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Bachelor Thesis

How will the IT implementation influence the internal


capabilities and external collaboration, and contrary, towards
an ECR strategy success?

A.G.R.W. Schelfhout
Tilburg University

ANR : 434810
E-mail : A.G.R.W.Schelfhout@uvt.nl
Topic : Aspects of supply chain management
Sub topic : The influence of capabilities and collaboration on IT
implementation and ECR strategy success.
Number of Words : 7925
Supervisor : Drs. M.A. Overboom

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Table of Contents

Chapter 1 – Introduction. 3
§1.1 Problem indication 3
§1.2 Problem statement 3
§1.3 Research Questions 4
§1.4 Research Methods 4
§1.5 Academic & Managerial relevance 5
§1.6 Structure of the thesis 5

Chapter 2 - The relation between ECR and IT. 7


§2.1 Efficient Consumer Response (ECR) 7
§2.2 Information Technology (IT) 7
§2.2.1. IT Intern 8
§2.2.2. IT Extern 9
§2.3 The relation of information technology (IT) and efficient consumer response (ECR). 10
§2.4 Conclusion 11

Chapter 3 - The influence of capabilities concerning IT implementation 13


and the ECR strategy success.
§3.1 Capabilities 13
§3.2 Technical capabilities and expert skills 13
§3.3 Managerial skills 14
§3.4 Top-management 15
§3.5 Conclusion 15

Chapter 4 - The influence of collaboration concerning IT implementation 16


and the ECR strategy success.
§4.1 Collaboration 16
§4.2 Attitudes towards information sharing 16
§4.3 The organizational institutionalization of interfaces 17
§4.4 Integration of companies in the value chain 18
§4.5 Trust 19
§4.6 Conclusion 19

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Chapter 5 - What is the influence of the capabilities and collaboration 20
(including IT implementation) on the ECR strategy adoption
and their competitive advantage?
§5.1 Adoption of ECR 20
§5.2 The competitive advantage of ECR 21

Chapter 6 - Conclusion, Discussion & Recommendations. 23


§6.1 Conclusion & Discussion 23
§6.2 Reccomendations 24

References 25

Appendix 29
Presenation 29

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Chapter 1
Introduction.

§1.1 Problem indication


In the past, suppliers, retailers and wholesalers along with the manufacturers
have concentrated on their own business activities, and have not worked towards a
common vision for their marketing/logistic activities. This narrow focus led to low
efficiencies leading to low profitability (Reyes & Bhutta, 2005). The U.S. grocery retailers and
branded manufacturers in the fast moving consumer goods industry launched the Efficient
Consumer Response (ECR) initiative in 1992 (Corsten & Kumar, 2005). ECR was defined as a
set of improvement initiatives to help grocery retailers and their suppliers to work together to
satisfy consumer wishes better, faster and at less cost (Hofstetter, 2006; Gunasekeran,
Williams and McGaughey, 2003). The overall goal of an ECR-partnership is to simplify
market flows between actors and ECR can be characterized as a streamlined distribution
channel partnership. Although the ideals of ECR and its expected benefits have been known
since the beginning of the 1990s, the ECR-concept is still not as widespread in practice as one
might expect. Most firms in the grocery sector work with ECR and ECR-related concepts and
activities. More often though the total ECR concept is not applied as either certain ECR
elements are not considered or others are only partly implemented. A truly ECR-organized
distribution channel is rarely recognized (Aastrup, Kotzab, Grant, Teller & Bjerre, 2008).
However, to achieve an effective supply chain IT can be valuable since suppliers are
located all over the world (Gunasekaran & Ngai, 2004). IT implementation plays a significant
role in a successful ECR adoption. For companies that had implemented ECR, lack of both
skill and technology related capabilities and the attitudes of channel members were the main
barriers to implementation (Lohtia, Tian Xiea, Subramaniamb, 2004). However, not only the
technical part of ECR is important, to focus on the influence of internal management and
external collaboration can change the benefits of IT implementation to successful ECR
strategy adoption. Most senior managers state that ECR adoption is a complex and difficult
change management task, required good planning. It is therefore important that they know
how to intervene where necessary, distinguish between successes and failures, and learn the
lessons since many companies run extensive, costly ECR adoption projects without properly
managing/ controlling the process (Hofstetter, 2006).

§1.2 Problem statement


As mentioned above, in the adoption of ECR in individual companies there are still
many obstacles to overcome and much still to learn (Hofstetter, 2006). Since the maximal
value out of ECR is not reached, it is important to know where companies in the retail sector
can improve the rate of adoption concerning the IT implementation and a successful ECR

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strategy adoption to overcome the many obstacles. This thesis will investigate in the
influences of IT on internal capabilities, like technical capabilities, managerial skills and top-
management and on external collaboration, like attitudes, interfaces, integration and trust.
Furthermore, the thesis will investigate on the influences of these factors on IT
implementation concerning the ECR strategy success, clarified in figure 1. All the variables IT
implementation, internal capabilities, external collaboration and ECR strategy success are
dependent of one of the variables. The problem statement is as follows: How will the IT
implementation influence the internal capabilities and external collaboration, and contrary,
towards a successful ECR strategy adoption?

Figure 1: Theoretical Framework

§1.3 Research Questions


1. What is the function of Efficient Consumer Response (ECR) and IT implementation
and what is the role of IT in ECR?
2. What influence does the internal capabilities factors have?
3. What influence does the external collaboration factors have?
4. What is the influence of the IT implementation (including capabilities and
collaboration) on the ECR strategy adoption and their competitive advantage?

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§1.4 Research methods
The research used for this thesis is exploratory, which is undertaken to better
comprehend the nature of the problem since very few studies might have been conducted in
that area (Sekaran, 2003). Qualitative data, a literature study, is the main source. The accent
lies on the variables that influence the slow strategy adaption of ECR in the retail sector,
which is a causal study. Most of the times the articles used for the thesis are found via ABI
Inform, Proquest, Web of Science or Google Scholar. Important key words were ECR,
implementation barriers, capabilities, collaboration and strategy adoption. Journals used in
this thesis are Journal of Supply Chain Management, Journal of Marketing, Industrial
Marketing Management and Journal of Operations Management. Furthermore, the thesis
focuses on the role of IT implementation in the ECR strategy adoption, taken into account the
influence of internal capabilities and external collaboration. The journals used for this thesis
will be within a time scale of 15 years, between 1994 and 2009.

