About P&GIndustry Consumer goodsFounded 1837Revenue $78.9 billionOperating income $16.13 billionNet income $12.74 billionEmployees 127,000
Supply chain initiatives of P&GMajor Initiatives Collaborative Planning Forecasting and Replenishment (CPFR) Consumer Driven Supply Network (CDSN)Other Initiatives Control Tower Program
CPFR Pre scenario - Bullwhip Effect The concept emerged when the logistics executives at Procter & Gamble (P&G) examined the order patterns for one of their best-selling products Pampers. Its sales at retail stores were fluctuating, but the variability was certainly not excessive. However, as they examined the distributors orders, the executives were surprised by the degree of variability. When they looked at P&Gs orders of materials to their suppliers, such as 3M, they discovered that the swings were even greater. At first glance, the variability did not make sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variability in the supply chain were amplified as they moved up the supply chain. P&G called this phenomenon the "bullwhip" effect.
CPFR pre scenario - Bullwhip Effect- Causes Separate demand forecast done by players in supply chain. Price fluctuations manufacturers and distributors periodically have special promotions like price discounts, quantity discounts, coupons, rebates, and so on. Players in supply chain after receiving order accumulates demands (Order Batching) before issuing an order. Rationing and shortage gaming.
CPFR - Overview Procter & Gamble’s CPFR focus is to build on the current success of the Continuous Replenishment Program (CRP). CRP has delivered greater than 99% service levels, and has reduced customer distribution center inventories by as much as 50% in customers representing over 40% of our U.S. and European businesses. P&G has deployed CPFR to enable creation and integration of consumer demand data. This will trigger product flow from our manufacturing plants to our customers’ DCs, from the customers’ DCs to their retail store shelves, and ultimately from the store shelves into consumer homes.
CPFR - ModelCPFR is a nine-step process model consisting of Developing collaboration agreement Creating joint business plan Creating sales forecast Identifying exceptions for sales forecast Resolving collaborating on exception items Creating order forecast Identifying exceptions for order forecast Resolving / collaborating on exception items Generating orders
CPFR - Initiative Primarily CPFR output concentrates on improving inventory and reducing out-of-stocks. Since both the objectives are inversely proportional; trade-offs must be made. CPFR recognizes that the main causes of these two issues are identical: 1. Ineffective trust-based collaboration. 2. Ineffective planning using visibility of POS consumer demand. 3. Ineffective forecasting. 4. Ineffective product replenishment in response to demand fluctuations.
Challenges in Implementing CPFR Selection of CPFR Partners P&G and Wal-Mart assess the potential relationship according to anticipated, realistic benefits, pertinent to common business goals, organizational and cultural issues. Trust Based Relationship CPFR involves sharing sensitive information.To take full advantage of the benefits of CPFR, P&G and Walmart created a relationship founded on trust. Sharing sensitive data and close collaboration demands reliability.
Challenges in Implementing CPFR Detailed Definition of Systems’ Capabilities For the success of CPFR it is key to collaborate at the same data level. In particular, best practice would be to collaborate at the lowest data level; sharing promotional plans, forecasts and replenishment orders per trading unit and per point of sales. Senior Management buy in Senior management of P&G made sure that the necessary resources (Human Resources, Technical Infrastructure, Time and Project Budget) are prioritized and dedicated to the project.
CPFR - Benefits Improved responsiveness to consumer demand The reduction of out-of-stocks and shorter cycle times leads to a more responsive and reliable supply chain for P&G, thereby improving on-shelf availability and increasing consumer satisfaction. Through CPFR P&G reduced replenishment time by 20%. Greater forecast accuracy with single shared forecast Sharing a single forecast along the supply chain enables P&G to benefit from potential synergies and brings together trading partners’ efforts. Depending on their position in the supply chain and supply chain activities, trading partners may have different views of the market and information. Combining this knowledge is the foundation for greater forecast accuracy. Through CPFR forecast accuracy improved by 20%.
CPFR - Benefits Increase in sales Collaboration on planning and forecasting potentially reduces out-of-stocks, lost sales and increases on-shelf availability which leads to increase in sale of P&G. Cost reduction P&G has aligned the production schedule with the agreed forecast, so costs has been reduced by decreasing set-up times, effort duplications and variations. Improved relationship between the trading partners The relationship between P&G, wall mart has improved when collaboration takes place. Trading partners will gain a better understanding of their respective businesses by regularly exchanging information and establishing direct communication channels.
CPFR - Benefits Inventory reduction Increased forecast accuracy facilitates a decrease in the safety stock, reducing inventory levels and increasing on-shelf availability. Thus the inventory cost for P&G has reduced.
CDSN – Pre Scenario P&G believes in 2 moments of truth. ◦ First, when customer buys the product from shelf. ◦ Second, when they actually use it and like it. In order to handle the first moment of truth, it is important to have stocks available on shelf. P&G realized that 48% of times their products were unavailable on the shelf when the customers wanted it. They were losing a large quantum of sales and hence needed to take corrective action.
