How Supply Chain Design Makes A Company Successful Business Essay Example

that effective supply chain management is the next step they need to take in order to increase profit and market share.

Supply chain management is the vital function of designing and managing seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. P&G, short for Procter & Gamble, has a concise history. William Procter, a candle maker, and James Gamble, a soap maker, immigrated from England and Ireland respectively and settled in Cincinnati. They joined forces as business partners after marrying sisters Olivia and Elizabeth Norris. Their father-in-law Alexander Norris persuaded them to start a business together. Consequently, Procter & Gamble was established on October 31st, 1837.

The history of P&G can be divided into five main periods:

• 1837-1890: The partnership years.
• 1890-1945: A company built on innovation.
• 1945-1980: New Lands and Dynamic Growth.
• 1980-1999: A Global Company.
• 2000-Today: Booming business.

The P&G: A Company History (2006) stated that P&G brands touch the lives of people worldwide three billion times a day. The company boasts a strong portfolio of trusted, quality, leading brands including Pampers, Tide, Ariel, Always, Whisper, Pantene, Folgers, Charmin, Downy, Lenor,
Iams,Crest Oral-B Actonel,Duracell,Olay Head & Shoulders Wella Gillette Braun. The P&G community consists of approximately 140;000 employees working in over 80 countries.
P&G's supply chain management strategiesAccording to Jimenez et al. (2002),P assesses consumer satisfaction at two levels referred to as "the moments of truth." The first moment of truth occurs when the consumer reaches the shelf and finds the desired product available or not.

This is a crucial moment, as if the product is not immediately accessible, consumers typically move on to buy a competing product. The second moment of truth relies on the satisfaction

of the consumer when consuming the product. Consumer surveys in July 2000 revealed to P ; G that in 55% of cases (75% for promotional items), consumers were dissatisfied when they searched for the desired products on the shelf. The specific product variation, in the desired size and packaging, was available less than half of the time. Improvements were needed in this situation. It appears that the responsibility for ensuring the product is always available on the shelf when customers want it lies solely with the retailer.

If retail merchants make errors in their prognosiss and order incorrect measures, the bullwhip consequence may go on. Both the maker and retail merchant suffer from the harm of bullwhip consequence, even if the maker is unaware of the problem. P ; G was the first to realize the significance of this issue, and now other makers are also focused on the end consumer. This is one reason why there are so many new CPFR (collaborative planning, prediction and refilling) and VMI (vendor-managed stock list) programs in the industry. According to Jimenez's (2002) research, top directors at P & G recognized the need to restructure their supply network to be quickly and fully responsive to consumer demand.

The importance of this was especially significant for promotional purposes, as the cost of selling and promotion activities, along with the long-term negative impact of stock-outs on consumers, were taken into consideration. When customers are unable to purchase the desired products and resort to alternatives, it becomes challenging to persuade them to return to purchasing the original products when they go shopping again. P&G determined that establishing direct connections between sales and supply

chain business processes through complex demand chain management could be the key to maintaining its leading position in the consumer packaged goods industry. Consequently, a multi-level initiative called the "consumer-driven supply web" (CDSN) program was implemented by P&G.

One of the significant changes in the growing digital economy is happening in the supply chains of both traditional and e-commerce companies. Information technology allows channel partners to trade goods, share information, and integrate their processes. This reshapes the relationships between organizations and leads to more efficient channels. The electronic integration of data and automation of business practices reduces costs and improves sales by better meeting consumer demands. By leveraging the advantage of sharing information, both P & G and Wal-Mart can reduce inventory needs and increase sales by focusing on selling what customers want.

Consumer Driven Supply Network ( CDSN )

According to P & G, there are two moments of truth: the first one is when customers purchase the product from the shelf, and the second one is when they actually use it and enjoy it. To ensure that the first moment of truth is valid, it is important to have stock available on the shelf. Based on Jimenez's consumer studies in July 2000, it was found that in 55% of cases, products were not available on the shelf when customers wanted them. Due to the significant loss in sales, P ; G needed to adjust their strategy. Under the leadership of Keith Harrison, head of the global product supply division, a new concept of supply chain strategy was introduced. P ; G aimed to establish a connection between actual sales and the

supply chain process.

The supply chain management of P has shifted from producing based on forecasts to producing based on actual sales. P has implemented a strategy called Consumer Driven Supply Network (CDSN) where they have started their supply chain from store shelves and moved back to their suppliers. The goal of this strategy is to create a responsive supply chain that produces and supplies products based on customer demand at the individual consumer level.

Implementation

According to Harrison in the article "Procter & Gamble Uses Consumer Demand Info to Drive Supply Network" (2006), P uses actual demand by collecting scanner data at the point of sale and incorporating it into their daily production schedule. For customers whose demand signals are not significant enough for planning, P relies on replenishment data from retailers' distribution centers.

