable, participants are representative of the 1994; Denscombe, 1998). population for each organisation type, due to In this study, survey responses were their market share. The participants analysed as a function of company type. To representing the ``retailer/wholesaler/ improve the statistical significance of the results, manufacturers and brokers are distributor, which consists of 11 classified as ``manufacturer while retailers, organisations, control more than 30 percent distributors and wholesalers are classified as of the total market share of the Australian ``retailer. Frequency of responses for each grocery industry. Similarly, around 40 group and rank order were used for nominal percent of the participants representing the data. To find the relationships between ``manufacturer/broker group dominate more nominal variables, the Fishers Exact test was than 50 percent of the market share of a used because of the small sample size number of product categories within the (Argyrous, 1996). For ordinal data, Australian grocery industry (Food and Liquor differences between the two groups were Week, 1998; Retail World, 1999). observed using means, which were found to In addition, the number of participants for be sensitive to small differences. The Mann- the survey conducted by Coopers & Lybrand Whitney test for the difference of medians, on behalf of the ECR Australia was only 36 based on the rank of responses, was used for significance testing of ordinal data (CoakesTable I Survey distribution and responses by state and Steed, 1997). In this paper, the following Distributed Returned notations are used to indicate the level ofState Frequency % Frequency % statistical significance discovered with each test:NSW 19 36.0 14 33.0 . m = Difference between two groups isVIC 18 36.0 16 38.0 significant at 5 percent level, using theQLD 8 15.0 7 17.0 Mann-Whitney test.WA 6 11.0 4 10.0 . f = Difference between two groups isSA 1 2.0 1 2.0 significant at 5 percent level, using theTotal 52 100.0 42 100.0 Fishers Exact test. The multiple-case study Table II Survey respondents by company type The multiple-case studies were conducted Company type Frequency % with three manufacturers and two retailers within six supply chains of the Australian Manufacturer 25 59.0 grocery industry. The unit of analysis of the Broker 6 14.0 case studies was individual organizations and Retailer 3 7.0 the interactions with their trading partners. A Wholesaler 4 10.0 ``theoretical sampling technique (Strauss Distributor 4 10.0 and Corbin, 1990) was employed in the case Total 42 100.0 selection. Cases were selected only when they 253
  4. 4. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262 contributed to the emerging themes identified The survey findings from the previous cases. Data collection techniques employed included There were 17 participants who were not semi-structured interviews with management, involved in ECR at all, and their responses industry presentations, review of relevant were used to identify reasons for project, and site inspections. In many cases, non-involvement. Observations regarding the follow-ups were carried out by phone or ECR adoption experience of the industry electronic mail. were obtained from the remaining 25 Table III summarises the participating participants. companies, individuals participating in the Based on the survey analysis, the following case studies, and the ECR components six deductions were made. They may seem to examined in each company. Since both be rather speculative, but their validity was retailers manage their own distribution, the reinforced by the case study findings that case studies also encompassed the converged with the survey findings. The case distribution function of the supply chains study findings also provide more thorough, under investigation. Each manufacturer causal explanations of the survey findings. involved in these case studies supplies both retailers and, therefore, there are six supply 1. Lack of understanding of ECR chains within the Australian grocery One of the observations obtained from the industry involved in the multiple-case analysis of the survey responses is that there is studies. still a lack of understanding of ECR in Case study data were analysed using a Australia. From the 17 participants who were qualitative technique that is similar to those not involved in ECR, 67 percent of the proposed and used by a number of authors manufacturers and 60 percent of the retailers (Eisenhardt, 1989; Strauss and Corbin, 1990; cited ``Do not understand ECR as the reason Miles and Huberman, 1994; Carol and for non-involvement. The analysis of the Swatman, 2000). Factual data obtained from implementation problems encountered by the site inspections and interviews were tape those who are involved in ECR (Table IV) recorded and directly transcribed as a written- further demonstrates that there is a low level up field note in an electronic format. All raw of understanding of ECR. Both manufacturer data obtained from the case study were then and retailer groups experienced a shortage of reviewed and arranged systematically. personnel with necessary skill as one of the ``Within case and ``cross case analyses were top six barriers to ECR implementation. In carried out to identify recurring themes. Some addition, manufacturers experience ``Lack of excerpts were also selected. Brief summaries clear roadmap as one of the major barriers, of the final write-ups of the case studies were indicating that many of them do not have a used in this study to explain the observations clear understanding and vision of how and obtained from the survey phase. what to achieve from ECR.Table III Summary of the case study participants and ECR components studiedCompany Company type Interviewee(s) Annual sales ECR components studiedA Manufacturer Regional customer service manager $750m Direct-store delivery (DSD)B Manufacturer Supply chain manager, ECR manager, $60b Category management (CM), Business analyst, Customer vendor-managed inventory (VMI), development manager cross-docking, flow-throughC Manufacturer Logistics manager $55b VMID Distributor/retailer Logistic planning manager, National $19b CM, DSD, VMI, cross-docking, supply chain manager, Regional flow-through distribution center manager, National distribution center managerE Distributor/retailer National supply manager, Business $4b CM, DSD, VMI, cross-docking, manager flow-through 254
  5. 5. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262Table IV The top six barriers to ECR implementation by company type Manufacturer (n = 19)a Retailer (n = 6)aBarriers Mean Barriers Mean mConflicting priorities for resources 3.24 Shortage of personnel with necessary skills 3.20Shortage of personnel with necessary skills 3.05 Inflexible information systems 3.00Lack of clear ``roadmap 2.94 Functional territory issues 3.00Inflexible information systems 2.94 Resistance to change 2.83Reluctance of trading partner to share Inaccurate/inappropriate performanceinformation 2.83 measures 2.75``Category managers insufficiently trained 2.67 Conflicting priorities for resources 2.33mNotes: 1 = has not been a problem; 2 = minor problem; 3 = moderate problem; 4 = major problem;a missing value exists2. Retailers lead manufacturers in ECR interests. Retailers are much moreadoption enthusiastic than manufacturers inAnother deduction made based on the survey implementing the continuous replenishmentobservations is that Australian retailers are program (CRP) and computer-aided orderingleading the manufacturers in ECR adoption. (CAO). A further analysis shows that theThe analysis of the responses of both groups difference in proportion between theregarding the ECR driving forces shows that, manufacturer and retailer groups in terms offor the manufacturers, the major driving force actively pursuing CRP implementation (inis exogenous, whereas, for the retailers, it is testing or fully operational) is significant at 5endogenous (Table V). The differences in percent level (p-value = 0.059). This suggestsresponses between the two groups are that retailers are more concerned with thesignificant at a 5 percent level for ``Pressure supply side of the supply chain managementfrom trading partner with p-value = 0.097 than manufacturers. Manufacturers, on theand ``Inventory unbalances with p-value = other hand, are more actively pursuing0.032. This suggests that, in Australia, category management (CM) and activity-retailers are the ones who initiate the ECR based costing (ABC). Consistently, a furtherprogram in order to improve their internal analysis revealed that there are moreoperations. Most manufacturers are involved manufacturers who plan to conduct ABCin ECR only to meet the requirements of their studies than retailers.larger trading partners. This suggests that manufacturers are more sceptical about the ECR concept than3. Retailers and manufacturers have retailers, and therefore, many of them need todifferent interests and perceptions conduct ABC studies to investigate if ECR isThe analysis of the responses by both indeed beneficial. This observation is alsomanufacturers and retailers regarding the supported by the findings regarding theimplementation level of ECR elements (Table perception of ECR by both groups, revealingVI) indicates that both groups have different that the perceived relative advantage and theTable V ECR catalysts Manufacturer (n = 19) Retailer (n = 6)Catalysts No % Rank No % RankPressure from trading partner 14 74.0f 1 2 33.0f 2Unpredictable shipping performance 2 11.0 1 17.0Under-utilization of assets 5 26.0 3 2 33.0 2Declining customer service 3 16.0 2 33.0 2Unpredictable demand 8 42.0 2 1 17.0Poor manufacturing efficiency 5 26.0 3 1 17.0Inventory unbalances 3 16.0f 4 68.0f 1Declining competitiveness 5 26.0 3 1 17.0Increasing product costs 3 16.0 2 33.0 2Improve competitiveness 4 21.0 1 17.0 255
  6. 6. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262Table VI The mean of the implementation level of ECR components by company type CM CRP Barcode EDI CAO X-Docking ABCManufacturer (n = 19) 3.81 2.82 4.56 4.18 3.28 3.44 3.50Retailer (n = 6) 3.50 3.83 4.00 3.83 4.33 3.83 3.17Notes: 1 = no plan to implement; 2 = keen to explore further; 3 = plan to begin in 12 months; 4 = in testing/pilotstage, 5 = fully operationalbenefit observability of ECR are higher for the costs of ECR implementation occur at theretailers than the manufacturers. manufacturer side than retailer side. Although the results suggest a moderateimplementation level for most of the ECR 5. Retailers are more powerful thancomponents, most manufacturers indicated manufacturersthat they were pursuing each component not The survey findings also indicate thatas part of the ECR program. Half of the Australian retailers have more power thanretailers, on the other hand, indicated that the manufacturers, because a highthey were involved in CRP, EDI, and cross proportion of the manufacturers citeddocking as part of the ECR program. This ``Pressure from the trading partner as thefinding reinforces the previous observation ECR catalyst (see Table V). The differencethat retailers are leading ECR implementation between the two groups is significant at a 5in Australia and manufacturers only attempt percent level. Thus, it appears that retailersto conform to the retailers requirements. Table VII Changes in performance measures by company type Manufacturer Retailer4. Retailers experience more benefits (n = 19)a (n = 6)athan manufacturersThe analysis of the responses regarding the Increase is expectedchanges in performance measures experienced Sales/turnover 0.22 0.00by both groups, as a result of getting involved Profits 0.27 0.40in ECR, demonstrates that the retailers Gross margin return on inventory investment 0.13 0.40experience more benefits of ECR than the Warehouse fill rate 0.08m 0.60mmanufacturers. Table VII shows that although Labor productivity 0.14 0.00in some cases the manufacturers gained more Dollar sales per square foot 0.25 0.33improvements in a number of the performance Profit margin 0.07 0.40measures than the retailers, in general, the Customer satisfaction 0.43 0.40retailers experienced more improvements in Market share 0.17 0.30most of the measures, particularly in profit, Decrease is expectedwarehouse fill rate, dollar sales per square foot, Out-of-stocks ±0.21 ±0.30inventory level, customer satisfaction and Finished goods inventory ±0.25 ±0.20market share. In addition, retailers experienced Invoice costs ±0.10 ±0.10more reductions in various costs than the Raw material costs ±0.05 ±0.33manufacturers, specifically for raw materials, Packaging costs ±0.05 ±0.17purchasing, transport, warehouse, Manufacturing costs ±0.08 0.00administrative, and marketing. Interestingly, Purchasing costs ±0.05 ±0.30there is a significant difference in terms of the Warehousing costs ±0.17 ±0.20improvement in the warehouse fill rate Transport costs ±0.21 ±0.30experienced by both groups, which favours the Marketing (promotion) costs ±0.06m 0.30mretailers. Administrative costs ±0.03 0.20 The above observation is further supported Increase or decrease, depending on theby the responses of both groups regarding the business strategynegative consequences of adopting ECR Variety of products 0.00 ±0.10(Table VIII), which show a large proportion Number of SKUs 0.00 ±0.30of manufacturers cited that they experienced Category space allocation in store 0.21 0.12more costs. For retailers, diverse responses Notes: 1 = reduced by over 20 per cent; ±0.5 = reduced by up to 20 perover other negative consequences were given. cent; 0 = no change; 0.5 = increased by up to 20 per cent; 1 = increased by over 20 per cent; amissing value exists for some performance measuresFrom these findings, it appears that more 256