§1.5 Academic and managerial relevance


This thesis will provide a comprehensive framework of the factors influencing the
system adoption. It will also provide some insights on the influence of IT implementation on
the internal and external factors of the adoption rate of ECR in the retail sector. A lot of the
research concerning ECR is done and there is enough relevant literature about IT
implementation available. Relevant literature will be verified and linked with the relevant
problem concerning system adoption.
The thesis will be relevant on academic level since research out of different dates is
used and combined into one report. This report will give an overview of the role of IT in ECR.
The thesis can be interesting for the managerial practices in organizations that compete in
this sector. It will show on which factors they have to focus for a better adoption rate of ECR
in their organization. Maybe they can achieve a large improvement in adoption of the ECR
strategy with just a few adjustments.

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§1.6 Structure of the thesis
Chapter 1: Introduction
This chapter gives an introduction of the problem and the exact problem
statement.

Chapter 2: What is the function of Efficient Consumer Response (ECR) and IT


and what is their relation? This chapter explains the ECR strategy and
the function of IT. Furthermore, the relation between both will be described.

Chapter 3: What influence does the internal capabilities factors have?


This chapter explains the influences related to capabilities of the involved firms
and will verify their influence on the IT implementation (and contrary) and the
ECR strategy success in the retail sector.

Chapter 4: What influence does the external collaboration factors have?


This chapter explains the necessity of collaborative orientation and will verify
their influence on the IT implementation (and vice versa) and the ECR strategy
success in the retail sector.

Chapter 5: What is the influence of the IT implementation (including capabilities and


collaboration) on the ECR strategy adoption and their competitive
advantage? This chapter explains the effect of IT implementation, the
capabilities and the collaboration on the ECR strategy adoption and their
competitive advantage.

Chapter 6: Conclusions and Recommendations


This chapter shows the conclusions and recommendations concerning the
problem statement.

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Chapter 2
The relation between Efficient Consumer Response (ECR)
and Information Technology (IT).

This chapter clarifies the concepts used in this thesis. The first section explains the concept
Efficient Consumer Response (ECR) and the benefits of this concept. The second section
defines Information technology, divided in internal and external IT. The last section shows
the role of IT in ECR.

§2.1 Efficient Consumer Response (ECR)


ECR is a grocery industry supply chain management strategy aimed at eliminating
inefficiencies, and excessive or non-value-added costs within the supply chain, thus
delivering better value to grocery consumers due to simply realigns activities within a
common framework to deliver better value to the consumer (Reyes & Bhutta, 2005). The
ultimate goal of ECR is to produce a responsive, consumer-driven system which allows
distributors and suppliers to work together in order to maximise consumer satisfaction and
minimise cost (Kurnia, Swatman and Schauder, 1998; Kurnia & Jochnston, 1999). ECR is a
strategy of partnerships and information sharing that provides opportunities to eliminate
waste, shorten cycle time, improve customer service and reduce costs across the entire
distribution pipeline (Hoffman & Mehra, 2000). IT can be a helpful tool since partners need
to have compatible hardware and software, communication protocols, and support and
maintenance of their systems and also need to work together to implement ECR (Lohtia et
al., 2004). Gunasekaran et al. (2003) found four reasons why ECR can be important for
managers working in the grocery industry. First, the push strategy does not work. Second,
both suppliers and distributors have to work towards consumer satisfaction. Third, trust and
compromise are better than power plays and last, the competitive environment does not
allow growth based on sales only. According to Aastrup et al. (2008), the message of ECR is
to organise the grocery supply chain by implementing strategic alliances between involved
actors, which ensure a profitable situation for every single member of the chain. This will
create a win/win situation for the different partners in the industry as well as the total
channel performance as compared to managing the channel in an isolated way such as
through pure market exchange.

§2.2 Information Technology (IT)


The development of Information Technology (IT) provides an effective support to
supply chain management (Jiang & Yang, 2007). The use of IT in the supply chain context
involves the flows of material, information and finance in a network consisting of customers,

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suppliers, manufacturers, and distributors” (Dong, Xin Xu & Zhu, 2008). According to
Melvile, Kreamer & Gurbaxani (2004) information technology can contribute to
organizational performance due to faster communication and collaboration tools. Despite the
importance of IT there is uncertainty and debate about the contradiction around the value of
IT, it can be a very helpful tool but it is also risky.
IT helps to improve the accurate information flow and in turn accurate decisions to
support the business process in an effort to meet the changing market requirements
(Gunasekaran & Ngai, 2004; Dong et al., 2008). Research of Radjou (2003) indicates that
U.S. manufacturers are increasingly dependent on the benefits brought about by IT to:
improve supply chain agility, reduce cycle time, achieve higher efficiency, and deliver
products to customers in a timely manner. A principal finding is that IT is valuable, but the
extent and dimensions are dependent upon internal and external factors like capabilities and
collaboration. For this to happen, information technology can help with information sharing
and improving coordination of allocated resources across the supply chain (Dong et al.,
2008). IT value creation stems from the integration of various systems—both internally
among business units and externally with suppliers and business partners—than from
individual IT components (Dong et al., 2008; Melville et al., 2004).
However the benefits are interesting according to Wu, Yeniyurt, Kim & Cavusgil
(2006) there are also some risks. When IT is used as part of a firm’s resource portfolio, IT
may not meet the criteria when acting alone. Due to the relatively low barriers to imitation
and acquisition by other firms, IT-based advantage tends to diminish fairly quickly. As a
result, how IT as a resource can provide a sustained competitive advantage for a firm has
become one of the key research topics in recent years. The research of Melville et al. (2004)
suggests that firms do not appropriate all of the value they generate from IT – value may be
captured by trading partners or competed away and captured by end customers in the form of
lower prices and better quality. The research of Wu et al. (2006) showed that the investment
in IT per se does not guarantee enhanced organizational performance. Adoption of IT can
create a sustained competitive advantage but this is dependent on the IT alignment, which
reflects the degree of embeddedness of IT across the supply chain, and it requires channel
partners to coordinate and align their business processes with each other in order to achieve
efficiency.
Literature shows a distinction between both internal and external IT-integration,
therefore they will be explained separately (Olesen & Myers, 1999; Kim, Cavusgil &
Calantone, 2006). According to Ward & Zhou (2006), Internal IT-integration deals with the
integration of information processes within the firm, where external integration deals with
the IT-integration between supply chain partners.

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§2.2.1 IT Intern
Intern IT can be used for both technical capabilities and managerial capabilities.
Chachon & Fischer (2000) found that substantial savings from technical capabilities as lead-
time and batch size reductions are facilitated by the implementation of information
technology. They conclude that the observed benefits of information technology in practice
are due more to the impact of information technology on lead time and batch size than in
facilitating information sharing. Suppliers have an opportunity to enhance their benefits by
making complementary changes to their production and inventory management processes.
They can thus more efficiently execute high-variety, low-volume store-level orders
(Subramani, 2004). Innovations enabled by information technology (IT) are creating new
ways for firms to manage supply chain relationships (Dong et al., 2008). Implementation of
IT in SCM also requires a project management approach with the right team for the planning
and implementation of IT projects (Gunasekeran & Ngai, 2004).

§2.2.2 IT Extern

The use of information technology to facilitate communication and collaboration has


become an important theme (Olesen & Meyers, 1999). The adoption of information
technology (IT) along a supply chain has increasingly become a necessity for enhancing
supply chain performance. Organizations in a supply chain often adopt IT due to the
institutional pressure exerted by their supply chain partners. Since the severe competition in
the retail industry has generated a pressure on the retailers and their SC partners to reduce
operations costs by adoption IT (Wu et al., 2006; Lai, Wong & Cheng, 2006). Supply chain
management emphasizes the overall and long-term benefit of all parties on the chain through
co-operation and information sharing. This signifies the importance of communication and
the application of IT in SCM (Gunasekeran & Ngai, 2004).
With collaboration and integration among the players of a supply chain using
information technologies, the boundaries between these players will gradually disappear.
Manufacturer, distributor and retailer within one supply chain can thus be considered as a
single entity, which can be thought of as a virtual organization, pursuing one common goal
(Kurnia & Jochnston 1999). The ‘initial’ theory behind ECR is that all players in the grocery
supply chain are thought as a single virtual entity working together to maximise the efficiency
of the entire supply chain with one common goal – delivering value to the end-customer
(Reyes & Bhutta, 2005). As a result, competition will shift from company against company to
supply chain against supply chain. They argue that due to the interdependent nature of the
activities of virtual organizations, all members in such an organization need to have a

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common purpose, share risk, trust each other, and have mutual benefits (Kurnia &
Jochnston, 1999).

§2.3 The role of information technology (IT) in efficient consumer


response (ECR).
Benefits that IT can create are actually requirements for an ECR strategy. Therefore,
IT can support the ECR strategy adoption. ECR was designed to develop competitiveness in
grocery supply chains and it promises major benefits in terms of lower total inventories and
costs, increased value created for consumers in terms of choice and quality of products,
enhanced supplier-retailer relationships, more successful development of new consumer-
driven products, a more seamless product delivery flow and reduced bull-whip effects
(Aastrup et al., 2008). The implementation of IT in the supply chain can enable a firm to
develop and accumulate knowledge stores about its customers, suppliers, and market
demands, which in turn influences firm performance (Wu et al., 2006). ECR implies an
investment in information technologies. Effectiveness, flexibility and customer orientation
are the principles that must orient the joint actions of all members in the value chain in order
to reach the proposed objective. One common used technology is the electronic data
interchange (EDI) (Soret, Pablos & Montes, 2008; Loebbecke & Powels, 1998). EDI is viewed
as the essential effective enabler of the ECR management strategy because it focuses on
achieving integration across organisational functions and between organisations in the
grocery supply chain (Harris & Swatman, 1997). Since the 1980s, the retail and consumer
goods industries have been making very extensive use of EDI-based data exchange and
subsequently developed the vision of ECR (Legner & Schemm, 2008).
Participants within a supply chain need to work together, which refers to the external
collaboration, to maximise the efficiency of the whole supply chain, in order to achieve one
common goal, which is to deliver better value to the consumer. Therefore, ECR adoption
requires cooperation and trust between trading partners, which are not likely to happen
unless costs, benefits and risks of ECR implementation can be mutually shared (Kurnia &
Jochnston, 1999). A good cooperation among the supply chain members is required for
effective SCM and creates trust for all the partners. Cooperation refers to similar or
complementary, coordinated activities performed by firms in a business relationship to
produce superior mutual outcomes or singular outcomes that are mutually expected over
time (F, De Witt, Keebler, Min, Nix, Smith & Zacharia, 2001). As mentioned before ECR
aims to offer increased customer service and cost reduction in the logistic chain. It
streamlines internal operations, as well as enabling better co-operation of independent
supply chain partners and, thus, enhances an organisation's responsiveness to the changing
needs of consumers (Reyes & Bhutta, 2005). With collaboration and integration among the

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players of a supply chain using information technologies, the boundaries between these
players will gradually disappear (Kurnia & Jochnston 2001). This will have a positive effect
since the ECR concept calls for such a seamless and accurate flow of information (Reyes &
Bhutta, 2005).
Nowadays there are national and international ECR programmes around the world,
and retailers and suppliers have invested heavily in terms of training, infrastructure and
processes. Many of its proponents among logistics and marketing researchers claim it is one
of the best strategic and collaborative initiatives within the grocery industry. Its aim is
said to be to invert the traditional model and to break down non-productive barriers
(Lindblom & Olkkonen, 2008). As mentioned before, more often the total ECR concept is not
applied. According to Lothia et al. (2004), a reason for this low degree can be found in certain
implementation hurdles and disappointing results at an early stage of implementation.
Studies on ECR adoption reveal the lack of organizational and technological capabilities as
major inhibitors to realizing ECR benefits (Kurnia & Johnston, 2000; Lohtia et al., 2004;
Legner & Schemm, 2008). Another barrier for those who had not implemented ECR was a
financial barrier. Implementing ECR may require substantial training and education of
company personnel. This will cost the companies time and money. Amongst the main
elements considered necessary to the final success in the adoption and implementation of
ECR practices we can cite: the relationship between manufacturers and distribution
channels. It requires changes in the firm’s structure and in the processes and implies an
investment in information technology (Soret et al., 2008). Innovations enabled by
information technology are creating new ways for firms to manage supply chain relationships
(Dong et al., 2008).

