Using ECR Scorecard inSupply Chain Collaboration

Case Alko and Pernod Ricard

Agenda

Background information• Company presentations• Limitations to cooperationUsing ECR scorecard in collaboration• History of using scorecard• Intermediate vs. full global scorecard• Tracking developmentExamples of joint projects based on scorecard findings• Efficient unit loads• Product identification standards• Collaborative forecastingSummary and recommendations

Parent Company Pernod Ricard

Parent Company Pernod Ricard

Europe’s largest and the world’s second largest alcohol company• Headquarters in Paris• Turnover 7.2 billion € (2008/2009)• Production in 70 countries in 113 production facilities • Personnel in total over 19.300• Over 20 products on the premium spirits TOP 100 list (Impact Databank)

Grown through several international acquisitions• Seagram 2002• Allied Domecq 2005• V&S 2008

PERNOD RICARD NORDIC

STOCKHOLM: PRN HEADQUARTERS

HELSINKI: PRF HEADQUARTERS

TURKU: PRODUCTION & LOGISTICS

Pernod Ricard Nordic is responsible for wines and spirits business in the Nordic countries and the Baltics

3

Pernod Ricard Finland

Headquarters in Helsinki, production and logistics facilities in Turku• Employees in total ca. 200• Turnover ca. 70 million € (2008)

The second largest wine & spirits company in Finland• Market share 25 %• Manufactures, imports, markets, sells and distributes around 400 domestic

and international alcohol products

Pernod Ricard Finland in Figures

IMPORT

OWN PRODUCTION, TURKU

RETAIL SALES (ALKO)

DUTY FREE / TRAVEL RETAIL

HORECA & WHOLESALERS

EXPORT

LOGISTICS CENTRE, TURKU

Total ca. 30,000 bottles

43 %

55 %

85 %

4 %

10 %

1 %

4

Alko Company Presentation

Alko Inc.

Independent, entirely state-owned company • Administered and supervised by the Ministry of Social Affairs and Health• Founded in 1932

344 retail stores in Finland• Net sales 1170,2 million euros• Personnel 2700• Assortment 2200 SKUs, of which ca. 60% are wines

Function is laid down in the Alcohol Act and Degree • Sole right in Finland for the retail sale of alcoholic beverages containing

over 4.7 per cent of alcohol by volume, based primarily on reasons related to social and health politics

• Required to be impartial towards all suppliers, ensured by a public listing procedure and retail sale of alcoholic beverages

Alko has a specific obligation to consider the different aspects of social, economic and ecological responsibility

Limitations to Cooperation

Because of Alko’s monopoly status cooperation is limited• All suppliers must be treated equally

⌐ Cooperation on demand side (category management) therefore difficult⌐ Cooperation on supply side (logistics) is easier

• Standards are the same for everyone EDI and product informationSupplier base very heterogeneous• Suppliers and products from all over the world• Long supply chains and lead timesBest practices will be eventually applied to all suppliers• Included in Alko’s requirements for suppliers• May be used by Pernod Ricard in other markets as well

ECR Scorecard Focus Areas

Enablers

Common Identification Standards

Standard Electronic Messages

Optimize Assortments Optimize Promotions Optimize New Product

Introductions Global Data Synchronization

Integrators

Collaborative Planning and Forecasting

Respponsive Supply

Integrated Demand Driven Supply Operational Excellence Cost/Profit and Value Measurement

Demand Management

Supply Management

Supply Strategy and Capabilities

Collaborative Shopper Value Creation

Demand Strategy and Capabilities

Practices for Using ECR Scorecard

Cooperation under the “ECR banner” since 1999• Annual meetings between key personnel (steering group)• Using ECR scorecard to pinpoint joint projects• Follow-up meetings several times per yearFocus from “enablers” to ”integrators”• From e.g. it system compatibility and EDI to end-customer satisfaction Using KPIs to track development• Service level from logistics center to stores and from stores to consumers• Store order timeliness• Picking errors in warehouseExperience of both “intermediate” and “full global” scorecards

Intermediate vs. Full Global Scorecard

+ Easy to understand + Comprehensive

+ Fast to use + Enables comparison to other companies and industries

+ Uniform with the ECR framework + Uniform with the ECR framework- Does not cover all relevant areas - Takes time to use- Scale is too general - Some questions are too vague or

general- Scale in some questions too short - Scale in some questions too short

Pros

Con

s

Intermediate Full Global

Finding Development Areas

Automated Store Ordering Product Flow Techniques Efficient Unit Loads (EUL)

Score General MeaningPOS-Scanning and perpetual inventory systems replace manual counting for store re-stocking. Adjustments are

anticipated and applied to order calculation.

The degree that optimised product flow techniques have been implemented considering consumer service level and total

supply chain costs.

Improve efficiency & effectiveness of supply chains by promoting harmonisation and integration of transport and

storage items.

0 Nothing planned Wholly manual system to track inventory and re-order product. Product Flow alternatives are not considered. No harmonisation and integration of unit loads along the supply chain.

1Plans agreed but have

not yet started implementation

Plan to use handheld devices routinely to record shelf inventory needs, combined with manual inventory to calculate stock re-

order. Adjustments are made on a manual basis.

Strategic plans are being developed to implement alternative product flow techniques when appropriate. Benefits understood

at conceptual level.

EUL are being taken into consideration.Plans approved to harmonize secondary (like outer cases) &

tertiary items (like pallets).

2 Pilot tests being conducted

Handheld devices are used to record shelf inventory needs, combined with manual inventory to calculate stock re-order.

Adjustments are anticipated.

Pilots of different product flow alternatives have been completed with a few trading partners in a few categories (e.g. fresh).

Benefits still only understood at conceptual level.

Pilots with some trading partners to use harmonized tertiary and secondary items / modular spaces to assess costs and benefits;

analysis of supply chain to reduce handling steps.

3 Roll-out of implementation started

Scanning and perpetual inventory systems replace manual counting for store re-stocking. Results are not optimal due to

issues with inventory record accuracy and compliance to plan-o-gram.

Full implications of alternative product flow techniques are understood and broader usage is being implemented. Criteria

on when/how to use the different product flows techniques have been established. Benefits are quantified and supported by

ABC.

Expanded use of harmonized items along the supply chain eliminates unproductive assembly and disassembly operations.

4 Fully implemented

Scanning and perpetual inventory systems are used and supported by robust inventory record accuracy and plan-o-gram

compliance. Processes, eg. re-order cycles, can be adjusted based on category requirements.

Benefits of flow alternatives are understood and reflected in distribution methodologies. DC layout supports implementation.

Benefit calculation is fully supported by ABC.

Design of secondary & tertiary items and unit loads suits category requirements to the shelf and supply chain flow:

optimal utilization of available space and minimal handling for all products and all distribution channels.

Considerations

Current score

Short term goal

Current score equals short-term goal

Choosing Joint ProjectsFocus Area Concept Common ScoreS1. Supply Strategy & Capabilities Strategic Direction 4

People & Organization 3Information Management 3

S2. Responsive Supply Automated Store Ordering 3Continuous Replenishment 0Product Flow Techniques 3Transport Optimization -Efficient Unit Loads 3

S3. Integrated Demand Driven Supply Synchronized Production 4Integrated Suppliers 1

S4. Operational Excellence Reliable Store Operations 3Reliable Distribution 3Reliable Production 4Reliable Stock Loss Management 4Reliable On-Shelf Availability Management 4

E1. Common Identification Standards GTIN at Consumer Unit Level 4GTIN at Trade (Case, Carton) Unit Level 1Serial Shipment Container Code (SSCC) 1Global Location Number (GLN) 0Electronic Product Code (EPC) 1Product Classification Standards 0

