Dooley, Frank J.

Lynch, Kara

Mayberry, Matthew

Wilson, Christine A.

English

Research Papers in Economics

190   
The Financial Effects of ECR
Frank Dooley, Matthew Mayberry, Christine Wilson, and Kara Lynch
search engine to locate websites by combining the 
terms “Efficient Consumer Response” or “Collab-
orative, Planning, Forecasting and Replenishment” 
with each company name. 
Initial results support the proposition that the 
adoption of an ECR strategy pays off. However, 
the growth in profit does not appear to come from 
improved performance for traditional inventory 
measures (such as inventory turnover, inventory-
to-sales, or inventory-to-assets). The driving force 
behind improved financial measures can be attrib-
uted to changes leading to a shorter cash-conversion 
cycle. Shortening cash cycles involves changes in 
business processes and lessens the need for exter-
nal financing, which leads to improved profitability. 
The adoption of information technologies changes 
traditional processes for purchase orders, invoices, 
shipping notices, and funds transfer. 
Finally, size matters; ECR is more effective due 
in part to economies of scale, information technol-
ogy, and perhaps greater buying power. However, 
this may lead to more consolidations because not all 
firms have the capital to invest in these initiatives. 
The challenge for smaller firms will be determining 
how to implement ECR practices, because they do 
lead to stronger financial performance. 
Refeerences
Brown, T. A. and D. M. Bukovinsky.2001. “ECR 
and Grocery Retailing: An Exploratory Finan-
cial Statement Analysis.” Journal of Business 
Logistics 22(2):77–90.
Stank, T., M. Crum, and M. Arango. 1999. “Ben-
efits of Interfirm Coordination in Food Industry 
Supply Chains.” Journal of Business Logistics 
20(2):21–41.
The authors are professor, former graduate student, assistant 
professor, and graduate student, respectively, in the Department 
of Agricultural Economics, Purdue University, West Lafayette, 
IN.
From the earliest stages of Efficient Consumer Re-
sponse (ECR) to the most recent initiatives (known 
as Collaborative Planning, Forecasting, and Replen-
ishment or CPFR), some have questioned whether 
the adoption of supply-chain management strategies 
has been a profitable investment (Brown and Bu-
kovinsky 2001). For example, the trade press has 
reported that ECR has failed to achieve the poten-
tial $25-billion cost reduction in trade-promotion 
dollars. Yet research has found that the adoption of 
ECR initiatives, especially information-technology 
solutions, has improved inventory management and 
shortened order cycles (Stank et al. 1999). 
The objective of this study is to determine 
whether the adoption of ECR has led to improved 
inventory and financial performance for firms in the 
food industry. This analysis builds upon the earlier 
research, in particular that of Brown & Bukovin-
sky (2001). Previous studies have only considered 
grocers; the data set in this study includes grocers 
and food manufacturers. The scope of the analysis 
was expanded to include the entire food industry to 
reflect that ECR is an industry-wide supply-chain 
initiative. In addition, one goal is to determine 
whether differences exist between the food-manu-
facturing and the grocery sectors.
Initial analysis was based on a data set of 115 
food companies. Data are being collected for an 
additional 150 food companies. The classifica-
tion of a firm’s ECR strategy follows a two-step 
process. First, a review of company reports, trade 
press reports, and organizational lists associated 
with supply-chain management strategies from 
websites (e.g., www.cpfr.org or www.vics.org) are 
being used to identify firms as adopters of ECR or 
CPFR initiatives. The second step sought to verify 
the findings of the first step by using the Google 

THE FINANCIAL EFFECTS OF ECR

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics