Integrated Supply Chain

by Oliver Geuther

TOP Company172 years old

300 brands in 180 countries

$79 billion of turnover

25 Research & Development Centers (12 countries)

$200 million of investments in Ukraine economy

P&G Ukraine

Kiev General Office

Boryspil Plant

Kiev oblast

Ordzhonikidze Plant

Dnipropetrovs‟k oblast

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Current:

• Boryspil Plant Manager (5th largest FemCare Plant in P&G)

Education:

• MS in Mechanical Engineering

(speciality Chemical Engineering)

Experiences in P&G :

•

• Worked in Germany, USA, Turkey, Ukraine

• Manufacturing, Logistics & Warehousing, Global Planning

• BabyCare & FemCare

3

Who Am I ?

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• To expose you to current trends and

thinking on Logistics & Supply Chain

Management

• To share with you some of P&G’s

experiences and thoughts

3

Purpose

6

• 4 Laws of Logistics

• Business Cases

• Communication

3

Agenda

Two Moments of Truth for the Consumer

When she chooses and when she uses

8

9

Retailers and manufacturers loose when a consumer faces an empty shelf

European consumer behavior facing Out-of-Stock in store

Doesn't buyanything

9%

Buys different size

16%

Buys brand elsewhere

21%

Buys a different brand 37%

Returns later

17%

30 % lost opportunities for Retailer

46% lost opportunities

for Manufacturer

4 billion

Euro of

lost sales

in

Europe!

103

Supply Chain Management

“Supply chain management can be defined as

the management of upstream and downstream

relationships with suppliers, distributors and

customers to achieve greater customer value-

added at less total cost”.

Mission of Supply

Chain/Logistics

Get your product to the consumer

at the lowest possible cost & cash

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123

What are Supply Chain “Laws” ?

Manufacturing Distribution RetailMaterial Supplier Customers

Supply Chains conform to Physical / Empirical Laws

Implication:

• Supply chain performance is predictable and can be designed

• By precisely specifying the structure of the supply chain, the

operating strategy and quantifying measures consistently, we can

dramatically improve Supply Chain performance

133

The Laws of Logistics*

The Law of Lowest Total Cost

The Law of Speed, Quality and Accuracy

The Law of Supply Chain Volatility

The Law of Counter-intuition

The Laws of Logistics are an original concept of Logistics Consulting Partners Ltd.

They may be quoted but must be accredited. © LCP Ltd. All rights reserved

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Achieving an Integrated Supply Chain

Stage I: Isolation

Stage II: Internal Integration

Materials

Management

Stage III: External Integration

Manufacturing

ManagementDistribution

Suppliers Internal Supply Chain Customers

Purchasing Material Control Production Sales Distribution

Consumers

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(Source : A.T. Kearney)

The Extended Enterprise Viewpoint

Single company thinking

Focus on the customer

Increase own profits

Consider own costs only

Guard ideas, information and resources

Improve internal process efficiency

Extended enterprise thinking

Focus on the ultimate consumer

Increase profits for all

Consider total costs

Share ideas, information and resources

Improve joint process efficiency

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Destructive Negotiations

Choosing The Operating Strategy

P

Capability

Operating Strategy – The set of parameters and principles which

guide the way resources will be managed to achieve the business

objectives at the lowest total system cost.

Ccapacity

Iinventory

Ddemand

Demand

Planning

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P&G‟s approach towards Supply Chain:

Consumer Driven Supply Network

• Win at the first and second month of truth: when the consumer

buys (1st) and when they try (2nd) the product

By Making sure that:

• The Right Product arrives at

• The Right Place at

• The Right Time at

• The Right Cost

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1.The Law of Lowest Total Cost

“The total cost of producing & delivering product is usually larger than the sum of the lowest functional costs of each element in the supply chain”

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The Effect of Time

Procurement Manufacturing Delivery

Logistics Lead Time

(90 days)

Customer‟s Order Cycle

Order Fulfillment

(5 days)

Lead-Time Gap 85 days !!!