§2.4 Conclusion
ECR could be defined as a cooperative value-creation strategy whereby retailers and
suppliers jointly implement collaborative business practices with the ultimate objective of
jointly fulfilling consumer wishes better, more quickly and at less cost (Corsten and Kumar,
2005). ECR implies an investment in information technologies to improve their outcomes
since for example, coordination and trust is what ECR requires, and IT actually can create
(Kurnia & Jochnston, 1999; Loebbecke, 1998). The overall goal of an ECR-partnership is to
simplify market flows between actors and ECR can be characterized as a streamlined
distribution channel (Aastrup et al., 2008). It is possible that IT can help to create this
streamlined distribution channel and make the communication between partners easier. This
speaks to the nature of the digitally enabled supply chain, that is, integrated supply chains
glued by information flows (Dong et al., 2008).

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Chapter 3
The influence of capabilities concerning IT implementation
and the ECR strategy success.

This chapter explains the internal capabilities and their influence on the IT implementation
and ECR strategy adoption. The first section gives information about the capabilities in
general. The second section goes about the technology capabilities and expert skills. The third
section explains the managerial skills. The fourth section explains the necessary support of
top-management. The last section gives a conclusion of the chapter concerning capabilities.

§3.1 Capabilities
The supply chain capabilities in general refer to the ability of an organization to
identify, utilize, and assimilate both internal and external resources to facilitate the entire
supply chain activities. Results indicate that supply chain capabilities are able to transform
IT-related resource into higher value for a firm. The improvement in supply chain capabilities
through IT allows the firm to learn and respond to market changes better and quicker than
competitors (Wu et al., 2006). Certain actors then have the capabilities to transform these
standards into processes and only selected channel players are able to perform ECR on the
highest level (Aastrup et al., 2008). ECR has advantages for all members in the supply chain.
Some are general advantages resulting from overall improvement in efficiency of the supply
chain, others stem directly from the specific strategies used to implement ECR. General
advantages of ECR include improving the efficiency of the supply chain and reducing costs
(Lothia et al., 2004). Whereas the positive effects of ECR have been demonstrated, studies on
ECR adoption reveal the lack of organizational and technological capabilities as major
inhibitors to realizing ECR benefits (Legner & Schemm, 2008). According to Aastrup et al.
(2008) and Lothia et al. (2004) barriers that are related to capabilities are technical
capabilities and expert skills, the adequate managerial skills, and the necessary support from
top-management. Therefore, in this chapter these three barriers should be analyzed.

§3.2 Technical capabilities and expert skills


The technology factor can cause even the breakdown of any ‘best designed supply
channel. A clear understanding of the technology needs of all partners must be assessed
(Hoffman & Mehra, 2000). ECR strategy has become, and will continue to be, heavily
technology dependent since companies have to stay competitive. Some ECR concepts simply
cannot be implemented if the companies concerned lack the necessary skills or technologies.
Building such capabilities and acquiring the necessary technologies often requires an up-
front investment, which some companies are reluctant to make (Hofstetter, 2006). Adopting

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a new technology usually demands new skills. Therefore, when implementing technologies
concerning ECR, this may require substantial training and education of company personnel,
who need to be comfortable using sophisticated computer hardware and software. For
example, in the Japanese grocery industry, where computerization is not widespread, the lack
of extant computer technology and skilled people may be a barrier for ECR adoption.
According to Soret et al. (2008), the initiative ECR is a technique composed by a group of
collaboration technologies and procedures that allow the cooperation amongst the
stakeholders in a supply chain. Installing IT components without an integrated approach to
change will not lead to the expected advantages.
When you overcome these barriers and when you use it in the right way IT can be of
great benefit. Kurnia & Dare (2005) argue that one of the key strategic decisions for
organizations is selecting ECR business practices or technologies. Organizations naturally
seek assurance that these concepts will deliver the claimed benefits. Chachon & Fisher
(2000) found that two possible benefits of information technology are reducing the order
processing times and the order processing costs. Firms achieving technology-strategy
alignment can attain more value from IT (Dong et al., 2008).

§3.3 Managerial skills


The technological resource alone does not hold the answer to IT value creation. In
fact, managerial skills, which represent the firms’ ability to manage technology-strategy
alignment, organizational changes and process redesign to accommodate the use of IT, are
shown to play the strongest role in IT value creation to improve firm performance. Firms
need managerial skills to orchestrate the adaptations in technology, strategy and business
processes. Firms achieving technology-strategy alignment can also attain more value from IT
(Dong et al., 2008). Most senior managers state that ECR adoption is a complex and difficult
change management task, requiring good planning (Hofstetter, 2006). Therefore, a
successful ECR strategy adoption needs adequate organizational skills. Since the most
difficult barriers to remove are human barriers in terms of organizational change many have
joined forces to developing new ECR concepts and to learn how to apply existing ones better
(Kurnia & Jochnston, 2000). According to Gunasekeran & Ngai (2004), an example of IT is
Electronic communication, which is a less formal communication form and reduces the
informal organizational barriers. There is a need to standardize the information flow and
access control to information along the supply chain and electronic communication can be
helpful with this. According to Dong et al. (2008) managerial skills, which enable adaptations
on supply chain processes and corporate strategy to accommodate the use of IT, are shown to
play the strongest role in IT value creation.