CDSN - Initiative P&G redefined its supply chain strategy under the leadership of Keith Harrison – Head of Global Product Supply Division. P&G decided to have a connection between actual sales and the supply chain process. Paradigm shift in viewing supply chain management from forecast driven to actual demand driven. Supply Network instead of a supply chain because of information flow in all directions.
CDSN - Initiative P&G started its supply chain from store shelves and moved back to its suppliers. This operating strategy was called Consumer Driven Supply Network. CDSN required P&G to create a responsive supply chain that would produce and supply products as per demand at the customer level. Harrison was quoted saying:“ We need to work off of real demand, so that we produce what is actually selling, not what is forecast to sell.”
How did P&G implement CDSN P&G collaborated with its partners across the supply network to win consumers at the point of purchase. Implemented an online system-”Web Order Management”. This enabled retailers to connect to P&G and access its scheduling, inventory and replenishment levels. Various other initiatives like using multifunctional resources, joint scorecards and sophisticated technology were undertaken in collaboration with retailers.
CDSN – Intelligent DailyForecasting (IDF) IDF is one of the most important component of CDSN. IDF is a software used by P&G to forecast the demand based on actual sales. Following are the Inputs and outputs that this software provides. Input: ◦ Daily Order Information ◦ Daily Shipment Information ◦ Weekly shipment forecast •Output: ◦ Daily estimates for next 42 days ◦ Refreshed Daily
CDSN – Intelligent DailyForecasting (IDF) IDF tracks daily demand across different stores, and that itself becomes the replenishment plan of P&G for those stores. Actual demand is picked up from the scanner data at the point of sale and it is made available at the plant where it becomes part of the daily production schedule. As a result of implementing IDF, P&G is running few plant at 6-8 hours response time.
CDSN - Challenges The $83 billion company had a total of 90000 suppliers with 150 manufacturing plants globally. Reaching out to millions of customers across the globe was a major challenge. Meeting the diverse challenges of developed and developing markets as such markets like India depended on unorganized retail. The challenge was to reach the global large-scale retailers as well as the small and local street shops. Creating consumer value and meeting rising supplier costs.
Impact of CDSN - Results1. Forecasting Accuracy: Improved forecast accuracy by 30%.2. Shelf-Level Out of Stocks: The percentage of products that are out of stock on retailers shelves at any given time. P&G has cut this to 5%, from 10% within 8 months of implementation.3. Total Supply Chain Response Time: The time from when a cash register records the sale of a product to the purchase of raw materials to produce its replacement. From six months, it came down to two months.
Impact of CDSN - Results4. Total Supply Chain Inventory: The hard count of all products flowing through the supply chain at any given moment, whether on store shelves, in back of the store, at warehouses, in trucks or wherever. P&G got a daily count, rather than weekly or monthly and hence reduced safety inventory by 10%.5. Pricing-Design From the Shelf Back: CDSN helped in determining an acceptable price point for an item and then working it back through manufacturing and distribution to see if that product can be delivered at a price acceptable to consumers and a profit acceptable to P&G.6. Topline and bottomline: Increased overall sales by 15% in one year. Net profits witnessed a 19% gain from $4.35 billion to $5.19 billion.
Impact of CDSN - Results Jake Barr - In Charge Supply Chain Innovation was quoted saying“Twelve months into the new pull system, the company is close to its original goal of cutting out-of-stock conditions in half. Now 93% of outlets working under the new system are experiencing no more than 5% out- of-stock rates.That represents a yearly savings of $50 million to $100 million.”Source: www.baseline.org – 01-07-2004CDSN helped create a balance between excess inventory and stock- outs Financial Times once wrote,“An effective supply chain helps manufacturers by reducing a retailers “out-of-stocks”, which in turn prevents lost sales. Those sales also benefit the retailer, while efficient delivery of products to meet demand can also reduce the costs of holding inventory to the retailer.”
Control Tower Program Logistics optimized by making changes to the rate, route, mode and method of transportation. Helped in eliminating inefficiencies such as loading and unloading delays, rush transport up-charges, dead legs (empty trucks) and production line stops. The lead logistics provider centrally controls and optimizes the product flows, delivering maximum truck fill for every kilometre travelled in the fastest possible time, in an ecologically friendly manner.
P&G Control Tower Program Kicked off in 2010 in Central and Eastern Europe, Middle East and Africa (CEEMEA). Turkey and Egypt were the first countries in CEEMEA region to adopt the Control Tower logistics optimization effort.Results Amount of empty truck journeys reduced by over 15% to date. 58% reliability improvement on inbound operations in Egypt. 68% improvement in our finished product inbound operation in Turkey. 67,000 metric tons reduction in CO2 emissions.
Bibliography http://www.supplychainbrain.com/content/industry-verticals/cpg/single- article-page/article/procter-gamble-uses-consumer-demand-info-to- drive-supply-network/ Intelligent daily forecasting by Mark Kremblewski, P&G Proctor & Gamble – Building a supply chain by Gartner research, Inc Demand Sensing, Enabled Supply and S&OP Improvements at P&G - David Mills, Procter & Gamble P&G annual reports & Sustainibility reports. VICS CPFR Committee http://www.vics.org/committees/cpfr/ Gower Handbook of Purchasing Management