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Demand Predictability and

Lead-time

Forecast

Error

Lead-Time

+

-totn

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Traditional Supply Chain

Manufacturer Customers

Goods flow

Demand flow

DC Store

• Sequential backward action

• Filtering of real demand by

inventory

• Significant batching activity

• Noise in demand patterns

• Forecast dependent

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Continuous flow requires Information Sharing

• Using shared information to reduce time in the supply chain

• Optimize use of capacity

• Managing upstream inventory

• Using shared information to reduce forecast horizon

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Why Do We need Inventory?

Inventory

Volatile

Demand

Inaccurate

Forecasts

Unreliable

Suppliers

Quality

ProblemsBottlenecks

A

B

Inventory Hides the Problems

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Dell Computers

• Logistics strategy plays an important role in Dell Computer’s

impressive financial performance.

• Dell’s direct distribution eliminates as much as 2 months of warehouse and

retail storage.

• About 80% of the cost of a PC consists of components.

• Component prices fall while on the shelves at 30% per year.

• The consequences of logistics delays are overpriced products and possible

obsolescence.

• Direct sales also helps Dell in forecasting.

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Two key techniques:

• Vendor Managed Inventory (VMI)

• Collaborative Planning, Forecasting & Replenishment (CPFR)

Achieving Speed in the Supply Chain:

Substituting Information for Inventory

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2.The Law of Speed, Quality and Accuracy

“In logistics & supply chain management, faster

simpler and better is almost always cheaper”

P&G Ukraine Supply Chain

• 2 plants and 2 distribution centers

• 40 brands, 3000 stock keeping units

• Products are shipped to 50+ customers

• Imports from 31 foreign plants

• 30 trucks enter Ukraine border everyday

• 30 trucks arrive to customers everyday

• 1500 employees are involved in P&G supply chain

plus 400 from our partner companies

Business Case 1: Supply network design

P&G DC and buffer

Gillette DC and buffer

Gala DC and buffer

P&G distributors Gillette distributors Gala distributors

Customization center

Question: do we need change?

If yes, what exactly would you suggest to change?

Case 1: what we need to change?

P&G DC with in-house

customization center

P&G ship to

Direct deliveries

Direct deliveries

Direct deliveries

Direct deliveries

•optimize number of DCs

•close buffers

•establish in-house manipulation capability

•optimize number of distributors and ship-to

•maximize direct supply from plants to customers

• Reduced supply chain lead-time

• Reduced inventory

• Improved service

• Improved productivity

• Several $ millions savings annually

Executed by Supply Network Operations department

Case 1: Streamlined and cost effective

supply net-work design

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Variety Grows

Increased competition

Consumer demand for new products

Customer demand for new products

Marketing why we are unique

High profit margin products

What happens when variety increases ?

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Company A Company B Company CCo

ns

um

er

Required

capacity

180%

40%

100%

Company A

The „Forrester‟ Effect

Company B

Company C

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Shall we produce once a month ?

Every week ?

Every day ?

3 times a day ?

Is there a right answer?

Volatility caused by Manufacturing

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Shall we ship a full truck ?

A small full truck?

Half a truck ?

1 pallet ?

Is there a right answer?

Volatility caused by Logistics

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3.The Law of Supply Chain Volatility

“The volatility of final consumer demand is always less than what we experience through the supply chain by distribution, manufacturing and suppliers”

Example

Tide detergent weight/pallet– 1000 kg

How many pallets of Tide will fit into truck?

How many pallets of Pampers will fit into truck?

Business Case 2 :Logistics at P&G

Answer: 1 truck of Pampers – 33 pallets

Load shipment:

By euro trucks – 33 pallets, 20 tons;

Pampers weight/pallet – 150 kg

Answer: 1 truck of Tide – 20 pallets

Challenge: how to ship 33

pallets of Tide and 33

pallets of Pampers in 2

trucks?

Therefore, combining products in trucks helps to reduce

number of trucks (and logistics costs)!

Truck 1:

16 pallets of Tide + 17 pallets of Pampers. (18550 kg)

Truck 2:

17 pallets of Tide + 16 pallets of Pampers.(19400 kg)

Logistics at P&G. Case 2

Challenge: how to ship 33 pallets of Tide and

33 pallets of Pampers in 2 trucks?

33 pallets,20 tons.