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§3.4 Top-management
Support from top-management is necessary since ECR is made up of many different
concepts, which connect different organizational areas. Therefore, the adoption strategy must
set clear priorities. If too many actions within the firm have to be pursued at the same time,
resources might be spread too thin. This need for a strategic approach underlines a common,
underlying theme: for collaborative business practices to work, top management
commitment is vital (Hofstetter, 2006). Such cooperative management increases total
channel performance as compared to managing the channel in an isolated way such as
through pure market exchange (Aastrup et al., 2008)
According to Lohtia et al. (2004), lack of commitment by top executives and lack of
leadership were barriers for a successful ECR adoption. Aastrup et al. (2008) argue that
respondents largely agreed that they need highly committed top management, and informed
people and even involved lower level management regarding internal planning and
implementation of ECR. Another issue is that the term 'ECR' is often understood to mean
different things by different people. If managers themselves are not clear about which
terminology they are using and why, when they try to bring the message to their staff this
confusion will only be compounded (Hofstetter, 2006).
As already mentioned, managerial skills represent firms’ ability to manage and
accommodate the use of IT to improve firm performance (Dong et al., 2008). Gunasekeran &
Ngai (2004) found that planning for strategies requires top management involvement taking
into account both external and internal factors to an organization. Strategic planning of IT
should support the long-term objectives and goals of SCM both in terms of flexibility and
responsiveness to changing market requirements. Top management support is essential in
order to provide moral support as well as the financial and technical support for the
implementation of IT for achieving SCM.

§3.5 Conclusion

Management of technology requires planning, developing and implementation


decisions based on the characteristics of business processes and organizational objectives
(Gunasekeran & Ngai, 2004). Firms need managerial skills to orchestrate the adaptations in
technology, strategy, and business processes. Top management is also vital when you need
collaborative business practices to work (Hofstetter, 2006). Results of Wu et al. (2006)
indicate that supply chain capabilities are able to transform IT-related resource into higher
value for a firm, which is an advantage for a successful ECR strategy adoption. On the other
hand, Chachon & Fisher (2000) found that capabilities are also helped by IT systems since
two possible benefits of information technology are reducing the order processing times and
the order processing costs. Firms achieving technology-strategy alignment can attain more
value from IT (Dong et al., 2008).

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Chapter 4
The influence of collaboration concerning IT implementation
and the ECR strategy success.

This chapter explains external collaboration and their influence on the ECR strategy
adoption. The first section gives information about collaboration in general. The second
section goes about the attitudes towards information technology. The third section explains
the organizational institutionalization of interfaces. The fourth section explains the
integration of companies in the value chain. The fifth section is about trust and the final
section gives a conclusion of the chapter concerning collaboration.

§4.1 Collaboration
Efficient consumer response (ECR) was characterized by the emergence of new
principles of collaborative management along grocery supply chains (Corsten & Kumar,
2005). The continuous addition of new ECR concepts challenges organizations to start ever
more ECR adoption activities. This makes practitioners feel they are still at the beginning
rather than coming close to full ECR adoption. Today, businesses are collaborating in areas
where collaboration was thought to be impossible ten years ago (Hofstetter, 2006).
Through collaboration between participants within a supply chain, this approach allows
deliveries to be made more frequently and in smaller quantities, which results in the
elimination of high inventory levels (Kurnia & Jochnston, 2000). The development of
information technology can make enterprises more accessible to use IT to exchange and
collaborate with other members of and supply chain. Therefore, the use costs will be
relatively lower, so that enterprises can choose between more supplies to get cheaper supply
and services in the same level of information use costs (Jiang & Yang, 2007). Lohtia et al.
(2004) found that successful adoption of ECR depends on cooperation of manufacturers,
wholesalers and retailers. To support this adoption IT has a pivotal role to play in improving
communication and co-ordination by acting as an enabler (Gunasekeran & Ngai, 2004). The
factors that influence the necessary collaboration the following factors will be analyzed in this
chapter: attitudes towards information sharing, the organizational institutionalization of
interfaces, integration of companies in the value chain and lack of trust (Aastrup et al.,
2008).

§4.2 Attitudes towards information sharing


With different actors within one supply chain you will recognize different attitudes. It
is important that when information between actors will be shared that they do it in the right
way without spreading wrong or incomplete information. Lothia et al. (2004) found that a

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major barrier of ECR is the difficulty of sharing information between channel members.
According to Legner & Schemm (2008), the vision of Efficient Consumer Response (ECR) is
more developed in order to align their activities more closely. In this context, much attention
has been given to the coordination of supply and demand chains and the benefits of
information sharing. A growing number of studies report that poor data quality, in particular
outdated or wrong product information, negatively impacts the benefits that retailers and
their suppliers pursue as they implement tighter forms of collaboration. There is increasing
practical evidence that the inter-organizational alignment of contextual information, notably
product information, impacts the effectiveness of demand and supply chain coordination in
ECR collaboration. ECR calls for the creation of a timely, accurate and paperless flow of
information (Harris & Swatman, 1997). According to Lai et al. (2006) the management of
such information processes requires close collaboration between different parties in a supply
chain (SC), e.g. raw materials suppliers, manufacturers, distributors, and retailers, to attain
the ultimate goal of satisfying customer requirements and reducing costs, which is also the
goal of the ECR strategy. To ensure that items are delivered on time and to the right place at a
low cost, it is most desirable to use information technology (IT) to trace and track the status
of the item flows and support the associated information interchange in a supply chain.
Gunasekeran & Ngai (2004) found that supply chain management emphasizes the
overall and long-term benefit of all parties on the chain through co-operation and
information sharing. Also Jiang & Yang (2007) found that the development of information
technology makes enterprises more accessible to use information technology to exchange and
collaborate with other members of and supply chain, therefore the use costs are relatively
lower. In fact, "between enterprises and their suppliers and customers it is necessary to
establish a collaborative relationship". Moreover, as already mentioned in chapter one, ECR
can be characterized as a streamlined distribution channel partnership.