E2. Use of Electronic Message Standards Electronic Messages for Supply 4Electronic Messages for Planning, Forecasting and Replenishment 0Electronic messages for Master Data 0

E3. Global Data Synchronization Global Data Synchronization 0Data Quality 3

I1. Collaborative Planning and Forecasting Collaborative Planning 2Collaborative Forecasting 2

I2. Cost/Profit and Value Measurement Activity Based Costing (ABC) 3Consumer Value Measurement 0In

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Man

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Examples of Joint Projects

Efficient Unit Loads

Sales volume varies heavily by SKU• Products are given space (faces) on shelves based

on sales volume• Inventory turnover in stores is largery based on

delivery unit size• Cost in the warehouse and stores are based on

⌐ deliveries (orders)⌐ rows per order⌐ SKUs per carton

Estimating efficient delivery unit sizes together• Products (litres) per delivery• Optimal carton size for each product (e.g. 6 or 12

bottles)• Using wheeled dolly-pallets for the high volume

products

Examples of Joint ProjectsProduct Identification Standards

Very strict inventory management in the whole alcohol supply chainDeliveries are carefully received in all Alko stores

• Suppliers are currently required to mark each carton with Alko’s own productnumber (6 digits)

• In practise difficult to implement, because the products are procured from allover the world and the same cartons are used in several markets

• Printing separate stickers to each carton is prohibitively expensiveAlmost all cartons have a bar code printed by the manufacturer or packager

• Code types used include EAN/GTIN-13, EAN-14, EAN-128 etc.• No universal practise or standard in carton markings

Alko’s store IT system was enhanced to read practically all code types• The system recognizes the product and proposes the right number of SKUs in

the carton• Faster and easier receiving in the stores• Fewer receiving errors

Examples of Joint ProjectsCollaborative Forecasting 1/3

2008 41 2008 42 2008 43 2008 44 2008 45 2008 46 2008 47 2008 48 2008 49 2008 50 2008 51 2008 52

Example 1: Seasonal product with a very accurate collaborative sales estimate

ForecastActual sales

Beginning of the season as estimated

Slight variations causedby e.g. weather

Final weeks’ demand slightly higher than estimated• product availability secured by buffer stocks• practically no end-of-season obsolete inventories

Examples of Joint ProjectsCollaborative Forecasting 2/3

2008 41 2008 42 2008 43 2008 44 2008 45 2008 46 2008 47 2008 48 2008 49 2008 50 2008 51 2008 52

ForecastActual sales

Example 2: Seasonal product with higher demand than estimated

Actual demand starts to deviate from estimate already in the beginning of the season

Collaborative decision is made to increase the availability

Huge peak in demand caused by external factors e.g. review in a newspaper• momentary out-of-stock

Extra stock arrives to save the peak season and minimize out-of-stocks

Examples of Joint ProjectsCollaborative Forecasting 3/3

Developing the ECR Scorecard

Scorecard scale is in some cases too shortSome questions too general or vague

• Vocabulary could be more extensive in order to avoid misunderstandings related to terminology

Too detailed options• Sometimes higher requirements are easier to fulfill than the lower ones• Some points are not applicable to all markets and product areas• Customized scorecards for e.g. non-food stores and suppliers?

Translations still not perfectUsing color symbols (”traffic lights”) enable quick status check

Summary and Recommendations

ECR Scorecard provides a good framework and structure for SupplyChain Collaboration• Recognizing joint development areas and projects• Tracking development• One-time practice is useful, but regular use brings greater benefits• Possibility to benchmark with other countries and businessesRecommendations• Ensure top management commitment• Take your time for preparations and for the scorecard meeting itself!• Don’t get stuck in the details• Choose an inspiring location for the scorecard fulfilling session• Participants from all organizational levels (operational and management)

Thank You! tuomas.kokkonen@alko.fi

petri.vainio@pernod-ricard-nordic.com