  7. 7. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262Table VIII Negative consequences by company type Manufacturer (n = 19) Retailer (n = 6)Consequences No % Rank No % RankLosing key personnel 0 0.0 1 17.0 2More costs involved 10 53.0 1 1 17.0 2Employee morale problem 2 5.0 3 2 33.0 1Diminished customer service level 0 0.0 1 17.0 2Losing valuable trading partners 0 0.0 0 0.0Lost sales due to out-of-stock 3 16.0 2 1 17.0 2have the power to pressure the enabled by electronic commerce technologiesmanufacturers to get involved in ECR such as EDI and automatic identification (bardespite their perception of the program. code). Accurate data captured at point-of-saleTherefore, the level of satisfaction with ECR (POS) from retailer checkout counters needinitiatives was discovered to be low among to be shared to allow all parties to obtainthe manufacturers. demographic data, product loyalty, substitutability, profit, market shares, sales6. Lack of cooperation and trust per square foot, distribution, and otherThe survey identified that ``Reluctance of information about each product category. Alltrading partner to share information is one of this information enables manufacturers,the top five problems cited by the distributors and retailers to effectivelymanufacturers, while the retailers do not schedule promotion, determine prices, makeexperience this problem (Table IV). This decision on space management, productsuggests that the level of cooperation and introduction and deletion for each category totrust to enable information sharing between maximise profits (Tripplet, 1995; Friedman,retailers and manufacturers is still low. In 1996; Nielsen, 1996).addition, it reinforces the previous deduction Adoption of category management wasthat the retailers have more power than the examined in case studies conducted withmanufacturers, because they control the company B (manufacturer) and companies Dmanufacturers to a certain extent. (retailer) and E (retailer), within two supply chains of the Australian grocery industry. According to the customer developmentThe case study findings manager of company B, cooperation and trust required for the CM program are reallyThe case study findings are briefly discussed difficult to obtain from the retailers, becausein the following two sub-sections based on the many retailers still do not have a goodadoption of the two main programs of ECR, understanding of the program. There hasto triangulate the survey findings and provide been misapprehension that it will only benefitadditional insight into the key issues and manufacturers, because it has the potential tochallenges identified from the survey. grow particular brands. Therefore, retailers have been reluctant to share information withCategory management (CM) manufacturers. However, the attitude ofCM is one the ECR programs that is related companies D and E has changed over time asto the consumer requirement or demand side the result of a better understanding ofof the supply chain. On the other hand, CRP category management, as revealed below:is concerned with the supply side of the At this point in time, there are very fewsupply chain. CM is ultimately an ongoing [retailers] involved in Category Management . . . [Company D] has become very collaborative andstrategic management process to enhance open . . . [Company E] has become veryoverall business performance through committed and lots of cooperative work haveidentifying and satisfying consumer demand been done . . . however, there is no way toand targeting the right markets for each cooperate with independent [retailers] since theycategory (Lewis, 1998). To achieve the goal, only have a narrow focus of buying and selling (Customer development manager, company B).it requires extensive information sharing andcooperation between manufacturers, All case study participants are now engaged indistributors and retailers, which is mainly buyer/supplier exchange programs. These 257
  8. 8. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262programs are concerned with exchanging staff Continuous replenishment programbetween trading partners for a certain period (CRP)of time. Thus, some representatives from CRP is a practice of partnering among supplycompany B (manufacturer) work at company chain participants to allow for products toDs and company Es site (retailers) for a few flow smoothly and continuously frommonths and likewise some representatives of manufacturers to consumers (Martin, 1994;companies D and E work at company B for Hinkkanen et al., 1997). It can besome time. The purpose of such programs is implemented using various alternativeto enhance understanding of what trading distribution strategies such as cross-docking,partners are doing in order to improve flow-through, direct-store delivery andcooperation and trust between them. vendor-managed inventory, which are also As a result of the lack of trust