Innovation and Manufacturing in the US

(Importance of the connection to innovation and how you can ‘afford’ to produce in the US)

Hans Peter SchaeferRetired VP of Product Supply P&G/Gillette

Introduction German, Married, 2 Teenage Kids

Hobbies: driving fast cars fast (on the track!), family travel, ski and dinners

31 years with Gillette/P&G in Germany, UK and US, mainly Supply Chain, Global Operations Design and implementation of 3 tier manufacturing concept Design, implementation and operation of single supply chain

across 200 countries and 5 BU’s Integration of the the Gillette Company’s Technical

Organizations into the P&G structure

Key Message

Manufacturing is a key factor in every economy

There are ways to produce successfully in the US Connection between manufacturing & innovation Pack center concept Lead factory concept

Reputation of manufacturing and education are as much a key ingredient as is cost

Importance of Manufacturing in the US

Every economy needs manufacturing since I believe that one has to either grow, mine or produce products to create a profit – redistributing the profits (money) alone is not sufficient.

Manufacturing jobs support a solid middle class in the US

Manufacturing jobs provide higher skilled service jobs like design, process engineering, accountants, lawyers, etc.

Each direct job in the car manufacturing industry provides 8.6 indirect jobs!!!!

The danger is that in order to keep the close link between manufacturing and higher level service jobs, these higher level jobs might eventually “follow” manufacturing to ??

Importance of Manufacturing in the US

Every economy needs manufacturing since I believe that one has to either grow, mine or produce products to create a profit – redistributing the profits (money) alone is not sufficient.

Manufacturing jobs support a solid middle class in the US

Manufacturing jobs provide higher skilled service jobs like design, process engineering, accountants, lawyers, etc.

Each direct job in the car manufacturing industry provides 8.6 indirect jobs!!!!

The danger is that in order to keep the close link between manufacturing and higher level service jobs, these higher level jobs might eventually “follow” manufacturing to ??Concern

Gillette ExamplesConnection between Innovation & Manufacturing

Connection of Manufacturing and Innovation

Importance of Connection between Innovation and Manufacturing at

Gillette The high tech products (e.g. Sensor, Mach3, Fusion

and Fusion Pro Glide) could only be cost effectively produced (or produced at all) by designing our own manufacturing process and equipment

To support this, we had a single technical organization which included R&D, Procurement, Engineering, Manufacturing and Supply Chain

This was enabled by a Program Management Organization to “manage” the process across the functions

Example OnePack Center Concept (or Basic Operation Concept)

Pack Center ConceptBasic Operation Concept

Example One - Background In the mid 90’s a new product was coming - (Mach3)

Due to the technical requirement, and the need to be close to the R&D and Engineering teams, the ideal startup location was Boston,…… however

Producing in Boston required the addition of space to the factory (more capital into an already high cost factory)

Salaries in Boston even for lower level tasks were high

Besides Cost and Capital, Flexibility was a concern – number of people fluctuating

(some issue not different today, but will get to this with the second example)

Example One - Facts Proprietary Technology and Innovation is in the product

Capital requirements for a new product were 95% product related

Product is identical around the world

Global product level forecast error was +/- 5% on an annual basis

Capital is only 5 % packaging related

Packaging is different in almost every Geography

SKU forecast error regionally, weekly +/- 50%

FWIPInventory

Basic Operation ConceptMANUFACTURING

(unpacked product) PACKAGING

UT Avg 60 - 70%

UT 95 - 100%

Done in house (Boston)with highly skilled and(paid) labor

Outsourced (Devens) to Packaging Companywith lower skilled temp(low cost) labor

Basic Operation Concept

Major Benefits of B/O Concept:Lower Cost and Capital - High asset UT in B/O, Lower Cost in packaging - outsourcedBetter Customer Service - Built-in flexibility in Packaging/BufferFocus - different tasks on both sides

Better Innovation connection Gillette R&D connected to product (manufacturing)

Packaging knowledge and innovation connected to packing operation

UT 95 - 100%

MANUFACTURING(unpacked product) PACKAGING

UT Avg 60 - 70%

FWIPInventory

GLOBAL REGION LOCAL MARKET

RawMat’l Inv

Produce to Global Demand

Pack toReplenishment

Configure toOrder and Ship

WIPInv

WIPInv

FGInv

ASFGInv

BO MANUFACTURING PACKAGING ORDER FULFILLMENT

Very High VolumeVery Few SKUsFew Locations

Highly Automated

High VolumeMedium No. of SKUs

Several LocationsPartially Automated

Low VolumeHigh No. of SKUsMany Locations

Manual

3 Tier Production Concept

Global Factory Regional Pack Center In Market DC

Example TwoLead (Startup) Factory

Example Two – Background As mentioned before, our Factory is located in South

Boston

High Labor Cost (compared to other locations/countries)

Land worth a LOT of money (bean counter interest high)

Example Two – Background As mentioned before, our Factory is located in South

Boston

High Labor Cost (compared to other locations/countries)

Land worth a LOT of money (bean counter interest high)

However All R&D and Engineering staff, plus trained workers are

in South Boston!!

Example Two – SolutionCreating a High Tech “LEAD” Factory

Assessed the size (output, number of employees) of the “smallest” viable factory

Designed the factory as a high tech lead factory

Lead means they start up the production of the latest technology products (currently Fusion Pro Glide, Fusion, some Mach 3) (Packaging of these products still in outsourced Pack Centers)

When the next generation of technology is ready for deployment Boston will again start up the new product, BUT as they ramp up, they also ramp down the older product, which includes training the receiving factory of the older version and supports the transfer of the older version to the receiving factor.

Example Two – Result

Cost overall are down

R&D, Engineering and Manufacturing are integrated under one roof

Very interesting jobs even in the factory – new technology, training others, etc.

Huge portion of the land not needed anymore and can be sold

Reputation and Education Education:

There is a lag of Engineers, quality and quantity

To offset the quality aspect, we created what we called the “Tech Op Program”. Three year formal and on the job training in technology, leadership and operations!

Very successful in terms of capability building, but also in terms retention.

Reputation and Education Reputation:

We (Gillette) treated (level, pay, etc.) the MFG leaders like the engineering, supply chain and R&D leaders.

Result was that every young engineer’s dream was to run his/her factory some day - highly qualified plant managers.

P&G plant managers were mostly a level below a supply chain, engineering and R&D leader.

Result, it was tough to find a plant manager, let alone a top notch person, or one in ‘less desired’ locations.

Key Message

Manufacturing is a key factor in every economy

There are ways to produce in the US Connection between manufacturing & innovation Pack center concept Lead factory concept

Reputation of manufacturing and education are as much a key ingredient as is cost

Different view of things deliver different solutions!!