8/6/2019 Assignment of Distribution Management 1208

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Assignment

Marketing Channels

Supply chain of Proctor & Gamble

Prepared By

Gautam Donga

1208

Submitted to

Pro. Shefali Jain

CMS, DDU

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Introduction

The evolving supply chains (SCs) environment requires a judicious

combination of flexibility, knowledge sharing, and decision making. As a resultthere is need to provide judicious selection of supply chain flexibility levels andstages. Thus, most real world supply chains having varying levels and types offlexibility, employ decision knowledge with dynamic changing ability of thesystem, so as to harness this flexibility when required. The dynamic SCsenvironment involves the following activities, related to the decision initiation,

processing and implementation:

1. Selection of dynamic parameters.2. Selection of major performance measures like cost, time etc.3. Collection of actionable information.4. Sharing of knowledge with other partners.5. Recognition of changes in the state of the system and determination of their

impact.6. Evaluation of alternative opportunities.7. Judicious flexibility type.8. Election of most suitable decision.9. Implementation of decision by providing necessary IT support.

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About P&G

Zeroing in on the first moment of truth Procter & Gamble, a world leader inconsumer packaged goods, sells nearly 300 brands in more than 160 countries. Ithas sales of $40 billion a year and 130 manufacturing sites around the world P&Gmeasures consumer satisfaction at two levels, which it calls the two moments oftruth.

The first moment of truth occurs when the consumer reaches the shelf andfinds that the desired product is, or is not, available. This is a critical moment,

because if the product is not immediately available, the consumer usually moveson to buy a rival product.

The second moment of truth depends on the buyers satisfaction when

consuming the product. Detailed consumer surveys in July 2000 told P&G that in55% of cases (75% for promotional items), consumers were not satisfied whenthey looked on the shelf for the products they wanted. Responsibility for havingthe product on the shelf every time a shopper wants it used to be seen as purely amatter for the retailer. If retailers got their forecasts wrong and ordered the wrongvolumes, the manufacturer was not aware of the problem, or at least not concerned

about it. But, at the end of the day, both the manufacturer and the retailer werelosing.

P&G was ahead of the pack in realizing the significance of this, though othermanufacturers are now also focusing on the end consumer, which is one reasonwhy the industry is seeing so many new CPFR (collaborative planning, forecastingand replenishment) and VMI (vendor-managed inventory) programs.

Top managers in P&G began to realize that the companys supply networkneeded to be re-engineered so that it was genuinely responsive to consumerdemand. This was especially important for promotional items, because of the costof merchandising and promotional activities, and the long-term negative impact ofstock-outs on consumers. After customers have been unable to buy the desired

product and have switched to alternatives, it becomes hard to persuade them toreturn to buying the initial product when they go shopping again. P&G decidedthat sophisticated demand chain management, establishing direct connections

between sales and supply chain business processes, could be the key to maintainingits leading position in the consumer packaged goods industry. As a result, a multi-level initiative was launched, which P&G calls its consumer-driven supplynetwork (CDSN) program.

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As the largest functional organization in P&G, Product Supply has almost50% P&G employees, and 140+ plants in 40 countries. There are 5 disciplines inProduct Supply: Customer Service & Logistics, Engineering, Manufacturing,Purchases, and Quality Assurance

Whats 5 PS Disciplines:

Customer Service & Logistics:

Delivers supply chain integration through to our customers shelves towin the first moment of truth, which enables superior retail presence and improvedcustomer and consumer value. Our mantra is Always There, Always Preferred,

Always Affordable.

Engineering:

Deliver a competitive advantage by innovating, providing andprotecting supply network technologies, systems and facilities in a safe and

healthful environment to maximize consumer value and increase project NetPresent Value and shareholder return.

Manufacturing:

Use different technologies, human resources and capital assets tomanage the making, packing, and assembly systems to produce the right productsat the right time with quality, consistency and total delivered cost reduction.

