OF THE 800-lb GORILLA
Industry is forced to adopt EFR standards
About half a dozen years after it was launched, the industry initiative known as Efficient Foodservice Response or EFR has finally started to crawl away from the starting blocks. Some would even say that is well on its way to gaining momentum. Others have even dared to speculate that this will be the year when the foodservice industry will declare its universal and active commitment to setting standards.
The prize for doing so will not be chicken feed. The pot at the end of this rainbow or the savings that are in store for the foodservice industry if and when it adopts EFR principles has been valued by industry experts at between $14 and $20 billion.
EFR is not limited to warehousing, distribution and standardized bar codes. With its solid foundation in technology and the Internet, EFR's role in the foodservice industry begins at the loading dock but it quickly transcends into purchasing, marketing, advertising, customer relationship management, datamining and communications.
Foodservice industry leaders recently assembled at an EFR conference in Chicago, called "The Future of Foodservice: Strategies for Sustainable Profitable Growth," to assess the initiative's evolution and acceptance. The meeting was sponsored by a battery of trade associations, among them: International Foodservice Distributors Association, International Foodservice Manufacturers Association, Uniform Code Council, Association of Sales & Marketing Companies. Grocery Manufacturers of America, National Restaurant Association, Food and Consumer Products Manufacturers of Canada, Foodservice & Packaging Institute, National Association of Convenience Stores and the Canadian Council of Grocery Distributors.
The most tangible proof of the foodservice industry's slow but perceptible acceptance of the drive to develop and use standardized codes is an EFR study that looked at code usage between 1999 and 2000. Though on the surface the change looks somewhat meager, but the actual 7 percentage points that separated code adoption in both years elicited cheers from the EFR enthusiasts in attendance.
Mary Gearing, senior manager, market research, Rich Products Corp., Buffalo, NY, who presented the results of the study, praised the industry for getting on the EFR bandwagon. "I think we made some really significant progress to go from 54 percent to 61 percent. It's 7 percentage points but it's pretty high, considering that it's been active for only about four years. I think that it shows some really significant progress," Gearing said.
Rich Products can be considered an EFR company and has implemented its principles in order to track its products and to know where they eventually end up, Gearing noted.
Pamela S. Tran, senior manager, marketing administration, Sysco Corp., Houston, another panelist, was also excited by the study's conclusions. "I'm very optimistic. I think we're moving forward rapidly and I think that we'll get there. The recognition factor is very high right now and we do have large suppliers, large operators who are becoming more and more educated themselves about how to utilize bar coding. We want to support our customers and we want to give them what they want, when they want it," Tran indicated.
The survey found that in 1999 some 54 percent of food product cases had been marked with bar codes, while the next year the figure jumped seven points to 61 percent or 17,621 of the cases inspected. Conversely, 46 percent and 39 percent of the cases, respectively for both years, were not marked with bar codes.
Broken out by type of distributorships, in 2000, 66 percent of national broadliners marked their cases with bar codes, and 57 percent of regional broadliners and 53 percent of systems distributions also did the same. The survey also seemed to dispel fears that bar-coded cases do not scan properly. In the study, 91 percent of cases in national distributorships, 87 percent in regionals and 83 percent in systems scanned properly.
Furthermore, distributorships that use bar codes are more likely to use them on more than one side of the case. Thirty-one percent of the cases or 5,527 of them were marked on one side, 43 percent or 7,422 cases were marked on two sides, and 26 percent or 4,652 were marked on three sides.
When examined by product category, the split was as follows: drygoods-64 percent marked and 36 percent unmarked, refrigerated-52 percent vs. 48 percent, produce-11 percent vs. 89 percent, frozen-61 percent vs. 39 percent, and E&S-68 percent vs. 32 percent.
Gearing concluded her remarks by urging greater industry education about the benefits of bar coding. Echoing her comments, Sysco's Tran observed: "We are going to try to encourage our supplier network to actually barcode their products. To make it part of their normal process. We'll help as much as we can by giving them as much good information, and leading them through the UCC, and letting them know there are economical ways for them to do that regardless if they sell 50 unique items or a thousand."
Industry consultant Karen J. Ribler, president of KJR Consulting, Washington, DC, said the growth in marking cases is great. "I found it very exciting because you hear a lot of people say, I'm not going to use bar coding because my customer hasn't asked for bar coding so therefore I won't do bar coding. And then the customer says that I won't do bar coding until the manufacturer has bar codes, and so on and so on. A 7 percent leap indicates that someone is saying that I need bar codes. I'm valuing bar codes whether you're telling me to do them or I'm doing them on my own. It needs to be done. I find that very exciting," she said.
Up until now the industry has been hampered in adopting EFR by its own lethargy. Foodservice executives and consultants are convinced that awareness and interest in the initiatives are present, along with a belief in its universal business benefits. However, the missing element has been a sense of urgency that EFR principles need to be developed now and adopted tomorrow.
Charles R. Troyer, partner, consumer products consulting, Computer Sciences Corp., New York, a conference panelist who is regarded as the EFR evangelist, said that of the three foodservice segments, distributors have the highest level of awareness of EFR but acceptance is slower in coming. "I think they have the most to gain," he added. At the senior level, he continued, most executives at least know what the letters mean.
"I think that there is a very strong acceptance of EFR in specific things, for example, like bar codes. The industry sees EFR as a vehicle to get the bar codes and standard product IDs and that part is widely accepted. I think that some of the other things, like category management, electronic commerce, have varying degrees of acceptance. And some of those are seen by distributors, particularly electronic commerce, as a two-edged sword," Troyer noted.
On the other hand, he said, operators are at the opposite end of the spectrum. "I think that awareness at the operator level is EFR's weakest point. And awareness at the operator level will always drive awareness at the distributor level because they will always listen to their customers," Troyer said.
An impromptu, unscientific poll taken at the conference by Sysco's Tran showed that of manufacturers, distributors and operators, the latter group was least of all involved in EFR initiatives.
All of the speakers unanimously said that if EFR is to succeed, all segments of the supply chain must join together and express a desire to find the solution. "It's a supply-chain initiative. I love that we have more energy coming out of the operator community than ever before. And I love that the distributors are recognizing that. And I love that the suppliers are also recognizing that. Yes, I think that it should be up and down the supply chain," Ribler said.
In his keynote address, Steven Lumpkin, executive vice president and chief developmental officer, Applebee's International Inc., Overland Park, KS., charted a plan of EFR action that is based on mutual benefits for all segments of the industry. "The strategy would also recognize that everyone in the supply chain must benefit, that optimizing price or cost at the expense of someone in the middle isn't healthy. Chain operators need distributors and distributors need the operator's strong relationships with the manufacturer. And finally, the strategy would call for quickly adopting standards for commerce that would enable sharing of information," Lumpkin said.
The operator executive advised distributors to improve access and visibility of important information such as inventory levels, freight costs, product movement and service measures. "It's what will differentiate you from all your competitors," Lumpkin said.
In today's competitive foodservice environment, distributors are being judged by their customers by a different benchmark, he explained. "In the past, cost and delivery performance were the definitive measures. Now, distributors are also judged on the quality of their information flow and their ability to assist the operator in making good decisions. Your ability to provide solutions, to effectively collaborate and to provide real-time information are three ways the distributor community can create competitive advantages that lead to sustained, profitable growth," Lumpkin noted.
Manufacturers have also contributed to EFR stagnation by waiting for someone to push them into adopting uniform coding, Lumpkin said. He called on operators to take the initiative and push suppliers and vendors into accepting EFR principles. "As a manufacturer, you are waiting and perhaps dreading the day when your operator calls you up and wants to know your plan for a bar coding initiative. Sure, your management team has known for years that the call would come, but you've waited for someone to put the pressure on. Well if that's what it takes then I guess operators better start pushing. No one likes to be pushed. It just makes good business sense to get in front of it now before you have precious little time to implement standards that are tested true for your organization," Lumpkin urged.
CSC's Troyer noted that the EFR concept has been the victim of recent hi-tech troubles, in which the new economy, dot-coms, e-business and the Internet have taken a beating on Wall Street. "To some degree it was a victim of circumstance in the timing. The need for EFR right now is more critical than ever. Everyone, who has spoken, without exception, has talked about industry standards and adherence to industry standards. In the Internet world, foodservice really has no standards," Troyer said.
Contrary to other industries, notably the retail one, the foodservice industry does not have a single organization that is devoted to developing standardized codes. "This cry of the need for standards and adherence to standards is a hallow cry because they don't exit. That's where EFR's new play and new role is in helping to set those standards, setting the momentum and direction of the industry toward that. That will do more than anything to reignite EFR," Troyer pointed out.
The retail industry, he continued, was led in designing bar codes by the top 10 grocers that held 51 percent of the business. On the other hand, foodservice is more fragmented, he said. "It's consolidating, the top 10 are getting bigger but there is no big single 800-pound gorilla out there that could make things happen. In retail, Wal-Mart made things happen. We don't have that here. So it has to be a broader, grassroots level to make that happen. And it will be a difficult process," Troyer assures.