§4.3 The organizational institutionalization of interfaces


The companies need to work together to reach their interfaces and in order to create a
competitive advantage for the whole supply chain. Aastrup et al. (2008) found that the
message of ECR is to ensure a profitable situation for the members of the chain despite
stagnant markets, as already mentioned in §2.1. ECR is a consensus-based or hybrid-
integrative channel cooperation structure, as independent channel participants recognize
that they gain certain rewards while setting up norms and standards that commit
organizations to closer channel relationships. This alliance then transforms channel
relationships from win-lose into win-win. According to Kurnia & Jochnston (2000)
companies may enter into such cooperative partnerships to implement ECR for perceived
mutual benefit. Thus, power relations, economic relations, corporate relations, cultural

17
relations, and so on, which constitute the structure of the supply chain and industry may
either enable or constrain actions of the focal organization. According to research done by
Kurnia & Jochnston (1999) they argue that all members in a total supply chain need to have a
common purpose to share risk, trust each other, and have mutual benefits in order to
increase the adoption of ECR.
Research of Littler, Leverick & Bruce (1995) shows the most important reasons for
collaboration are speed, cost reduction and securing access to new skills, technologies and
gaining information for product development. This is in common with ECR since ECR was
defined, in § 1.1, as a set of improvement initiatives to help grocery retailers and their
suppliers to work together to satisfy consumer wishes better, faster and at less cost
(Hofstetter, 2006; Gunasekeran et al., 2003). These reasons are interfaces for all partners
within a supply chain. Another research of Aastrup et al. (2008) shows empirical evidence
from the UK that suppliers and retailers gain benefits in logistics and in sales related fields
from such closer collaborative practices. Also Littler et al. (1995) found that the main reason
for collaboration was to respond better to key customer needs. With these common
interfaces, the partners can collaborate to achieve with ECR an even higher total channel
performance.

§4.4 Integration of companies in the value chain


The integration of the different companies in the value chain is important because
nowadays companies are more dependent of each other to achieve a result in which all
companies are satisfied. Aastrup et al. (2008) found that in the current business reality,
neither retailers nor suppliers can act independently. Manufacturers depend on retailers to
distribute their products in the most efficient and effective way. Retailers depend on
manufacturers to supply them with goods that help them fulfill existing or emerging
consumer needs in the best possible way. Each one's strategy implementation requires an
optimum reaction from the other party. In fact, according to Kurnia & Dare (2005), due the
inter-organizational nature of ECR, these external parties play an important role in assisting
organizations within the grocery industry to adopt ECR. Hofstetter (2006) found that ECR
offers standardization: a common set of tools, concepts and processes, which are there to be
adopted by all industry players. These standard collaboration processes are targeted to help
create high industry efficiency and reduced complexity for all companies dealing with
numerous suppliers or retailers. ECR therefore aims at increasing efficiency by using more
standards, not by offering unique processes.

18
§4.5 Trust
Trust between partners is needed to create a strong supply chain with a competitive
advantage. Lack of trust between supply chain partners can cause many problems. ECR-style
collaborative activities are based on the philosophy of sharing to gain more - an approach
that flies in the face of traditional retailer-manufacturer relationships. A certain degree of
trust between a retailer and a manufacturer is needed for a collaboration to work. When this
degree of trust does not exist a deliberate approach to trust building on the job is necessary
(Hofstetter, 2006). Lack of trust and cooperation between companies within a supply chain,
for example, may hinder companies from achieving effective implementation of ECR
elements in their pilot projects, which may have negative impacts on the perception of ECR
characteristics by these companies (Kurnia & Jochnston, 2000). Littler et al. (1995) found
that a major risk of collaboration is seen to be the leakage of information outside the remit of
the collaboration. It is therefore important to balance the establishment of trust. Both studies
of Aastrup et al. (2008) indicate a lack of collaboration as an important prerequisite and
barrier to successful ECR implementation. Lack of system trust and other "soft" intra-
organizational factors appear also to be critical prerequisites.

§4.6 Conclusion
Strategic consideration of IT-enabled SCM is important since companies are
interested in long-term survival and success with the objective of meeting changing market
requirements. IT is needed for collaboration to stay competitive since the risk of not having
IT enabled SCM is enormous both in terms of survival and productivity of an organization
(Gunasekeran & Ngai, 2004). Information should be treated and spread with the right IT
tools to the partners in a supply chain in order to create a successful collaboration which is
needed to reach a successful ECR strategy adoption. Furthermore, different organizations
need common interfaces to reach the same goals in a shorter timeframe and with fewer costs.
A common purpose is to share risk, trust each other, and have mutual benefits in order to
increase the adoption of ECR (Kurnia & Johnston 1999). All companies should be integrated
in the total supply chain to increase value for all of them. Trust between all partners is
important to create a competitive advantage with ECR, when there is a lack of trust
companies can fail in their collaboration. According to Wu et al. (2006) the role of IT
alignment is likely to improve the supply chain responsiveness and collaboration with
partners to address the changing market needs.

19
Chapter 5
What is the influence of the capabilities and collaboration
(including IT implementation) on the ECR strategy adoption
and their competitive advantage?

This chapter shows the influences of capabilities, collaboration and IT implementation. The
first section gives information about these influences on the adoption of ECR in general. The
second section explains these influences on competitive advantage of ECR.

§5.1 Adoption of ECR


Businesses that accept innovation as a basis of adopting a new strategy can foresee
minimal implementation problems, and achieve both higher success as well as better
performance levels over time. Given that grocery businesses have many trading partners in
their supply channel, speedier diffusion of new knowledge becomes difficult throughout the
supply chain (Hoffman & Mehra, 2000). Despite the many benefits of ECR, adoption has
been slow in many regions. Explaining the slow uptake of this inter-organizational reform
with considerable benefits is an important theoretical problem that has not been adequately
addressed in the ECR literature (Kurnia & Jochnston, 1999). Overall, ECR-adopting
companies have made large progress over the past ten years, especially if we remember that
full ECR adoption has become a moving target: the number and range of ECR concepts and
activities has grown considerably over this period. Not surprisingly, the early ECR concepts
are the most widely applied today (Hofstetter, 2006)
According to Hofstetter (2006), some companies are leading ECR users in all its
aspects. Others focus on specific elements of ECR in which they have reached relatively high
adoption levels, while reporting low adoption levels for other ECR concept. The continuing
development of existing ECR concepts and their simultaneous adoption in business practice
causes a broad perception that full adoption of ECR is still a long way away. Generally
speaking, the traditional ECR concepts are relatively well adopted in the consumer goods
business, while the more recent ECR concepts are in early adoption stages. Also, regional
market conditions influence ECR adoption (the many national studies on ECR
implementation give a comprehensive image of these patterns). Research of Kurnia &
Jochnston (2000) found out that successful ECR implementation by individual companies
has a direct relation with ECR adoption by the industry, because as more companies are
successful in their ECR implementation, the rate of ECR adoption will be accelerated within
the industry.

