Proctor and Gamble Case StudyJim ONeill

1P&G Snapshot

2P&G SnapshotNet Sales of $83.6B (1.4% growth over 2011)Net Profit of $10.756B (8.9% decline over 2011)No. of Stores: Primarily through retail partners, new P&G stores in select locations and eStore for direct marketingNo. of Markets: GlobalNo. of Employees: 129,000 (10% growth over 2011).Fortune 500 Rank: 26Number of Brands: 300

3P&G SnapshotP&G Worldwide Corporate SitesAlbania Shqipe Algeria English Argentina Espaol Australia English Balkans English Belgium English Bosnia & Herzegovinia Bosanski Brazil Portugus Bulgaria Canada Franais | English China Costa Rica Espaol Czech Republic esk Denmark Dansk Egypt | English Estonia Eesti Keel Finland Suomen Kieli France Franais Germany Deutsch Greece Hong Kong | English Hungary Magyarorszg India English Ireland English Israel Italy Italiano Japan Korea Latvia Latvieu Valoda

Lithuania Lietuvi Kalba Mexico Espaol Moldova Limba Romn Montenegro Crnogorski Morocco Franais Netherlands Nederlands New Zealand English Norway Norsk Pakistan English Philippines English Portugal Portugus Poland jzyk polski Romania Limba Romn Russia Serbia South Africa English Spain Espaol Sweden Svenska Switzerland Deutsch | Franais Taiwan The Former Yugoslav Republic of Macedonia Turkey Trke Ukraine United Kingdom English United States English

4CPG Newest Market StrategyLengthening Payment TermsP&G actually one of the last large CPG companies to actMany CPG companies stretching payment terms to supplier from 60-100 daysLengthening terms reduces working capital and increases cash flowLengthening terms to 75 days would add $2 billion cash flow to P&G annually, this is free financing.My companies credit manager refers to this principal as Another building that we are financing and dont get our name on the titleIncreased cash flow allows for increased dividends to shareholders or buybacks, helping companies improve their standing on Wall StreetCPG Companies must be careful to balance their own customers employing this same strategy on themP&G has developed its own SCF (Supply Chain Financing strategy):Many small businesses borrow at a conservative 4% Interest rate due to tight banking regulations and a loan advisor looking over their shoulderP&G has developed a program with their banking partners to leverage their own AA credit rating to allow suppliers to borrow at lower rates to support business, around 2%P&G states that this actually shortens the number of days that suppliers get paid even when lengthening terms to P&G based on the calculation. Calculation of the cost of borrowing may actually decrease the payables days to around 15 with some suppliers

5Supply Chain EfficiencyP&G goal to cut $4.5 Billion from supply chainMajor successful initiatives throughout 2000sCollaborative Planning Forecasting and Replenishment (CFPR)Consumer Driven Supply Network (CDSN)Control Tower ProgramHP Always On operating environment

CFPR:Emerged when Pampers ordering patterns were analyzed,No glaring spikes at first glance until order patterns from Distributors and to key P&G raw materials suppliers analyzed,Creating the term Bullwhip EffectCauses of Bullwhip Effect:Separate demand forecast: done by players in supply chainPrice fluctuations: manufacturers and distributors periodically have special promotions like price discounts, quantity discounts, coupons, rebates, etc.Players in supply chain often accumulate orders (Order Batching) prior to issuing order to P&GRationing and Shortage Gaming (trying to guess demand)

6Supply Chain EfficiencyCPFR OverviewP&G CPFR is to be built onto success of the Continuous Replenishment Program (CRP) that has delivered 99% service levels and reduced customer DC inventories by as much as 50% in customers that represent over 40% of P&Gs US and European business volumeP&G has deployed CPFR to enable creation and integration of demand data. Demand planning helps P&G evolve from push to pull through marketing strategies and is the way of the future for efficient supply chains. Product under this system will flow from P&G manufacturing locations to customer DCs, then from customers DCs to retail store shelves and finally into consumers homesModel Illustration:

7Supply Chain EfficiencyCPFR Model Nine Steps:Developing collaboration agreementCreating joint business planCreating accurate sales forecastIdentifying exceptions for sales forecastResolving collaborating on exception itemsCreating order forecastsIdentifying exceptions for order forecastsResolving/collaborating on exception itemsGenerating ordersCPFR Initiative:CPFR output concentrates on improving inventory and reducing out of stocks, both objectives inversely proportional and trade offs must be madeCPFR recognizes the main causes of above objectives are identical:Ineffective trust based collaborationIneffective planning using visibility of POS (Point of sale) consumer demandIneffective forecastingIneffective product replenishment in response to demand fluctuations

8Supply Chain EfficiencyChallenges implementing CPFR:Selection of CPFR Partners: P&G and Wal-Mart assessed relationship according to anticipated, realistic benefits pertinent to common business goals, organizational and cultural issuesTrust based relationship: CFPR involves sharing sensitive information. Sharing sensitive data and close collaboration demands reliability.Detailed definitions of systems capabilities: It is key to collaborate at the same data level, sharing promotional plans, forecasts and replenishment orders per trading unit and per point of salesSenior management buy in: P&G ensured that necessary resources (HR, Technical infrastructure (IT), Time and Project Budget) were prioritized and dedicated to project

9Supply Chain EfficiencyBenefits of implementing CPFR:Increase in sales: Reduce out of stocks, lost sales and increase on shelf availability all lading to increased sales for P&GCost reduction: P&G aligns production schedules with collaborated forecast, reducing costs by decreasing set up times and variablesImproved relationship between trading partners: Collaboration fosters teamwork and relationship building. Partners gain better understanding of each others business and enhance direct communication channelsImproved responsiveness to consumer demand: Reducing out of stocks and shorter cycle times creates a more efficient supply chain, thereby improving on shelf availability and increasing consumer satisfaction: P&G has reduced replenishment time by 20% so far under CPFRGreater forecast accuracy with single shared forecast:Enhances synergies between partners and creates better more accurate forecastInventory reduction:Increased forecast accuracy facilitates a decrease in safety stock, reducing costly inventory levels while increasing on shelf availability. This reduces inventory costs for P&G and partner

10Supply Chain EfficiencyConsumer Driven Supply Network (CDSN):P&G decided to strive for connection between actual sales and the supply chain. Paradigm shift in viewing supply chain management from forecast driven to demand drivenSupply Network vs. supply chain due to information flow in all directionsP&G two moments of truth:When customer buys product off the shelfWhen customer use product and like it In order to get to first moment of truth, stock has to be availablePrior to CDSN, 48% P&G product wasnt available on shelf when customer wanted itLosing a large quantity of sales demanded corrective actionP&G collaborated with partners across supply network to win customers at the point of purchaseImplemented online Web Order Management enabling retailers to connect to P&G to access scheduling, inventory and replenishment level dataJoint scorecards used to keep partners honest

11Supply Chain EfficiencyIntelligent Daily Forecasting (IDF)(CDSN):IDF most important component of CDSNIDF is software used by P&G to forecast demand on actual sales:Inputs:Daily order informationDaily shipment informationWeekly shipment forecastOutput:Daily estimates for next 42 daysRefreshed dailyIDF tracks daily demand across various stores, converting information into replenishment plan for those storesActual demand is picked up from scanner data at point of sale (POS) and made available at production plantImplementing IDF, some P&G plants operating at 6-8 hour response times

12Supply Chain EfficiencyResults of CDSN:Forecasting accuracy has improved by 30%Shelf level out of stocks: percentage of products out of stock at retailer have dropped from 10% to 5% and improvingTotal supply chain response time: the time from when a cash register rings to the purchase of raw materials to produce replacement dropped from 6 months to 2 monthsTotal supply chain inventory: Reduced safety inventory by 10%Pricing design from shelf back: CDSN helped identify acceptable price point, working it back through manufacturing and distribution to assess price acceptability to consumer and P&G profit expectation (deciding which products to keep)Top & Bottom Line: Increased overall sales by 15% in one year, net profits gained 19%

13Supply Chain EfficiencyChallenges of CDSN:P&G has 90,000 suppliers and 150 manufacturing plants globallyReaching out to millions of global customers and gathering data very difficultMeeting challenges of developed and developing countries such as India depended on unorganized retail partnersChallenge to reach global large scale and small scale storesCreating consumer value and meeting supplier rising costs

