Corporate Weight-Watchers

Is your company overweight, bloated, and out of shape? Is it burdened by rolls of inventory fat? Just how far from “just-in-time” is your delivery? Are your competitors trimmer and nimbler? If so, your organization needs to go on a corporate diet. But don’t worry, implementing an “Efficient Consumer Response” system can help you shed those extra pounds.

ECR focuses on reducing value-chain costs through lower systems costs, inventories, and physical assets.

This is particularly important today, because consumers are becoming increasingly sophisticated in their pursuit of top-quality products at the lowest price. Thus, manufacturers, distributors, and retailers must squeeze costs out of the total system and can no longer afford the luxury of carrying “nice to-have” stock in the supply chain just in case of an unexpected run on ketchup or auto parts.

Until now, most ECR effort and cost has been spent on transaction-based activities such as electronic data interchange and point-of-sale scanning. But other opportunities can be found in category management and the sharing of forecasting information. Integrating your systems with your business partners’ enables you, your suppliers, and your customers to react as one to swings in demand. Computer systems can be linked, so orders entered into your systems simultaneously will update both your forecasts and those of your business partners. You might even consider common forecasting systems.

With the exception of companies such as Wal-Mart, J.C. Penney, and Ford, most organizations don’t share forecasts with their suppliers. Instead, each forecasts separately, using consumer research and other external data that may or may not reflect their market, and may be days, weeks, or even months old.

Companies are unwilling (or unable) to share these data because: They need or want a wide range of suppliers, making it impractical to divide the forecast; they are insecure about their own forecasts and the risks associated through others’ use of those data; or they are technically unable to link their systems.

Integrating your systems with those of your suppliers and customers is quite different from simply extending terminal support as was done in systems such as the SABRE travel agent system and the Federal Express customer inquiry system. With terminal support, your partners simply are tapping into your data banks; information integration is done manually, if at all.

But it doesn’t have to-and shouldn’t-only work that way. In 1993, Philip Morris was asked by its largest wholesale customer, Temple, TX-based McLanes, to provide category management for its tobacco products based on established guidelines, including ROI and space limits. Philip Morris built a suite of systems at McLanes that are linked to its own forecasting and inventory systems in Virginia. Demand fluctuations at McLanes now are reflected almost immediately in the Philip Morris systems. Rapid awareness of variations in demand (by SKU and location) enables McLanes and Philip Morris to react simultaneously, reducing the need for large cushions of perishable inventory.

New York Life has 8,000 sales agents throughout the U.S. In the past, these agents shuffled reams of paper back and forth to the home office to sell and close a policy or product. In 1989, the company implemented a PC-based agent support system hooked into the home-office systems that contained all data necessary to sell and close most deals on the spot-without the paperwork. This slashed the commission payment cycle from an average of 30 days to fewer than 10, and provided agents with the tools to lessen their learning curve on new products. The combined system also cut policy approval time; lowered costs; and increased sales, agent productivity, and consumer satisfaction.

With rapid improvements in technology, personal computer manufacturers historically have been burdened with large quantities of obsolete finished goods. Naturally, they pass these costs on to consumers. In its quest to keep costs down, Dell Computer has slashed finished goods inventory from 55 days to 33 days by abandoning the retail store and using a “make-to-order” consumer sales strategy. Dell’s systems are high-quality, preloaded with software, and tested. Plus, Dell promises shipment in seven business days. To accomplish this, Dell tightened its entire supply chain with direct ties to component suppliers. Last year, Dell chose one freight company and developed system-to-system links that cut cost and time.

“No pain, no gain,” the fitness gurus claim. But that’s not necessarily true. Integrating your systems with those of your business partners is a relatively painless-but effective-way to tighten the corporate belt and become lean and mean. Besides, competitively speaking, you can’t afford to carry the extra weight.


 

Thomas L. Pettibone is partner and managing director of New Canaan, CT-based Transition Partners Co., an information technology management consulting company.

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