Adoption of efficient consumer response key issues and challenges in australia

Introduction
Research paper
Adoption of efficient Efficient consumer response (ECR) is an
EC-enabled grocery industry supply chain
consumer response: key management strategy designed to improve the
competitiveness of the industry by promoting
issues and challenges in strategic initiatives in the area of product
Australia replenishment, store assortment, product
development and introduction, and
Sherah 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 of
Sherah Kurnia is a Lecturer and Robert B. Johnston is electronic commerce (EC) enabling
an Associate Professor, both in the Department of technologies, such as automatic
Information Systems, The University of Melbourne, identification, electronic data interchange,
Victoria, Australia. computer-aided ordering, cross-docking, and
activity-based costing (Kurt Salmon
Keywords Associates, 1993; ECR Central, 1997).
ECR has the potential to remove significant
Electronic commerce, Supply chain management,
costs from the grocery supply chains through
Australia
better cooperation and coordination of the
activities of trading partners within supply
Abstract chains, which is mainly enabled by timely
Efficient 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 within
management strategy, which is designed to make the supply chains can be increased, leading to
industry more efficient and responsive. Despite the many reductions in inventory levels and operating
benefits 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 from
developed theory of adoption of technologies at this wide ECR, a number of studies indicate that the
scale that can explain this slow uptake. This paper adoption rate of ECR has been slow in many
explores the experiences of the Australian grocery regions such as the USA and Europe (Kurt
industry 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 ECR
perceptions, this study employs a combination of adoption is not very well developed and there
quantitative and qualitative research methods. Since the is no well-developed theory of adoption of
Australian grocery industry has a unique structure, technologies at this wide scale that can
important observations obtained from this study enrich explain this slow uptake. As pointed by a
previous ECR adoption studies. number of authors (Damsgaard and Lyytinen,
1998; Johnston and Gregor, 1999; Kurnia
Electronic access and Johnston, 2000), existing technology
adoption models deal inadequately with the
The Emerald Research Register for this journal is
complexity of inter-organisational systems
available at
and trajectories of adoption will depend on
http://www.emeraldinsight.com/researchregister
industry structure and environments. In
The current issue and full text archive of this journal is addition, Kurnia and Johnston (2000)
available at demonstrate that differences in costs, benefits
http://www.emeraldinsight.com/1359-8546.htm and risks experienced by adopters are an
important barrier to adoption. Therefore,
data need to be gathered on experiences of
Supply Chain Management: An International Journal
adoption of inter-organisational systems, such
Volume 8 . Number 3 . 2003 . pp. 251-262
# MCB UP Limited . ISSN 1359-8546 as ECR, in countries with diverse industry
DOI 10.1108/13598540310484645 structures and environments.
251

