Effects of Supply Chain Management for Food and Grocery Companies

Mass merchandisers’ entry into food retailing threatens traditional grocers’ market share. In response, traditional grocers and food manufacturers adopted Efficient Consumer Response (ECR) as an industry-wide set of supply chain management strategies that focused on cutting costs and improving product assortment, thereby improving inventory and financial performance levels. However, research findings and trade press reports question whether adopting supply chain management strategies will achieve these goals. The results of this analysis strongly support the proposition that the adoption of an ECR strategy pays off. However, the growth in profit does not appear to come from improved performance for traditional inventory measures. The driving force behind these improved financial measures can be attributed to the cash conversion cycle. Thus, the time spent in developing close relationships with buyers or suppliers and the investments in information technology have been justified. Size matters; ECR is more effective due to economies of scale and information technology. However, this may lead to more consolidations because all firms may not have sufficient capital to invest in ECR initiatives. In short, to remain competitive ECR strategies should strongly be considered by firms that are lagging in implementation.