14Supply Chain EfficiencyControl Tower Program

15Supply Chain EfficiencyControl Tower Program:Kicked off 2010 in Central and Eastern Europe, Middle East and Africa (CEEMEA)Logistics optimized making changes to rate, route, mode and method of transportationEliminate inefficiencies such as loading/unloading delays, rush transport up-charges, dead legs (empty trucks) and production line stopsLead logistics provider centrally controls and optimizes product flows, delivering maximum truck fill for every mile traveled in fastest possible time, in an ecologically friendly mannerResults:Empty truck journeys reduced by over 15% since 201058% reliability improvement on inbound operations in Egypt68% improvement finished product inbound to Turkey67,000 metric tons of CO2 reduction

16Supply Chain SustainabilityZero Waste Strategy:25% or 45 of P&Gs facilities have reached zero waste goals creating $1 Billion in value over last 5 yearsWaste from Charmin toilet tissue used to make inexpensive roof tiles for homes in MexicoWaste products from Gillette shaving foam are composted to grow turf for commercial facilitiesScrap from Pampers diapers used as upholstery fillingGoals by 2020:Started installing solar panels at facilitiesPurchasing more renewable energyAiming for 100% recycled packaging contentCut out 100% landfill wasteAs of April 2013, company claims that 99% of global waste recycled$1 Billion in new revenue shows that this is not just a program to look better to consumers but also a financial opportunity

17P&G SWOT AnalysisStrengthsGeographically diverse businessGlobal market leaderEconomies of scaleHeads and shoulders (Consumers)Innovative technologyCelebrity endorsementsBargaining power with retailersStrong Leadership (Questionable Board decisions to replace McDonald as CEO)Innovative cultureDiverse businessStable businessSuccessful business acquisition modelWeaknessesEnvironmental issues/Animal testingDangerous ingredients (to manufacturing and consumer environment)Weak online presenceLosing market share in key product offeringsProcess heavy operating environmentMature markets provide limited product expansion

OpportunitiesImportance of hygiene in emerging marketsGillette military useFashionable productsTritech lithium polymer underwater batteryMajor storms create need for productsIncreased demand for cell phonesDemand for electric carsGreen/Eco Friendly product expansionSocial Network marketing expansionDivest non core assets/business unitsLeverage supply chain and distribution networkStrong balance sheetEmerging MarketsThreatsCurrency volatilityRising manufacturing costsEmerging market wage increases (China)Lower cost productsCompetitors to GilletteAlternative energy (battery division)Duracell competitionPrivate label hurts premium productsInternational competition risingCommodity prices risingGovernment intervention and regulation

18Proctor & Gamble is a leader in all things including supply chain and will continue to be a great company.Should not try to compete with retail partners, should stick to manufacturing. P&G worked too hard to get to where they are in becoming more demand driven with partners to ruin that relationship by entering the retailing space.In my opinion, a mistake to fire McDonald as the CEO as he listened to employees, consumers and tried to get involved in all aspects of the business. Board of directors overreacted prematurely to poor financials driven by extremely challenging financial times.ConclusionSupply chain digest: http://www.scdigest.com/ontarget/13-05-02-1.php?cid=7006&ctype=contentForbes: http://www.forbes.com/sites/billconerly/2013/04/17/procter-gamble-basis-point-wise-percentage-point-foolish/Shared Services Link: http://www.sharedserviceslink.com/file/95458/procter-and-gamble-enlists-hp-to-improve-supply-chain.htmlAMEinfo.com: http://www.ameinfo.com/procter-gamble-awarded-top-award-supply-340873Greentech Efficiency: http://www.greentechmedia.com/articles/read/How-Proctor-Gamble-Created-1-Billion-in-Value-with-WasteCNN Money: http://tech.fortune.cnn.com/2013/04/30/procter-gamble-bob-mcdonald/Brainstorm Green: http://tech.fortune.cnn.com/2013/04/30/procter-gamble-bob-mcdonald/Information Week: http://www.informationweek.com/global-cio/interviews/pg-ceo-shares-3-steps-to-analytics-drive/240148065Slideshare: http://www.slideshare.net/kunal2k3/pg-supply-chain-management

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