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 and
studies in other regions, this paper aims at retailers. In addition, lack of understanding of
exploring the key issues and challenges in ECR was also observed from the survey
ECR adoption, based on the experiences of findings. The observations obtained from the
the Australian grocery industry in ECR multiple-case study not only confirmed the
adoption. Australia has a very different survey findings but also provided
market structure to other countries, in which explanations of and causes for these. From
the consumers are fewer in number with these observations, additional insights into
various cultural backgrounds and dispersed the key issues and challenges in ECR
over a wide geographical area. In addition, the adoption were obtained.
Australian grocery industry is dominated by In the next section, a brief description of the
very few key retailers and, therefore, the research methodology for each part of this
general motivation to embrace ECR appears study is presented. We then discuss some
to be pressure from these large retailers. The observations obtained from the survey and
uniqueness of the Australian grocery industry show how the findings of the multiple-case
thus enables this Australian study to study provide deeper explanations for the
potentially enrich the findings of previous survey observations. Finally, we conclude the
studies of ECR adoption. paper by summarising the key findings and
This study examined adoption levels, briefly discussing the implications of these for
benefits, perceptions and barriers to ECR the study of inter-organisational system
adoption in Australia using a combination of adoption and future research.
quantitative and qualitative research
methods, in order to obtain generalisable
observations while also obtaining deep access
Research methodology
to contextual aspects of ECR adoption. For
this purpose, a survey of the industry, The survey research method
complemented by a multiple-case study along A mail survey was chosen in this study to
a number of supply chains within the enable us to reach a wide range of
industry, were conducted. Each method has organisations within the industry. The unit of
its own merits and disadvantages. The survey analysis is individual organisations.
method allows generalisable findings to be Managers, or any individual with specific
obtained, 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 project
understanding of the observations because of and seeking participation was sent out to the
the exclusion of the context and the senior executive of all organisations listed in
necessarily narrow unit of the analysis that is the Grocery Industry Marketing Guide 1998
confined to individual organisations. While (Retail World, 1998) to identify companies
case studies provide an in-depth interested in ECR studies. Only those who
understanding of the phenomena of interest, registered some interest in ECR studies were
the results obtained are less likely to be included in the target population. Those
generalisable, because of the limited number companies that are not interested in or aware
of participants that can be practically included of ECR studies were expected not to be able
in a study. Thus, employing both survey and a to complete the questionnaire.
multiple-case study, as a strategy of In total, 52 companies indicated their
triangulation, gives us a reliable view of the interest in participating; two of the major
key issues and challenges in ECR adoption in retailers were interested in ECR studies but
Australia. were not willing to participate in this study
The findings of the survey demonstrate because they had just participated in another
Australian retailers are leading manufacturers by Coopers and Lybrand (1998), which
in ECR implementation, experiencing more aimed to develop an ECR scorecard and the
benefits from ECR than the manufacturers, industry's level of maturity in implementing
and having more power than the initiatives to improve supply chain
manufacturers. They also show that each performance. While the target population for
group has different interests and perception of this study was from 54 organisations, the
the program and that there is a lack of trust actual questionnaire was only sent out to 52,
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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 Fisher's 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 (Coakes
Table I Survey distribution and responses by state and Steed, 1997). In this paper, the following
Distributed Returned
notations are used to indicate the level of
State Frequency % Frequency %
statistical significance discovered with each
test:
NSW 19 36.0 14 33.0 . m
= Difference between two groups is
VIC 18 36.0 16 38.0 significant at 5 percent level, using the
QLD 8 15.0 7 17.0 Mann-Whitney test.
WA 6 11.0 4 10.0 . f
= Difference between two groups is
SA 1 2.0 1 2.0 significant at 5 percent level, using the
Total 52 100.0 42 100.0 Fisher's 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
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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 studied
Company Company type Interviewee(s) Annual sales ECR components studied
A 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-through
C Manufacturer Logistics manager $55b VMI
D Distributor/retailer Logistic planning manager, National $19b CM, DSD, VMI, cross-docking,
supply chain manager, Regional flow-through
distribution center manager, National
distribution center manager
E Distributor/retailer National supply manager, Business $4b CM, DSD, VMI, cross-docking,
manager flow-through

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Table IV The top six barriers to ECR implementation by company type
Manufacturer (n = 19)a Retailer (n = 6)a
Barriers Mean Barriers Mean
m
Conflicting priorities for resources 3.24 Shortage of personnel with necessary skills 3.20
Shortage of personnel with necessary skills 3.05 Inflexible information systems 3.00
Lack of clear ``roadmap'' 2.94 Functional territory issues 3.00
Inflexible information systems 2.94 Resistance to change 2.83
Reluctance of trading partner to share Inaccurate/inappropriate performance
information 2.83 measures 2.75
``Category managers'' insufficiently trained 2.67 Conflicting priorities for resources 2.33m
Notes: 1 = has not been a problem; 2 = minor problem; 3 = moderate problem; 4 = major problem;
a
missing value exists

2. Retailers lead manufacturers in ECR interests. Retailers are much more
adoption enthusiastic than manufacturers in
Another deduction made based on the survey implementing the continuous replenishment
observations is that Australian retailers are program (CRP) and computer-aided ordering
leading the manufacturers in ECR adoption. (CAO). A further analysis shows that the
The analysis of the responses of both groups difference in proportion between the
regarding the ECR driving forces shows that, manufacturer and retailer groups in terms of
for the manufacturers, the major driving force actively pursuing CRP implementation (in
is exogenous, whereas, for the retailers, it is testing or fully operational) is significant at 5
endogenous (Table V). The differences in percent level (p-value = 0.059). This suggests
responses between the two groups are that retailers are more concerned with the
significant at a 5 percent level for ``Pressure supply side of the supply chain management
from trading partner'' with p-value = 0.097 than manufacturers. Manufacturers, on the
and ``Inventory unbalances'' with p-value = other hand, are more actively pursuing
0.032. This suggests that, in Australia, category management (CM) and activity-
retailers are the ones who initiate the ECR based costing (ABC). Consistently, a further
program in order to improve their internal analysis revealed that there are more
operations. Most manufacturers are involved manufacturers who plan to conduct ABC
in 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 than
3. Retailers and manufacturers have retailers, and therefore, many of them need to
different interests and perceptions conduct ABC studies to investigate if ECR is
The analysis of the responses by both indeed beneficial. This observation is also
manufacturers and retailers regarding the supported by the findings regarding the
implementation level of ECR elements (Table perception of ECR by both groups, revealing
VI) indicates that both groups have different that the perceived relative advantage and the