P&G aggregates information from systems managing ordination, transportation, and charge into functional Numberss that become the demand field for the works systems. This demand field drives the refilling programs, which are displayed in the supplier portal of P&G where they find their way back into providers' systems. P has some providers who can see its production program, and they run their operations with that live information within a few hours. One of the most important components of CDSN is intelligent daily prediction (IDF). IDF is the software used by P to forecast the demand based on actual sales.

IDF is responsible for managing day-to-day demand in various shops, serving as P;G's refilling program for those shops. The actual demand is collected from scanner data at the point of sale and integrated into the program's daily production schedule. As a result of implementing IDF, P;G now

operates several plants with a response time of 6-8 hours.

Benefits:

According to P;G's annual and sustainability reports, implementing IDF has had a significant impact on their supply chain. Forecast accuracy has improved by 30%. The percentage of products that are out of stock on retailers' shelves at any given time has decreased from 10% to 5% within 8 months of implementation.

Entire supply chain response time: the time when a cash registry records the sale of a product till the purchase of raw materials to produce its replacement. It has been reduced from six months to two months. Entire supply chain inventory: the thorough counting of all products flowing through the supply chain at any given moment, whether on store shelves, in the back of the store, at warehouses, in trucks or wherever is done daily instead of weekly and monthly so that P ; G can reduce the safety inventory by 10%. Pricing-design from the shelf back: CDSN assisted in determining an acceptable price point for a product and then working it back through manufacturing and distribution to ascertain if that product can be delivered at a price acceptable to consumers and a profit acceptable to P ; G.

Collaborating Planing Forecasting and Replenishment (CPFR)

The goal is to achieve a 15% increase in overall gross revenues within a year. Additionally, net profits grew by 19%, going from $4.35 billion to $5.19 billion.

The successful globalization of P ; G is widely acknowledged, but they also face a supply chain challenge in effectively connecting with thousands of retailers who contribute to its global product sales. Their aim is to expedite products' time to market (Cisco success stories customer profile:

Procter & Gamble.2001.)

According to Christine (2005), Proctor & Gamble used to have inaccurate demand calculations when using a make-to-stock strategy in their manufacturing, selling, and purchasing process. However, there has been a significant improvement in inventory management as P & G has decided to implement the Collaborative Planning Forecasting and Replenishment (CPFR) technique to better forecast demand. This leads to increased accuracy in demand forecasting and a decrease in safety stock levels, resulting in a reduction in inventory costs for P & G. The scale and complexity of the company's inventory management requires the right people, organization, and tools.

As stated by Ingrid et.al (2011), P;G aims to improve inventory levels through two steps: integrating with a singular organizational structure and implementing suitable operations research technology. Ingrid et.al's (2011) studies revealed that the initial enhancement of P&G's inventory model utilized a spreadsheet with four components to optimize various positions within the supply chain. Additionally, P;G's second improvement involved a redesigned inventory software system. In 2009, Ingrid et.al (2011) also highlighted that these tools resulted in approximately $150 million in cash savings, achieved through well-coordinated planning and execution to maintain and enhance service levels.

According to Procter & Gamble Pilot (1999), Procter & Gamble Company employs over 110,000 individuals across more than 140 countries. Furthermore, P&G's global net sales surpassed $3.72 billion between 1997 and 1998. P;G's portfolio includes over 300 brands, reaching approximately five billion consumers.

CPFR in P&A;G has become a crucial process for improving supply chain by implementing consumer demand data creation and integration. CPFR enables the stimulation of merchandise flow from manufacturing mills to distribution center, then reaching the retailer's shop, and eventually reaching the

consumers' homes. To enhance this process, the capacity assessment of CPFR partnership is important in order to identify strengths and weaknesses and make necessary improvements (Procter & Gamble Pilot, 1999).

According to Procter & Gamble Pilot (1999), P&G has defined an inventory management process that has significantly reduced total inventory investment by utilizing optimizing inventory methods in their networks. Designers use a single-stage inventory model based on electronic forms implementation, as these forms drive up to 60% of the company's business.

Single-Stage and Multi-echelon Inventory Models

Single-Stage Inventory model: Fengqi et. Al (2008) state that the single-stage inventory is used with a base stock policy to handle stationary demand.

P ; A; G had been utilizing stock list direction engineering for a long time. According to Murphy (1975), P ; A; G adopted a systematic plan for storage management in the 1970s. However, by the end of the 1980s, they implemented a distribution demands planning ( DRP ) system to facilitate their growth. They also adopted Dr. Taguchi's robust model to establish inventory targets throughout their distribution network. P & A; G achieved success in the early stages of the supply chain by implementing a single-stage inventory model in over 60% of their regions (Ingrid et.al.2011). This model was used by both internal and external users through an electronic form.