and enabled by various EC technologies. Refer tocooperation, most costs of practising CM the Appendix for a brief description of eachhave been incurred at the manufacturers strategy.side, since most retailers are still reluctant to Adoption of CRP was examined in the casework together and share information. The studies conducted with companies A, B and Ccustomer development manager of company (manufacturers) and companies D and EB expressed his concern with unequal (retailers). In addition to interviews withdistribution of costs and benefits of practising various individuals involved in ECR-relatedCM between manufacturers and retailers, as projects of the companies, site inspections ofexhibited in the following interview excerpt: distribution centre of companies A and E Some retailers do no not want to work together were conducted to examine the operations of to optimize categories and hence manufacturers direct-store delivery, cross-docking, flow have to carry all the costs . . . The main reason through and pick-and-pack as the traditional why costs have not been equally distributed is distribution approach. because of lack of understanding of the cost Companies D and E are actively structure involved. With the activity-based costing study, manufacturers can negotiate experimenting with cross-docking and flow- trading terms with retailers to allow an equal through to improve the efficiency. While these distribution of costs and benefits. With Category distribution approaches simplify the operation Management, however, it is difficult to measure at the retailers distribution centers (DC), the costs and benefits since it is not a tangible they require more complex ordering systems project (Customer development manager). and EC compliance of manufacturers to dealAccording to the customer development with smaller orders with higher informationalmanager of company B, company D (retailer) coordination. In addition, manufacturersis more willing to share costs of practising CM experience higher costs in transportation andwith company B than company E and other packaging. Clear evidence was collected inretailers. To ensure the mutuality between the course of the case study for the inventorymanufacturers and retailers, company B is reduction at the retailers DC because of theactively conducting activity-based costing elimination of the buffer stock, but there is no(ABC) studies, which is a costing approach evidence that the inventory level at thethat allocates costs based on the detailed manufacturers side can be reduced. Thisbusiness activities, with company E to have finding explains why manufacturers expressedbetter understanding of the cost structure their concerns with high costs and little gainsinvolved to allow effective negotiations of in implementing ECR, as identified from thetrading terms. survey study. The observations obtained from the CM In order to address this imbalance of costscase studies thus triangulate the survey and benefits of implementing ECR elements,observations that there is a lack of company B (manufacturer) is activelyunderstanding of ECR and lack of conducting an ABC study to understand thecooperation and trust between manufacturers impact on the cost structure, which willand retailers. They also provide further enable the manufacturer to re-negotiateinsight into why manufacturers experience trading terms with retailers to ensure themore costs and why manufacturers are more mutuality. Manufacturers need concreteenthusiastic than retailers in conducting evidence through the ABC study, since theyABC studies. realised that there has been a power shift from 258
  9. 9. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262manufacturers to the retailers, as revealed in explanation. The validity of thesethe following excerpt: observations was triangulated by the case There has been a power shift between retailers study data and, in addition, the case studies and manufacturers in the last decade. Retailers revealed some of the contextual aspects of the are now in a better position compared to finding and provided explanations of their manufacturers. With the position they have, they causes. On the other hand, having found know they are winning, and therefore, are not particularly interested in conducting an ABC recognisable similarities in the survey gives us study (Project analyst, company B). more bases to extrapolate and generalise to the Australian grocery as a whole from theThe case studies also revealed that company A deeper access we had to a small number ofis being pressured by companies D and E to company experiences. Thus, by combiningadopt cross-docking and flow-through. both survey and