20
§5.2 The competitive advantage of ECR
According to Hofstetter (2006) research results like these might appear to prove
conclusively that ECR adoption is a key to competitive advantage. But we need to exercise
caution here. ECR has a positive effect, but it is not a direct source of competitive advantage,
as you can see in figure 5.1.

Figure 5.1 ECR and a competitive advantage (Soret et al., 2008)

The information advantage (knowledge) achieved through the adoption of sophisticated


technologies and the synergistic benefits achieved through an integrated system provide the
sources of sustained competitive advantage for a firm (Wu et al., 2006). Subramani (2004)
comes with a two-stage model of benefits in which information technologies are viewed as
creating direct, first-order benefits, which in turn generate indirect, second-order benefits.
First-order benefits are related to firm actions and can be influenced directly by firms. In
contrast, second-order benefits are competitive outcomes and incorporate the influence of
external factors such as competitors’ moves and environmental changes that are beyond the
control of an individual firm.
However, there is a contradiction about the value of ECR. Hofstetter (2006) and
Reyes & Bhutta (2005) agreed on the fact that ECR offers standardization, but they have a
different opinion about the value of this. According the Hofstetter (2006) a competitive
advantage primarily comes from the uniqueness of a company's business strategy and how it
puts this unique strategy into practice. Nevertheless, ECR does not offer uniqueness but it
offers standardization. These standard collaboration processes are targeted to help create
high industry efficiency and reduced complexity for all companies dealing with numerous
suppliers or retailers. Reyes & Bhutta (2005) found that standardisation of information and
communication can save a lot of time and money. ECR depends largely on formal and

21
standardised strategies, which work very well in coordinated and organised supply chains.
Standardisation enables smaller or less organised supply chains to take advantage of ECR
initiatives. However according to Hofstetter (2006), when the strategy is not thought through
carefully, tensions and misunderstandings are bound to arise, both between companies and
internally among staff. ECR therefore aims at increasing efficiency by using more standards,
not by offering unique processes. Furthermore, Soret et al. (2008) showed that the adoption
of ECR practices generates and/or increases the intellectual capital or knowledge in
organizations that has a positive influence in the generation and improvement of sustainable
competitive advantages. Companies' success depends strongly on how good they are at
transferring strategy into practice. This is where ECR does help improve business success - in
more comprehensive and faster implementation of their individual strategies (Hofstetter,
2006).

22
Chapter 6
Conclusion, Discussion and Recommendations.

§6.1 Conclusion & Discussion


Adoption of IT can create a sustained competitive advantage but this is dependent on
the IT alignment, it requires channel partners to coordinate and align their business
processes with each other in order to achieve efficiency (Wu et al., 2006). For ECR the
overall goal is a streamlined distribution channel, in which IT can play an important role.
Actually, ECR implies an investment in information technologies to improve their outcomes
(Aastrup et al., 2008). A principal finding is that IT is valuable, but the extent and
dimensions are dependent upon the internal and external factors (Radjou, 2003).
Studies on ECR adoption reveal the lack of organizational and technological
capabilities, which are internal factors, as major inhibitors to realizing ECR benefits (Legner
& Schemm, 2008). On the one hand, supply chain capabilities are able to transform IT-
related resource into higher value for a firm, which is an advantage for a successful ECR
strategy adoption (Wu et al., 2006). Managerial skills are shown to play the strongest role in
IT value creation (Dong et al., 2008). On the other hand, IT can facilitate the development of
the supply chain capabilities (Wu et al., 2006). Chachon & Fisher (2000) found that two
possible benefits of information technology are reducing the order processing times and the
order processing costs. Firms achieving technology-strategy alignment can attain more value
from IT (Dong et al., 2008).
The successful adoption of ECR depends on cooperation of manufacturers,
wholesalers and retailers ( Lohtia et al., 2004). To support this adoption IT has a pivotal role
to play in improving communication and co-ordination by acting as an enabler. The risk of
not having IT enabled SCM is enormous both in terms of survival and productivity of an
organization (Gunasekeran & Ngai, 2004). On the other hand, IT alignment improves the
supply chain responsiveness and collaboration with partners (Wu et al., 2006).
ECR offers standardization. However, does this standardization also create a
competitive advantage? On the one hand, ECR aims at increasing efficiency by using more
standards, not by offering unique processes. A competitive advantage primarily comes from
the uniqueness of a company's business strategy and how it puts this unique strategy into
practice (Hofstetter, 2006). On the other hand, standardisation of information and
communication can also save a lot of time and money and standardisation of ECR processes
to enable smaller or less organised supply chains to take advantage of the ECR initiatives
(Reyes & Bhutta, 2005). Furthermore, Soret et al. (2008) found that the adoption of ECR
practices generates a sustainable competitive advantage. At the end also Hofstetter (2006)
agreed since quicker ECR capabilities enable those companies to develop unique business

23
strategies and research results might appear to prove conclusively that ECR adoption is a key
to competitive advantage.

§6.2 Recommendations
Many consumer goods manufacturers and retailers in Western Europe have invested
considerable money, time and effort in attempts to apply ECR concepts to their businesses.
Furthermore, the risk of not having IT enabled SCM is enormous since you have to stay
competitive (Gunasekeran & Ngai, 2004). According to the practical recommendations, this
thesis found that the internal and external factors need more attention from firms to create a
competitive advantage with the ECR strategy since the influence of internal management and
external collaboration can change the benefits of IT implementation. IT may not meet the
criteria when acting alone to create a successful ECR strategy adoption (Wu et al., 2006).
First, according to Hofstetter (2006) the management of ECR adoption has received
limited attention so far. No wonder so many senior executives complain that their
organizations struggle to make use of ECR in their day-to-day practice. Lack of both skill and
technology related capabilities and the attitudes of channel barriers were according to Lohtia
et al. (2004) the main barriers to implementation. This problem needs to be taking on more.
Since costly ECR, adoption projects are not properly managed and controlled this internal
factor needs more attention.
Second, according to Kurnia & Johnston (1999) the external factors need more
attention since ECR adoption requires cooperation and trust between trading partners, which
are not likely to happen unless cost, benefits and risk of ECR implementation are mutually
shared. Cooperation can be strengthening through the concept of a ‘virtual organization’,
working together pursuing one common goal. To achieve this, the external factor
collaboration needs some more attention. According to the academic recommendations, this
thesis shows that influences of these variables on ECR strategy adoption need to be
researched more. Many journals focus one of the factors instead of the combination and
influence on each other. Research shows that they can have a positive influence on each
other. With ECR, firms can minimize cost and maximize consumer satisfaction (Kurnia et al.,
1998). In addition, with some adjustments in the factors IT implementation, internal
capabilities and external collaboration, large advantages in ECR can be reached.

24
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Appendix
Presentation Slides

Efficient Consumer Response (ECR)


Bachelor Thesis  Launch 1992 by U.S. grocery retailers (Corsten & Kumar, 2005).

A.G.R.W. Schelfhout  The goal - produce a responsive, consumer-driven system


- allow distributors and suppliers to work together
- maximise consumer satisfaction & minimise cost
(Kurnia, Swatman and Schauder, 1998; Kurnia & Jochnston,1999)

 The message create a win/win situation for the different partners


as well the total channel performance due to cooperative
management (Aastrup et al., 2008).

 A problem The continuing development of existing ECR concepts causes


a broad perception that full adoption of ECR is still a long way
away (Hofstetter, 2006).
25-05-2010

Information Technology (IT)


• IT contribute to organizational performance: - faster communication IT & ECR
- collaboration tools
(Melville, Kreamer & Gurbaxani, 2004).
ECR implies an investment in IT to improve
• IT helps to improve: - the accurate information flow their outcomes:
- the accurate decisions to support the business process
(Gunasekaran & Ngai, 2004).
 The overall goal of an ECR-partnership is a streamlined
 Intern: The benefits in practice are more in lead time and batch size distribution channel, in which IT can play an important role
than in facilitating information sharing (Chachon & Fischer, 2000). (Aastrup et al., 2008).

 Effectiveness, flexibility and customer orientation, which are


 Extern: With the right use of collaboration and integration among also principles related to IT, must orient the joint actions of all
the players of a supply chain through the use of information members in the value chain in order to reach the proposed
technologies, the boundaries between these players will gradually objective of ECR (Soret, Pablos & Montes, 2008).
disappear (Kurnia & Jochnston, 1999) .

The Problem
Although the ideals and benefits have been known, the ECR
concept is still not as widespread in practice as one might expect
(Aastrup et al., 2008).

• It is essential to integrate the activities both inside and outside of an


organization (Gunasekaran & Ngai,2004). -> IT implementation

• The influence of internal management and external collaboration can change


the benefits of IT implementation to successful ECR strategy adoption.
Since many companies run extensive, costly ECR adoption projects without
properly managing/ controlling the process (Hofstetter, 2006).

29
Problem statement Internal: Capabilities
Studies on ECR adoption reveal the lack of organizational and
technological capabilities as major inhibitors to realizing ECR
How will the IT implementation influence the internal capabilities and benefits (Legner & Schemm, 2008).
external collaboration, and vice versa, towards a successful ECR
strategy adoption?
 Technical Management of technology requires planning, developing
and implementation decisions based on the characteristics of business
processes and organizational objectives (Gunasekeran & Ngai, 2004).

 Organizational Firms need managerial skills to orchestrate the


adaptations in technology, strategy, and business processes.

 Top management Top management is also vital when you


need collaborative business practices to work (Hofstetter, 2006).

To conclude, Results of Wu et al. (2006) indicates that supply chain


capabilities are able to transform IT-related resource into higher
value for a firm, which is an advantage for an successful ECR
strategy adoption.

External: Collaboration Competitive advantage ECR


ECR adoption requires cooperation and trust between trading partners, which are not
likely to happen unless costs, benefits and risks of ECR implementation can be
mutually shared (Kurnia & Jochnston, 1999).
According to Hofstetter (2006) research results like these might appear to
 Attitudes towards information sharing prove conclusively that ECR adoption is a key to competitive advantage.
Difficulty of sharing information between channel members (Lothia et al. 2004).

 The organizational institutionalization of interfaces


 The ECR capabilities enable companies to develop unique business
Common purpose to share risk, trust each other, and have mutual benefits in order strategies and to put them into practice faster (Hofstetter, 2006).
to increase the adoption of ECR (Kurnia & Johnston 1999).
 ECR is about deep, long-term collaboration. If the strategy isn't
 Integration of companies in the value chain
In the current business reality, neither retailers nor suppliers can act independently
thought through carefully, tensions and misunderstandings are bound
(Aastrup et al. 2008). to arise, both between companies and internally among staff
(Hofstetter, 2006).
 Lack of trust
A lack of collaboration is a important prerequisite and barrier to successful ECR
implementation (Aastrup et al., 2008).  IT can facilitate the development of the supply chain capabilities.
The information advantage achieved through the adoption of
sophisticated technologies and the benefits achieved through an
The successful adoption of ECR depends on cooperation of manufacturers, wholesalers and integrated system provide the sources of sustained competitive
retailers ( Lohtia et al., 2004). To support this adoption IT has a pivotal role to play in improving advantage for a firm (Wu et al., 2006).
communication and co-ordination by acting as an enabler (Gunesekeran & Ngai, 2004).

Conclusion
How will these three factors turn ECR to a competitive advantage?

 Capabilities Managerial skills, which enable adaptations on


supply chain processes and corporate strategy to accommodate the use of IT,
are shown to play the strongest role in IT value creation (Dong et al., 2008).

 Collaboration IT alignment improves the supply chain


responsiveness and collaboration with partners (Wu et al., 2006).

 Information Technologies ECR implies an


investment in information technologies to improve their outcomes (Aastrup et
al., 2008). A principal finding is that IT is valuable, but the extent and
dimensions are dependent upon internal and external factors (Radjou, 2003).

30