2000 kg are left. How to use them?

Loading on top. Truck 1 – 43 pallets, truck 2 – 37 pallets.

assortment: 600 SKUs, 50 categories, different

densities and pressures.

Limit: total weight, weights on axis

In practice: heterogeneous transport, quality

constraints, different product mix for

different customers, how to implement into

automated processes at warehouses?

Result: 21 – 21.5 tons range

Logistics at P&G

In reality: how to increase weight

limit up to 22 tons?

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If only manufacturing would

make what we ask for we

could do the business

MANUFACTURING PREFERENCEATTRIBUTE MARKETING PREFERENCE

Minimum

Stable

Minimal

Long

Unacceptable

Maximum

Continually Changing

“Infinite”

Short

Fact of Life

PRODUCT RANGE

PRODUCT SET

FLEXIBILITY

LEAD TIME

UNFORECAST DEMAND

If only marketing could

forecast accurately and sales

deliver the orders we could

meet requirements

Source: Inger

Centre of Conflict

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Circular References

Volatility is caused by time lags

Time lags are created to optimize cost

Cost is not necessarily lowered by slowing things down

Slowing things down is a function of variety and complexity

Variety and complexity mean it all gets „too difficult‟

which is why we don’t trust anyone & we slow things down more

adding more time creates volatility

volatility costs money so we add more time

adding more time makes us careless and unreliable

Unreliability creates volatility…………………………………………………….

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4.The Law of Counter-intuition

“The normal human response to the effects of the

previous laws is to introduce delay in an attempt to

increase certainty which simply makes the situation

worse

- effective supply chain management is counter

intuitive”

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What Is the source of

Most troubles at Work ?

Distortion

Of

Information

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Distortion of Information

Wrong information

Too much information

Increases confusion

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How to Reduce Confusion

• Listening

• Simple language

• Single point accountability

• KPI’s

• Being in touch with reality

• Frequent feedback from customers

• Few layers in the organization

• Daily Reviews

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Communication Style Reducing Confusion

• Stick to facts, don’t speculate

• Check understanding

• Avoid slogans, jargon and generic

• Don’t repeat

• Phone/Talk Vs. e-mail

• Know when to stop talking

• Get to the point / conclusion

• Be open / direct

Career in P&G

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WE BUILD FROM WITHIN

Education and Career

at Glance

2005Exchange student at California State Polytechnic University –Operations and Technology Management

2007Graduated from Zaporozhye Institute of Economics and IT –Economic cybernetics

2008Joined P&G as Process Engineerwith immediate responsibilities

2009Got new role of Distribution Center Operations Leader

MBA on the Job:

In 1 year and 4 months at P&G I completed:

• New hires college/3 months on boarding program (50+ training sessions)

(Kyiv, Ukraine)

• New Manager Emerging Leader Training (Kyiv, Ukraine)

• Integrated Supply Chain Training (Moscow, Russia)

• Quality Assurance in Logistics (Prague, Czech Rep.)

• + 35 other specialized web-based logistics trainings!

… and more to come!!!

Process Engineer –

I was in charge from the very 1st day:

• Project manager of the distribution

center move project

• Project team of 20 people plus 100

involved on 3 continents

• Completed project in record timing,

below budgeted cost, with no

interruption of business

In 4 months I became

Distribution Center Operations Leader:

• Supervise logistics operations at one of

the largest FMCG DCs in UA

• Govern logistics service provider

company with 120 employees

• Work directly with general and

commercial directors

• Own DC cost-saving program

worth > $ 1 million

Learn more on our work

and success stories at

… and apply for your future success!!!

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Supply Chain Business Game

When: October 27, 2010

Where: P&G Kyiv General Office

Application deadline: October 15, 2010

Apply and take the challenge!

• an intensive one day business game for students in their last 2

years of study or fresh graduates

• an opportunity to join P&G Supply Network department as intern or

full-time employee

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Internship in P&G is…

2-3 month paid job

interesting and challenging project

comprehensive training and development program

opportunity to know one of the biggest international companies from within

chance to express yourself in real business environment

and in case of success –chance to get a job offer!

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Visit our web-site

Thank you!