According to a study by Farasyn et al. (2008), they further discussed single-stage inventory models and analyzed the advantages and disadvantages of electronic form applications. They suggested that supply chain planners can use inventory models to prevent high levels of safety stock. However, if the safety stock level is too low, it can result in customer service issues. Therefore, planners

often choose to set higher safety stock targets to address this problem, despite the potential increase in costs.

However, according to Ingrid et al. (2011), if an interior designer creates a higher safety stock level, the automatic correction system cannot decrease the safety stock level. It is also mentioned that single-stage models in the supply chain have developed a common method for inventory. Managers should be aware of the impact of different inventory blocks such as inventory safety and transportation storage. Inventory management concepts are an important part of the supply chain function as they assist in making complex tradeoffs. As supply chain networks continue to evolve, multi-echelon inventory models have replaced single-stage models, resulting in an additional average inventory reduction of 7% (Ingrid et al., 2011).

According to Ingrid et. Al. (2011), the paper demonstrated that P&G's business experienced a 30% increase as a result of implementing a multi-echelon inventory model.

Multi-echelon Inventory theoretical account: According to Fengqi et. Al (2008), the base stock policies are optimal for multiple machines in series and a single product in terms of multi-echelon inventory. As indicated by Ingrid et.al (2011), the three global business units (GBUs) of P are Beauty ; Grooming, Household Care and Health ; Well-Being, which have provided $37.3 billion, $14.4 billion, and $26.3 billion in earnings respectively. However, the supply chain of the Beauty ; Grooming products is the most complicated.

The complexity of multi-echelon inventory is influenced by various factors, leading to an increase in the stock levels of the product. Ingrid et.al (2011) study also demonstrated the importance of aligning the supply chain with the production planning system in order to achieve accurate inventory goals.

To model this concept, a web was created, where each phase represents a specific stock-keeping unit (SKU) in the same location. To achieve optimal results, the functions within the web must be connected. According to Bossert and Willems (2007), optimizing the demand for multi-echelon inventory is driven by factors such as investigation time period, demand quantity, increased cost, and the complexity of the network.

Even though the company oversees production on a daily basis, they only analyze and provide certain SKUs on a weekly or monthly basis. It is crucial to comprehend every stage of dependency in order to effectively manage this. Transferring demand information between subsequent stages is essential, as it becomes more challenging to determine demand at earlier stages.

Information Sharing

Technological advancements drive global change, and modern information technologies enable supply chain integration.

Every critical supply chain procedure heavily depends on the flow of information from concept to customer throughout the product or service life cycle. The coordination of value-added activities within effective supply chain networks is largely facilitated by the exchange of information. The advancement in information technology has greatly facilitated business globalization and is contributing to various changes in supply chain management. These changes in information technology create new opportunities for companies to differentiate themselves from competitors and develop genuine competitive advantages.

Sharing information in supply chain management (SCM) serves multiple purposes. One key function is to replace inventory and reduce costs for companies. Additionally, information acts as a substitute for time, allowing companies to be more responsive to customer requests (Cachon ; Fisher, 2000). In summary, sharing information enables cost reduction, improved customer service, shorter lead times, increased profitability, higher quality standards, and enhanced

innovation. Another perspective is that information can be leveraged to transform company and supply chain capabilities.

For instance, information facilitates process redesign and reengineering. Information also facilitates supply chain collaboration. Additionally, information can be utilized to promote continuous improvement and learning. These are powerful capabilities that can alter the rules of the competitive game, enabling a company to achieve significant success (Seidmann ; Sundararajan, 1998).

Sharing Information to Improve P;G's Supply Chains Sustainability

Driven by P&G's belief that a better product can be made with abundant input and insights, P;G's global sustainability group has diligently worked on developing, enhancing and sharing its supply chain environmental scorecard. Employing scorecards to measure business performance is not a novel concept.

Many companies are now measuring the environmental impact of their supply chain, including how products are sourced, transported, and manufactured. P&G is committed to improving the environmental footprint of their products and operations and wanted to understand the upstream impact of their supply chain. They also wanted to hear their suppliers' sustainability innovation ideas and encourage them to help other suppliers with their own environmental improvements. It took P over two years to develop their supply chain scorecard, which measures improvements in key metrics such as energy usage, water usage, waste disposal, and greenhouse gas emissions on a year-to-year basis. They knew they couldn't do it alone.

So, a board of providers from different industries was created to join them. They exchanged their experiences and the most effective process for each of them. P & G also shared theirs (Tan, 1999). Ultimately, the scorecard turned out to be a surprisingly versatile tool. P & G soon realized that it was not only applicable

to them but to ANY company that desired to measure and enhance the sustainability of its supply chain (Lee, Padmanabhan & Whang, 1997).