John Gray, president of the International Foodservice Distributors Association, Falls Church, VA, said industry standards are needed for communications among the producer, manufacturer, distributor and operator. Gray also warned that if the industry doesn't create standards, a third-party distributor will do it and force it on the industry. Reaffirming Troyer's observations about the 800-pound gorilla, Gray said that large distributors that may get into the industry would not tolerate the current never-ending EFR discussion and solve it fast themselves.
"Wal-Mart is the best example. They're a $190 billion company worldwide. They've got systems to run that whole company. And I don't think for a minute that they would run separate operations, information and communications systems based on a lack of standards in the foodservice industry. They're going to have everything integrated with their retail, their retail food and nonretail. They're going to want to integrate foodservice in the same way. They're going to want to have a common technology throughout which is going to mandate that they have a common industry standard platform of communication," Gray said.
Gray is convinced that if the foodservice industry doesn't get the job done first, its risks having to submit to the technological designs and systems of a large megadistributorship that can emerge in food distribution and set the standards.
Luckily, such a behemoth is not looming over the foodservice distribution industry and Gray does sees industry moving in the direction of understanding the importance of beginning the process now.
"I think the momentum is now. What has been talked about at this meeting is that we've got a chance to do the standards before a big player comes in. That's why we're moving quickly on it now," Gray said. "I've talked to all third-party players, technology providers, all the major chain operators, and the major distributors and manufacturers and they all say we've got to have standards, we've got to have standards around web-based communications. So, there's universal agreement, there's a desire to begin doing it this year. So I think we will get a jump on it.
"At least, get started. These standards will take years to write. Once we're started then it will be more difficult for a rogue player to come in and say, do a different standard, because the industry could be at that point marching shoulder to shoulder in another direction. That's why speed is of the essence. I think we've got it right now."
Tran of Sysco is also hoping for a major EFR push from the operators. "I think that all things are driven by our customer demands and operators are not forcing the industry to participate."
One of the operator executives present, Ken Fowle, director of supply chain management, Darden Restaurants, Inc., Orlando, FL, a panelist and self-avowed EFR devotee, ventured the following reason why more of his colleagues are not actively involved in the EFR process: "I think they're supportive of it but it's a matter of priorities. When I was working on Y2K, we had a huge group of operators that was working together on that. Virtually all of them had EFR on the radar screen. It's a matter of when they were going to attack it. I think they will be quickly getting on board. I think they're right behind me."
Robert Boerrigter, director, product management, restaurant excellence, Tricon Global Restaurants, Louisville, KY, suggested that the proof of EFR's benefits should be in sound business cases. With operator margins already thin, Boerrigter said successful business cases would convince restaurateurs that investments in this field are warranted.
As for EFR's fate in the foodservice industry, Boerrigter said, "I don't think it's unavoidable. I think it would be foolish to avoid it."
Price and Item Alignment now Possible
An e-commerce subsection of the Efficient Foodservice Response initiative is touted at being able to save the foodservice industry some $6.6 billion in error reductions.
Foodservice manufacturers, distributors and operators revealed at the EFR Conference in Chicago the results of a pilot project in which they aligned item and price data through the use of a third-party intermediary, ViaLink.
Speakers at a conference panel and an early morning press conference said the pilot project demonstrated that 63 percent of manufacturer invoice errors could be prevented if item, price and promotion data are aligned and visible to the appropriate parties. The pilot also found that misalignment of item and price data is responsible for 21 percent of distributor invoice errors, causing a great amount of non-valued work in a low-margin business.
Mark Allen, EFR executive director observed, "We view the electronic alignment of price and item information across the supply chain as one such critical building. If B2B e-commerce is truly to succeed in the long term, the alignment of basic transactional information is of paramount importance."
Allen further commented that the process, which is deeply imbedded in technology, is not about rocket science, "it's about getting goods and selling the goods at the price that you expected."
Mike Roach, president of Ben E. Keith, Fort Worth, TX, said that the alignment process allowed the distributorship to reduce discrepancies by 80 percent. "There comes a point when we need to reach out to our trading partners across the distribution chain and solve common problems," Roach said.
Noting that data synchronization holds promise for all foodservice segments, Roach added that "as a distributor, we expect to reap multiple benefits, since we'll be aligning item and price data on both the buy and sell side."
Lela Tripp of Tyson Food indicated that her company saved 20 percent in invoice problems. Investigating, locating and solving errors is a costly process, Tripp said, that doesn't add value to the customer. Companies can save a lot of money by setting up mechanisms that will circumvent problems, she continued. This process avoids a "he said, she said" scenario in negotiations while creating an atmosphere for being more efficient, proactive and profitable, Tripp noted.
ViaLink's syncLink program allows manufacturers, distributors, brokers and operators to communicate and synchronize item, price and promotion information in a more cost-effective and accessible way than has been possible using traditional electronic and paper-based methods.