P&G Logistics Revolution: Co-creating Value Essay Example

technological advancements in operations and customer data management were starting to impact the dynamics for all suppliers in the market. The ability for the retailer to understand, influence and interact with the customer was assisting retailers who were previously seen as an extension of the distribution platform, to increase their ability to negotiate better terms of trade with suppliers like P&G.

With advancements in modern website technology only starting to emerge, suppliers like P&G were envious of the direct relationship between the retailer and the consumer, and as a result finding themselves having to pay retailers for access to basic data such as transaction information and new types of information such as basket sales data which with awareness was providing a new opportunity to increase product sales. Questions started to be raise don who ‘owns’ the customer.

Whilst P&G were focused on maximising sales to wide customer base and minimising product wastage, it soon became apparent that in reality due to the supply chain functions, P&G only had direct control of the retailer and not the customer. Retailers successfully leveraged their position and over the next decade lead the power base shift to move from supplier to retailer by influencing decisions in relation to supply chain development, distribution processes, product development and product sale and marketing campaigns, product.

Furthermore, P&G were experiencing a large level of stock outs at retailer shelves and over supply in others adding to a substantial wastage and a need to ‘work’ with retailer willingly or not. P&G needed to introduce a new vision Having a sound knowledge of the retail environment and motivation to get gain back a customer relationship

for its brands, P&G started to focus all strategic thinking on the customer and all associated elements to influence the customer in order to drive sales volume and increase market share.

P&G knew that to remain competitive and achieve a customer centric vision, it would need a complete overhaul of its culture internally and changes to its operating processes as well as externally strategies such supply chain activities and the way its marketed its products. Adding value to consumers would also require P&G to introduce full alignment of customer centric thinking at the micro level from management behaviour, aligning and creating new performance incentives, refocusing their innovation and product developments and motivating all staff.

In addition, P&G’s products would have to become highly driven on customer feedback to meet expectations and in order to accurately achieve this, data on consumer buying behaviour was required from retailers. P&G realised that whilst its key objectives could be supported internally through it people management, the key enabler was access to consumer information. Retailer’s were now identified as the critical input to achieving the company’s goal - getting close to consumers was now a new challenge that would test the relationships between P&G and its retailers.

Better Supply Chain Management introduced But how could P&G influence retailers? What would they need to improve? P&G recruited Keith Harrison as the organisation’s Head of Global Product Supply Division, empowered to develop a customer centric business, and to achieve competitive advantage by improving a complex scenario at the retailer level facing the company. Harrison’s performance indicators included a focus on cutting cost, achieving long-term growth in sales and earnings yield. After assessment

of the situation, Harrison created a new concept for the P&G supply chain based on Collaboration.

Collaboration became the new organisational value to promote and improve the relationships with retailers. Ideas where win-win situations for the retailer and P&G customers were tested and implemented. This collaborative approach led to more freely exchange of retailer data and consumer research which ultimately was started to lead to increased sales. Based on a new focus with additional customer knowledge and preferences, sales practices were improved, redesigned and tested to different customer segments and at different retailer locations.

New products could now be tested before launching big promotional campaigns and retailers also started to more engagingly assist in sharing ideas for success. Figure 1 Gattorna J. , “Living Supply Chains”, 2006 P&G’s revolution was not too dissimilar to the supply chain framework diagram above introduced by Gattorna. P&G had introduced ne leadership in Harrison, was starting to change the organisation’s culture to be customer centric, and had adopted a strategy of retailer collaboration to achieve competitive advantage.

Specific changes to business processes included a new organisational structure, with the creation of a new Global Business Service (GBS) Team to perform back office functions such as human resources, finance, and IT for all brands. Other changes included outsourcing non-core operations and processes by creating a Global Purchase Division (GPD), designed to target more competitive supplier terms and to generate a close relation between GPD and the Research & Development teams to deliver customer needs and improve ustomer value on price to retailers which would be passed on to paying customers .

Additionally, P&G created a new approach to Innovation: “Connect

+ Development”, a program implemented to receive direct feedback from customers through a collaborative team formed by scientists, engineers and other experts who focused on innovative ideas that would help make a positive impacts to consumer lives such as product packaging. P&G Supply Chain Revolution P&G was now able to influence consumers more effectively at the point of sale which gained greater momentum with global retailers.

Results of this collaborative approach extended to its partners across the entire supply chain, evolving the focus from Supply chain management for P&G to developing a new supply network. Prior to the revolution, forecast demand in the supply chain was based on a system without communication among the different participant of the chain. As a manufacturer, P&G was unable to accurately measure real demand which contributed to high levels in the cost of inventories, and flow on effects leading to high levels of out of stock creating a ‘Bull-whip effect”.

As part of the revolution, P&G developed a new approach based on real time demand using a system called CDSN, “Consumer Driven Supply Network”, which acquired data at the store shelf working back upstream toward product manufacture. In this new process, information started from consumers and was shared to all functions in the supply chain in order to adjust this production programs. The new concept was called a supply network instead of supply chain because of the improvement in information flow in both directions in the supply chain.

As can be seen the Gattorna framework, P&G invested in technological infrastructure with retailers to maximise the supply network, and its aim is to win consumer at the point of purchase.

Capital was invested into a “web order management” online system, which enables retailers not only to connect with P&G any time anywhere but also access P&G promotion schedules, inventory levels, scheduling information and to enable easy replenishment of stock. Overall, Harrison achieved remarkable results including: 1. Cost savings accounting to $1 billion from 1995 and rising further to $2 billion in 2007. 2.