case study, the resultsCompany A needs to replace a direct-store obtained from the combined study are likelydelivery (DSD) approach which has been highly to be generalisable, while providing sufficientbeneficial for company A with the distribution detail in understanding the key issues andapproaches which are beneficial for retailers. challenges of the ECR adoption in Australia.Companies D and E (retailers) prefer cross- From this study, we can thereforedocking and flow-through to DSD since they confidently make the following claims aboutwant to have control over the replenishment the state of ECR adoption in Australia.activities of up-stream companies within supply Australia is still at the early stage of ECRchains. Similarly, both retailers are not very adoption and the level of understanding of theenthusiastic in pursuing VMI and therefore the program is currently low. Few organisationsVMI applications have been very limited. This are experimenting with ECR elements, andobservation confirms the survey findings that Australian retailers are leading manufacturersAustralian retailers are leading manufacturers in in its implementation. Retailers are moreECR implementation and that the level of trust interested in the CRP, since the cost savingsbetween manufacturer and retailer is still low. to be obtained are more apparent and direct More direct benefits are readily obtained by to them than those from the CM program.the retailers than the manufacturers through The study also shows that the retailers arethe implementation of various CRP strategies, more powerful than the manufacturers, sinceparticularly cross-docking and flow-through, they can control the type of distributionas observed in the case studies. This is strategies their supply chains should adopt.because the retailers control the distribution, Manufacturers, on the other hand, do notwhere many of the cost savings occur. For the want to be the passive victims of the retailersCM, however, benefits cannot be readily and, therefore, they are enthusiastic aboutobtained by the retailers. This also explains conducting ABC studies, to be used as awhy manufacturers are more interested in bargaining tool, to ensure mutuality inCM and ABC, while retailers are more implementing ECR initiatives favoured by theenthusiastic in CRP projects. Table IX retailers. Finally, there is still a lack ofsummarises the observations obtained from cooperation and trust between manufacturersthe multiple-case study that provide and retailers, which are essential in ECRexplanations for the survey observations. adoption. The observations from this study suggest that adopting ECR, as an example of IOS, isDiscussions and conclusions not as straightforward as adopting other organisational technology, since it requiresBecause of the small number of companies the concerted actions of all supply chainwithin the Australian grocery industry that are participants, which bring into play political,involved in ECR at this stage, a relatively social, and economic issues. This study onlysmall number of companies within the provides data about ECR adoption in oneindustry participated in the survey study. This industry and country. Similar studiesreduced the chances of obtaining results with conducted in other countries within differenthigh statistical significance in the statistical industry contexts will be useful in providingtests of the survey responses. Despite this more complete evidence that can contributeweakness, the survey did provide some to the development of theory of IOS adoptionimportant observations, which require deeper in general. 259
  10. 10. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262Table IX Summary of how the multiple case study findings triangulate the survey findingsSurvey observations Multiple-case study observations1. Lack of understanding of ECR There is miscomprehension of the CM by retailers that it will only benefit manufacturers Companies B, D and E are engaged in the buyer/supplier exchange program to improve understanding2. Retailers lead manufacturers in ECR Companies A and B (manufacturers) and companies D and E (retailers) are experimenting with cross- adoption docking and flow-through more actively than other ECR elements, since these distribution strategies offer many direct benefits to retailers Since retailers are not very enthusiastic about CM, manufacturers still have problems getting the required information from the retailers to support the program3. Retailers and manufacturers have Manufacturers are more enthusiastic than retailers about conducting ABC studies so they can understand different interests and perceptions the impact of ECR program on the cost structure and negotiate to ensure mutual distribution of costs, benefits and risks Benefits of CM cannot be experienced directly by retailers and, therefore, they are not very interested in CM4. Retailers experience more benefits Company B experienced most of the costs of conducting CM, since retailers are still reluctant to than manufacturers cooperate and share information Cross-docking and flow-through simplify the operation of the retailers DC significantly and eliminate buffer stock. However, they require a more complex order processing system at the manufacturer side to deal with small orders efficiently. They also increase transportation and packaging costs of manufacturers and there is no evidence that their inventory level can be reduced5. Retailers are more powerful than Company A (manufacturer) has to get involved in the retailers initiative in experimenting with cross- manufacturers docking and flow-through to replace direct-store delivery (DSD), which has been highly beneficial for Company A Company B (manufacturer) needs concrete evidence about the changes in the cost structure through an ABC study, to enable it to conduct effective trading term negotiations with retailers6. Lack of cooperation and trust Companies D and E used to be very non-cooperative to company B Company B finds it extremely difficult to cooperate with independent retailers who normally have a very narrow focus of buying and selling The buyer/supplier exchange program between companies B and companies D and E (retailers) is intended to improve cooperation and trust between trading partners Companies D and E want to have more control over replenishment and, therefore, are keen to replace DSD with cross-docking or flow-through References Denscombe, M. (1998), The Good Research Guide: For Small-Scale Social Research Projects, Open Andel, T. (1994), ``Define cross-docking before you do it, University Press, Buckingham. Transportation and Distribution, Vol. 35 No. 11, ECR Central (1997), Efficient Consumer Response, pp. 93-8. available at: (accessed Argyrous, G. (1996), Statistics for Social Research, October 1999). Macmillan Education Australia, Hong Kong. Eisenhardt, K.M. (1989), ``Building theories from case Carol, J.M. and Swatman, P.A. (2000), ``Structured-case: a study research, Academy of Management Review, methodological framework for building theory in Vol. 14 No. 4, pp. 532-50. Fleischer, J. (1997), ``The downside of cross-docking, information systems research, The 8th European available at: Conference on Information Systems, Vienna, (accessed December 1998). pp. 116-23. Food and Liquor Week (1998), Industry Year Book and Coakes, S.J. and Steed, L.G. (1997), SPSS: Analysis Directory, Ian Huntley, Sydney. without Anguish, John Wiley & Sons, New York, NY. Friedman, A. (1996), ``KSAs guide to managing a Coopers & Lybrand (1998), The Grocery Industry Supply category, Womens Wear Daily. Chain Committee: 1998 Tracking Study, Grocery Gable, G.G. (1994), ``Integrating case study and survey Manufacturer of Australia Ltd. and Australian research methods: an example in information Supermarket Institute, Sydney. systems, European Journal of Information Systems, Damsgaard, J. and Lyytinen, K. (1998), ``Contours of Vol. 3 No. 2, pp. 112-26. diffusion of electronic data interchange in Finland: Greenbaum, J.M. (1997), ``Efficient consumer response: overcoming technological barriers and collaborating how software is remaking the consumer packaged to make it happen, Journal of Strategic Information goods industry, Software Magazine, Vol. 17, Systems, Vol. 7, pp. 275-97. pp. 38-48. 260
  11. 11. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262Hinkkanen, A. et al. (1997), ``Distributed decision support are not tied to store level orders, pick-and- systems for real time supply chain management pack places low electronic coordination using agent technologies, available at: demands on the manufacturer, but requires (accessed November 1998). sophisticated inventory, forecasting andJohnston, R.B. and Gregor, S. (1999), ``Towards a theory warehousing systems at the DC. of industry-level activity, The Third Collaborative Pick-and-pack is widely used in Australia, Electronic Commerce Technology and Research, particularly for fast-moving items. However, CD-ROM, Wellington. because it relies on buffer-stocks and thusKurnia, S. and Johnston, R.B. (2000), ``The issue of reduces the efficiency, responsiveness and mutuality in ECR adoption: a case study, Proceedings of the 8th European Conference on transparency of replenishment, it is not Information Systems, Vienna, pp. 1009-16. advocated as part of ECR. The followingKurnia, S. and