Instead of keeping the Excel-based analysis tool exclusively to themselves, P&G decided to share it with other companies. This allows any company to aggregate, organize, and summarize scorecard data from their suppliers at no cost. General Mills and other companies have also adopted or modified this scorecard for their own needs. By sharing the tool, P&G has received valuable feedback on how to improve it and has incorporated those insights into subsequent iterations. As more companies utilize the tool, their insights contribute to its ongoing improvement, making it a better product for all users and promoting sustainability worldwide.

Supply Chain Integration through Information Sharing

It is widely known that Wal-Mart and Proctor & Gamble (P&G) share information regarding the retail sales of P&G products at Wal-Mart stores. This information allows P&G to better manage its production of these products and provides Wal-Mart with increased in-store availabilities. An important strategy for managing integrated supply chains is to share information among supply-chain partners (Nahmias, 1989). One of the main advantages of sharing information is the reduced need for inventory. As a result, the supply chain achieves improved performance in terms of financial returns, service level, and turnaround times.

By sharing information between the maker and the retail merchant, the maker can use the retail merchant's stock list level information to manage the frequency, quantity, and timing of shipments. This process, known as the continuous refilling process (CRP), allows the maker to reduce necessary inventory and plan shipments more efficiently (Clark and Lee, 2000). This approach has been implemented

by P;G and Wal-Mart, where P;G replenishes Wal-Mart's inventory based on inventory data received from Wal-Mart's distribution center (DC). This information enables P;G to manage inventory levels and ensure that P;G products are always in stock (Cachon ; Fisher, 1997).

P ; A; G utilized their main road of information to modify the refilling process by linking Wal-Mart's inventory data at their distribution centers with P & A; G's replenished inventory based on the movement of goods through their DC's. P & A; G decreased the order cycle time (amount of time from order generation to delivery) by 3-4 days. This process also significantly increased inventory turns, resulting in a reduction in overall inventory levels.

Benefits of Information Sharing

Utilize Information Technology Resources: Information Technology (IT) resources can play a significant role in the business.

IT has the capability to provide engineering solutions to both associate providers and retail merchants. It is important to ensure that these resources are properly staffed in order to increase volume and reduce costs. In addition, it is crucial to educate the IT team about the concerns of the business. Gone are the days of having IT professionals who are oblivious to the needs and operations of the company.

IT professionals need to understand the business perspectives and focus on the needs of the consumers. They should use data and technology to gain better insights into the consumers' requirements. When discussing different approaches, they should always consider what is best for the consumer and their needs. This approach will help companies in addressing the problem effectively. Data serves as valuable information: Retailer information is usually used for quick decision-making, while P;G data is used for

analytical decision-making. When these data are combined, both companies benefit greatly. Information Technology can also be utilized to analyze large amounts of data and identify exceptions or business parameters that fall outside the normal range.

Using IT to identify major issues such as low sales on a fast-moving item and out-of-stock situations for a specific product, it will provide effective business solutions for both companies. Utilizing industry standards by promoting consistent methods of communicating business transactions and sharing relevant data results in cost reduction for the entire supply chain. Automating business transactions helps decrease expenses related to the manufacturer/supplier relationship. Additionally, sharing point of sales data demonstrates a commitment to information sharing.

Market information and consumer information among channel partners are crucial for joint decision-making in the success of integrated supply chains.

Decision

This paper reveals three key strategies that help P ; G gain a competitive advantage, including consumer-driven supply network, collaborative planning prediction and refilling, and information sharing. Collaborative planning prediction and refilling is the tool successfully used by P ; G to eliminate the bullwhip effect on the supply chain. CPFR enables the creation and integration of consumer demand data.

The purpose of this strategie is to ensure a smooth flow of merchandise from manufacturing plants to customers' distribution centers, from distribution centers to retail shelves, and finally from shelves to consumer homes. The main objective is to have 100% availability of products on store shelves, while reducing inventory needs in retail stores, customer distribution centers, and P & G plants. Additionally, P & G aims to produce and transport products based on consumer demand signals. On the other hand, the use of the consumer driven supply

web strategy is necessary to address the cost of marketing and promotional activities, as well as the long-term negative effects of stock-outs on customers.

The use of P & A ; G's construct, called CDSN, allows for the collection of scanner data at the point of sale and makes it visible at the factory, where it becomes part of the daily production schedule. This approach provides several advantages, especially for new product launches that are based on assumptions about demand. In addition, CDSN can drive volume and profit growth by creating value for retail customers. It also facilitates a more agile supply network that offers customized solutions for each retail customer. Lastly, the sharing of information helps P ; A ; G and Wal-Mart, two major players, establish a common language, reduce costs, and increase sales.

However, the sharing of information can become more effective. The importance of information engineering should not be underestimated.