Changing the paradigm in viewing SCM within P&G from a business model driven by forecasting to the one that was focused on real time demand. 3. Consumers received the right product at the right time at the right place. Average out of stocks for P&G were reduced by 50% (previously 10-15%), and turn prevented lost sales revenue. Advancement of the Supply Network Based on a new found success, P&G strived for world best practice in supply management by forming a strategic alliance with Wal-Mart. Joint objectives set at the start included: Introduction of a multifunctional team that develop different initiatives.

Wal-Mart to enable P&G to manage Wal-Marts P&G inventory requirements P&G monitoring its products on shelves across all Wal-Mart stores by receiving continuous satellite data on sales and inventory from individual Wal-Mart stores P&G to ship the goods directly from the factory to the individual stores P&G to send to Wal-Mart’s distribution centres tailored shipments according to the requirements of each stores. As soon as the P&G truck arrived to the Wal-mart DC it was transferred to the individual stores without any necessity of storages.

Electronic invoicing and electronic transfer of funds completed the transaction cycle At the start of the alliance, P&G and Wal-Mart decided to re-examine their relationship in order

to achieve these objectives. Both the companies started working together to align their capabilities and develop the world’s best practices in supply chain management. P & G, having these objectives in mind, implemented a pilot project with Wal-Mart using one product in one factory and one outlet of Wal-Mart, in Missouri.

They set up a data-interchange link which enabled P&G to monitor the sales of their product in that particular outlet. P&G was able to manage Wal-Mart’s inventory requirement for the product and able to advise when to ship more inventory. To reduce time for deliveries, P&G also started to ship the product directly from its factory to the individual store, tailoring their shipments as per the requirement of the individual store and sent as soon as P&G’s truck arrived at Wal-Mart’s distribution centre.

Electronic invoicing and electronic fund transfer completed the payment process. This proved very useful, as it reduced the delivery time of the goods by almost ten days, which ultimately reduced the stock outs of P&G’s product and improved sales. The pilot project between P&G and Wal-Mart was very successful and evolved further to a continuous replenishment supply chain process where all parties including third-party providers, collaborated to lower costs, meet demand and continuously improve their delivery times and service. Formation of a Joint Supply Chain Culture

In theory, a continuous replenishment supply chain and real collaboration can be established only when both the partners are on the same ‘power level’. This means that there should be no power imbalance between the collaborating parties, as discussed earlier when retailers had more power that the manufacturers and visa versa. When such kind of

collaboration is established, without any power imbalance, then there can be strong trust and healthy partnership between the parties and possibility of joint-development projects and proper information sharing can occur.

In other words, referring to Dr. Gattorna’s PADI model which describes the interaction between buyer and seller from a supply chain context, the partners behaviour represents a big ‘I’ and a small ‘a’ indicating that service priorities are based on long term relationships with collaboration and cooperation alignment throughout most elements of the supply chain.

In order to build collaboration and implement a continuous replenishment supply chain, leaders from both the companies started to work together to build a sub-group culture. They worked together to redesign their organisation design by forming a twelve member team on each side, sharing the same vision and working together to achieve it. They team shared their processes by having multi-functional resources, using joint-scorecards to measure success and utilised sophisticated technology of data-interchange link between them.

They started to share information and implemented real-time demand tracking by accessing sales data from Wal-Mart’s shelves. They also shared common KPI’s, such as reducing out of stock instances, thereby improving sales and reducing excess investment in inventory which also resulted in reducing costs for both the companies. As discussed by Gattorna, organizational clusters exist when companies form a cluster of employees of all divisions to deal with customers needs (refer figure -2, below).

P & G and Wal-Mart, both formed organizational clusters amongst themselves and collaborated to achieve their goals to reduce out of stock instances, thereby winning consumers, increased sales and reducing inventories and reducing costs. The future outlook for P&G Based

on the success of supply chain development at P&G, the business has set some new goals as follows:

• Build 19 production plant in 18 developing countries in the next 4 weeks
• Use supply chain blueprint for production plants into 2015
• Streamlining portfolio by 25% by 2012.
• Continue to gain competitor advantage by moving quickly
• Reach an additional 1 billion of the world’s
• 5 billion consumers by 2010

To achieve these goals, Harrison has recently outlined P&G will require a hhigher focus on lowering cost per serve to retailer so they can pass on better prices and advertising to customers which indirectly is a key enabler for sales growth.

In addition a renewed focus on reducing energy costs and bringing a customer culture further upstream in the supply chain to develop supplier synergies such as focusing on the quality of packaging to reduce damaged goods (global logistics issues). Furthermore, investment in technology (POS systems) to obtain real time data and JIT inventory management will assist in making the supply chain a top line and bottom line contributor to company financial results. Recommended Action Plan to Achieve Company Objectives

This report suggests P&G should firstly attempt to understand its customers in the globalisation strategy prior to implementing the Wal-Mart strategy acknowledged above. Gattorna suggests a similar cultural survey to that of Myers Briggs can be conducted using his PADI assessment tool to identify the cultural and behavioural elements of the new retail customers. Secondly, P&G should recruit a cluster group representing or aligning to the results of the retail survey. To verify this, the same survey should be conducted internally with staff in the cluster group conduct.