Table V ECR catalysts
Manufacturer (n = 19) Retailer (n = 6)
Catalysts No % Rank No % Rank
Pressure from trading partner 14 74.0f 1 2 33.0f 2
Unpredictable shipping performance 2 11.0 1 17.0
Under-utilization of assets 5 26.0 3 2 33.0 2
Declining customer service 3 16.0 2 33.0 2
Unpredictable demand 8 42.0 2 1 17.0
Poor manufacturing efficiency 5 26.0 3 1 17.0
Inventory unbalances 3 16.0f 4 68.0f 1
Declining competitiveness 5 26.0 3 1 17.0
Increasing product costs 3 16.0 2 33.0 2
Improve competitiveness 4 21.0 1 17.0

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Table VI The mean of the implementation level of ECR components by company type
CM CRP Barcode EDI CAO X-Docking ABC
Manufacturer (n = 19) 3.81 2.82 4.56 4.18 3.28 3.44 3.50
Retailer (n = 6) 3.50 3.83 4.00 3.83 4.33 3.83 3.17
Notes: 1 = no plan to implement; 2 = keen to explore further; 3 = plan to begin in 12 months; 4 = in testing/pilot
stage, 5 = fully operational

benefit observability of ECR are higher for the costs of ECR implementation occur at the
retailers than the manufacturers. manufacturer side than retailer side.
Although the results suggest a moderate
implementation level for most of the ECR 5. Retailers are more powerful than
components, most manufacturers indicated manufacturers
that they were pursuing each component not The survey findings also indicate that
as part of the ECR program. Half of the Australian retailers have more power than
retailers, on the other hand, indicated that the manufacturers, because a high
they were involved in CRP, EDI, and cross proportion of the manufacturers cited
docking as part of the ECR program. This ``Pressure from the trading partner'' as the
finding reinforces the previous observation ECR catalyst (see Table V). The difference
that retailers are leading ECR implementation between the two groups is significant at a 5
in Australia and manufacturers only attempt percent level. Thus, it appears that retailers
to conform to the retailers' requirements. Table VII Changes in performance measures by company type
Manufacturer Retailer
4. Retailers experience more benefits
(n = 19)a (n = 6)a
than manufacturers
The analysis of the responses regarding the Increase is expected
changes in performance measures experienced Sales/turnover 0.22 0.00
by both groups, as a result of getting involved Profits 0.27 0.40
in ECR, demonstrates that the retailers Gross margin return on inventory
investment 0.13 0.40
experience more benefits of ECR than the
Warehouse fill rate 0.08m 0.60m
manufacturers. Table VII shows that although
Labor productivity 0.14 0.00
in some cases the manufacturers gained more
Dollar sales per square foot 0.25 0.33
improvements in a number of the performance
Profit margin 0.07 0.40
measures than the retailers, in general, the
Customer satisfaction 0.43 0.40
retailers experienced more improvements in
Market share 0.17 0.30
most of the measures, particularly in profit,
Decrease is expected
warehouse fill rate, dollar sales per square foot, Out-of-stocks ±0.21 ±0.30
inventory level, customer satisfaction and Finished goods inventory ±0.25 ±0.20
market share. In addition, retailers experienced Invoice costs ±0.10 ±0.10
more reductions in various costs than the Raw material costs ±0.05 ±0.33
manufacturers, specifically for raw materials, Packaging costs ±0.05 ±0.17
purchasing, transport, warehouse, Manufacturing costs ±0.08 0.00
administrative, and marketing. Interestingly, Purchasing costs ±0.05 ±0.30
there is a significant difference in terms of the Warehousing costs ±0.17 ±0.20
improvement in the warehouse fill rate Transport costs ±0.21 ±0.30
experienced by both groups, which favours the Marketing (promotion) costs ±0.06m 0.30m
retailers. Administrative costs ±0.03 0.20
The above observation is further supported Increase or decrease, depending on the
by the responses of both groups regarding the business strategy
negative consequences of adopting ECR Variety of products 0.00 ±0.10
(Table VIII), which show a large proportion Number of SKUs 0.00 ±0.30
of manufacturers cited that they experienced Category space allocation in store 0.21 0.12
more costs. For retailers, diverse responses Notes: 1 = reduced by over 20 per cent; ±0.5 = reduced by up to 20 per
over 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 measures
From these findings, it appears that more
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Table VIII Negative consequences by company type
Manufacturer (n = 19) Retailer (n = 6)
Consequences No % Rank No % Rank
Losing key personnel 0 0.0 1 17.0 2
More costs involved 10 53.0 1 1 17.0 2
Employee morale problem 2 5.0 3 2 33.0 1
Diminished customer service level 0 0.0 1 17.0 2
Losing valuable trading partners 0 0.0 0 0.0
Lost sales due to out-of-stock 3 16.0 2 1 17.0 2

have the power to pressure the enabled by electronic commerce technologies
manufacturers to get involved in ECR such as EDI and automatic identification (bar
despite their perception of the program. code). Accurate data captured at point-of-sale
Therefore, the level of satisfaction with ECR (POS) from retailer checkout counters need
initiatives was discovered to be low among to be shared to allow all parties to obtain
the manufacturers. demographic data, product loyalty,
substitutability, profit, market shares, sales
6. Lack of cooperation and trust per square foot, distribution, and other
The survey identified that ``Reluctance of information about each product category. All
trading partner to share information'' is one of this information enables manufacturers,
the top five problems cited by the distributors and retailers to effectively
manufacturers, while the retailers do not schedule promotion, determine prices, make
experience this problem (Table IV). This decision on space management, product
suggests that the level of cooperation and introduction and deletion for each category to
trust 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 was
that the retailers have more power than the examined in case studies conducted with
manufacturers, because they control the company B (manufacturer) and companies D
manufacturers to a certain extent. (retailer) and E (retailer), within two supply
chains of the Australian grocery industry.
According to the customer development
The case study findings manager of company B, cooperation and trust
required for the CM program are really
The case study findings are briefly discussed difficult to obtain from the retailers, because
in the following two sub-sections based on the many retailers still do not have a good
adoption of the two main programs of ECR, understanding of the program. There has
to triangulate the survey findings and provide been misapprehension that it will only benefit
additional insight into the key issues and manufacturers, because it has the potential to
challenges identified from the survey. grow particular brands. Therefore, retailers
have been reluctant to share information with
Category management (CM) manufacturers. However, the attitude of
CM is one the ECR programs that is related companies D and E has changed over time as
to the consumer requirement or demand side the result of a better understanding of
of 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 few
supply chain. CM is ultimately an ongoing [retailers] involved in Category Management . . .
[Company D] has become very collaborative and
strategic management process to enhance open . . . [Company E] has become very
overall business performance through committed and lots of cooperative work have
identifying and satisfying consumer demand been done . . . however, there is no way to
and targeting the right markets for each cooperate with independent [retailers] since they
category (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 and
cooperation between manufacturers, All case study participants are now engaged in
distributors and retailers, which is mainly buyer/supplier exchange programs. These
257


programs are concerned with exchanging staff Continuous replenishment program
between trading partners for a certain period (CRP)
of time. Thus, some representatives from CRP is a practice of partnering among supply
company B (manufacturer) work at company chain participants to allow for products to
D's and company E's site (retailers) for a few flow smoothly and continuously from
months 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 be
some time. The purpose of such programs is implemented using various alternative
to enhance understanding of what trading distribution strategies such as cross-docking,
partners are doing in order to improve flow-through, direct-store delivery and
cooperation 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 to
cooperation, most costs of practising CM the Appendix for a brief description of each
have been incurred at the manufacturer's strategy.
side, since most retailers are still reluctant to Adoption of CRP was examined in the case
work together and share information. The studies conducted with companies A, B and C
customer development manager of company (manufacturers) and companies D and E
B expressed his concern with unequal (retailers). In addition to interviews with
distribution of costs and benefits of practising various individuals involved in ECR-related
CM between manufacturers and retailers, as projects of the companies, site inspections of
exhibited 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 deal
According to the customer development with smaller orders with higher informational
manager of company B, company D (retailer) coordination. In addition, manufacturers
is more willing to share costs of practising CM experience higher costs in transportation and
with company B than company E and other packaging. Clear evidence was collected in
retailers. To ensure the mutuality between the course of the case study for the inventory
manufacturers and retailers, company B is reduction at the retailers' DC because of the
actively 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 the
that allocates costs based on the detailed manufacturers' side can be reduced. This
business activities, with company E to have finding explains why manufacturers expressed
better understanding of the cost structure their concerns with high costs and little gains
involved to allow effective negotiations of in implementing ECR, as identified from the
trading terms. survey study.
The observations obtained from the CM In order to address this imbalance of costs
case studies thus triangulate the survey and benefits of implementing ECR elements,
observations that there is a lack of company B (manufacturer) is actively
understanding of ECR and lack of conducting an ABC study to understand the
cooperation and trust between manufacturers impact on the cost structure, which will
and retailers. They also provide further enable the manufacturer to re-negotiate
insight into why manufacturers experience trading terms with retailers to ensure the
more costs and why manufacturers are more mutuality. Manufacturers need concrete
enthusiastic than retailers in conducting evidence through the ABC study, since they
ABC studies. realised that there has been a power shift from
258


manufacturers to the retailers, as revealed in explanation. The validity of these
the 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 the
The case studies also revealed that company A
deeper access we had to a small number of
is being pressured by companies D and E to
company experiences. Thus, by combining
adopt cross-docking and flow-through.
both survey and case study, the results
Company A needs to replace a direct-store
obtained from the combined study are likely
delivery (DSD) approach which has been highly to be generalisable, while providing sufficient
beneficial for company A with the distribution detail in understanding the key issues and
approaches which are beneficial for retailers. challenges of the ECR adoption in Australia.
Companies D and E (retailers) prefer cross- From this study, we can therefore
docking and flow-through to DSD since they confidently make the following claims about
want 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 ECR
chains. Similarly, both retailers are not very adoption and the level of understanding of the
enthusiastic in pursuing VMI and therefore the program is currently low. Few organisations
VMI applications have been very limited. This are experimenting with ECR elements, and
observation confirms the survey findings that Australian retailers are leading manufacturers
Australian retailers are leading manufacturers in in its implementation. Retailers are more
ECR implementation and that the level of trust interested in the CRP, since the cost savings
between 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 are
the implementation of various CRP strategies, more powerful than the manufacturers, since
particularly cross-docking and flow-through, they can control the type of distribution
as 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 not
where many of the cost savings occur. For the want to be the passive victims of the retailers
CM, however, benefits cannot be readily and, therefore, they are enthusiastic about
obtained by the retailers. This also explains conducting ABC studies, to be used as a
why manufacturers are more interested in bargaining tool, to ensure mutuality in
CM and ABC, while retailers are more implementing ECR initiatives favoured by the
enthusiastic in CRP projects. Table IX retailers. Finally, there is still a lack of
summarises the observations obtained from cooperation and trust between manufacturers
the multiple-case study that provide and retailers, which are essential in ECR
explanations for the survey observations. adoption.
The observations from this study suggest
that adopting ECR, as an example of IOS, is
Discussions and conclusions not as straightforward as adopting other
organisational technology, since it requires
Because of the small number of companies the concerted actions of all supply chain
within 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 only
small number of companies within the provides data about ECR adoption in one
industry participated in the survey study. This industry and country. Similar studies
reduced the chances of obtaining results with conducted in other countries within different
high statistical significance in the statistical industry contexts will be useful in providing
tests of the survey responses. Despite this more complete evidence that can contribute
weakness, the survey did provide some to the development of theory of IOS adoption
important observations, which require deeper in general.
259


Table IX Summary of how the multiple case study findings triangulate the survey findings
Survey observations Multiple-case study observations
1. 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 understanding
2. 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 program
3. 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 CM
4. 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 reduced
5. 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 retailers
6. 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

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Appendix. Distribution strategies in the straight to the dispatching area. With this
grocery industry approach, suppliers initiate the replenishment
activities. In Australia, flow-through is
applied to very high volume or promotional
Pick and pack products.
With the pick-and-pack strategy, buffer stocks
of items are maintained at a centralized Direct-store delivery (DSD)
distribution center (DC). Retail stores send With direct-store delivery (DSD) goods are
orders (preferably by EDI) to the DC on a delivered directly from manufacturers to retail
frequent basis. Goods are picked from stock stores, without the use of a DC.
at the DC and shipped. Goods are Manufacturers or retail stores can initiate
replenished from the manufacturer in large, replenishment. To implement DSD
infrequent lots when the DC stock falls to a effectively, suppliers and customers need to
predetermined level. Because replenishments be able to share POS data electronically. This
261


approach is required for delivering products store inventory based on usage data provided
that 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) data
require special handling and payment by collected by bar code scanning are
regulations, 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 retail
and impulse) (ECR Central, 1997). store shelves (Walton, 1992). However, in
Australian practice, DC withdrawal data are
Vendor-managed inventory (VMI) often used to drive VMI. VMI requires some
Vendor-managed inventory (VMI) is a EDI capability of manufacturers, distributors,
distribution strategy in which manufacturers and/or retailers in order to share data. It is
are given responsibility to replenish retailer mainly used with fast moving items.

262

Adoption of efficient consumer response key issues and challenges in australia

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