Johnston, R.B. (2000), ``Understanding the alternative distribution strategies are adoption of ECR: a broader perspective, The 13th supported as part of ECR (Kurt Salmon International Bled Electronic Commerce Conference, Associates, 1993; ECR Central, 1997), and Bled, Slovenia, Moderna Organizacija, Kranj, Slovenia, Vol. 1, pp. 372-90. each is appropriate to different product orKurt Salmon Associates (1993), Efficient Consumer distribution network characteristics. Response: Enhancing Consumer Value in the Grocery Industry, Food Marketing Institute, Cross-docking and flow-through Washington, DC. Cross-docking is a distribution strategy,Kurt Salmon Associates (1995/1996) ECR ± Europe Annual which makes use of a centralized DC but Tracking Survey.Kurt Salmon Associates (1997), ECR ± Europe Annual without the use of buffer-stock. Tracking Survey. Replenishment is initiated by a retail storeLewis, L. (1998), ``Floating the boat, Progressive Grocer, placing an order with the manufacturer Vol. 5, p. 28. (ideally using EDI). Manufacturers shipMartin, A. (1994), Infopartnering: The Ultimate Strategy orders for several retail stores to the DC for Achieving Efficient Consumer Response, Oliver where there are broken down, inspected, Wight Publication, Essex Junction.Miles, M.B. and Huberman, A.M. (1994), Qualitative Data sorted by destination store, repacked and Analysis, Sage Publications, Newbury Park, CA. delivered. Compliance to bar code standardsNielsen (1996), ``Efficient consumer response, available can enable automated sorting and compliance at: (accessed to EDI advanced shipping notices can November 1997). simplify or eliminate inspection. Thus cross-Retail World (1998), Grocery Industry Marketing Guide 1998, Retail World, Rozelle. docking requires high informationalRetail World (1999), Grocery Industry Marketing Guide coordination between supply chain 1999, Retail World, North Parramatta. participants. Its application in Australia hasStrauss, A. and Corbin, J. (1990), Basics of Qualitative been limited to medium to slow moving Research: Grounded Theory Procedures and items, to avoid stock-out problems at the Techniques, Sage Publications, Newbury Park, CA. store level (Andel, 1994; Fleischer, 1997).Tripplet, T. (1995), ``More US grocers turning to ECR to cut waste, Marketing News, Vol. 3, pp. 12-13. Flow-through is a step beyond cross-Walton, S. (1992), Made in America, Bantam Books, docking. With flow-through, whole pallets New York, NY. delivered by suppliers are for specific individual stores and, hence, no sorting is required at DC. These pallets can be broughtAppendix. Distribution strategies in the straight to the dispatching area. With thisgrocery industry approach, suppliers initiate the replenishment activities. In Australia, flow-through is applied to very high volume or promotionalPick and pack products.With the pick-and-pack strategy, buffer stocksof items are maintained at a centralized Direct-store delivery (DSD)distribution center (DC). Retail stores send With direct-store delivery (DSD) goods areorders (preferably by EDI) to the DC on a delivered directly from manufacturers to retailfrequent basis. Goods are picked from stock stores, without the use of a the DC and shipped. Goods are Manufacturers or retail stores can initiatereplenished from the manufacturer in large, replenishment. To implement DSDinfrequent lots when the DC stock falls to a effectively, suppliers and customers need topredetermined level. Because replenishments be able to share POS data electronically. This 261
  12. 12. Adoption of efficient consumer response Supply Chain Management: An International Journal Sherah Kurnia and Robert B. Johnston Volume 8 . Number 3 . 2003 . 251-262approach is required for delivering products store inventory based on usage data providedthat are perishable, fragile, extreme in density by the retailers. In the ideal model promoted(do not allow efficient utilization of trucks), by Wal-Mart, point-of-sale (POS) datarequire special handling and payment by collected by bar code scanning areregulations, or have unique sales pattern transmitted by EDI to the manufacturer who(such as slow moving items with high variety then delivers product directly to restock retailand impulse) (ECR Central, 1997). store shelves (Walton, 1992). However, in Australian practice, DC withdrawal data areVendor-managed inventory (VMI) often used to drive VMI. VMI requires someVendor-managed inventory (VMI) is a EDI capability of manufacturers, distributors,distribution strategy in which manufacturers and/or retailers in order to share data. It isare given responsibility to replenish retailer mainly used with fast moving items. 262