Purchases:

Use our understanding of global, regional and local market as well asindustry trends. Build supplier relationships to achieve the best overall value for

the Company when acquiring or contracting for goods, services, property andequipment.

Quality Assurance:

Develop and establish a Company-wide vision, strategy and quality

policy that ensures the delivery of design and execution excellence within legaland regulatory compliance. Build the business by leveraging quality to win at theFirst and Second Moments of Truth while delivering consumer satisfaction.

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P&G Key Performance Indicators

1. Shelf-Level Out of Stocks: The percentage of products that are out of stock onretailers' shelves at any given time. P&G has cut this to 5%, from 10%.

2. 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 itsreplacement. P&G wants to chop this in half, from 100 days.

3. Total Supply Chain Inventory: The hard count of all products flowing throughthe supply chain at any given moment, whether on store shelves, in back of thestore, at warehouses, in trucks or wherever. P&G wants a daily count, rather thanweekly or monthly.

4. Sh

elf-Level Quality: The percentage of packages damaged or otherwiseunappealing when a customer sees them on a store shelf. The goal: zero.

5. Pricing-Design From the Shelf Back: Determining an acceptable price pointfor an item and then working it back through manufacturing and distribution to seeif that product can be delivered at a price acceptable to consumers and a profitacceptable to P&G.

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Retail changes put pressure on the supply chain

For the major consumer packaged goods manufacturers, the strategies that arecurrently being pursued by the worlds most competitive retail chains are changingthe game in two important ways.

As consumers come to expect a greater assortment of product options, retailers

are responding with greater product differentiation, driving up service levelexpectations.

Cash requirements are creating pressure for shorter order-to-delivery cycles and amove towards flow-through distribution networks. These trends are already

beginning to eliminate the safety stocks that used to be held in reserve in the retailsupply network.

This situation creates several new problems that P&G and other manufacturersneed to come to terms with.

Reaction times across the supply networkhave been compressed.

Current processes cannot move fast enough to deliver what retailers need.

Supply decisions require timely, detailed information that is not usually

available today.

P&Gs aim has been to create adaptive, responsive supply networks that will linktogether sales and supply processes, inside and outside the organization, toimprove product availability. This will allow it to develop demand chainmanagement capabilities, especially for promotions. Promotional items are thehighest priority, because of the large amounts of money involved in marketing

programs. If manufacturers cannot deliver the product, they lose all the growth thatshould be generated by their marketing promotions, however much demand isstoked up.

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New thinking, new techniques, and new technology

P&Gs vision of a consumer-driven supply network has two essential elements.

Building collaborative supply chains at several levels (local market and globalmarkets, for example).

Ensuring that manufacturing sites serving both local and global supply networksare highly responsive to changes in demand, based on real-time data from thestores.

Links between supply chain planning and supply chain execution processesare critical. In the transportation area, P&G expects a lot of change, includingimproved collaboration with logistics outsourcers and more use of techniques such

as cross-docking. This system, under which inbound trucks are unloaded and thegoods are sorted and loaded straight onto outbound vehicles, without ever being

put into store, can be used to cut inventory and handling costs, as well as deliverytimes. Daily planning will give way to continuous plan make-ship processes, whichwill demand improved loading techniques to make efficient use of vehicles as lotsizes become smaller.

In P&Gs vision of the consumer-driven supply network, daily demandupdates provide timely warning of changes in product consumption. To make theCDSN work, this information must then be rapidly integrated into replenishment

plans, internally and for partners and suppliers. P&G is also piloting newdistribution requirement planning techniques that will make it easier to understand

product requirement implications across the distribution network.

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Discoveries

Out-of-stocks cost you one sale in nineThough the consumer buys from the retailer, and not directly from themanufacturer, the manufacturer cannot afford to ignore the problem of shortages atthe store or shelf level.

It has identified the main requirements for successful network collaboration

under four headings:

The potential to move large volumes of data fast. Data should be handledautomatically, without needing to be transformed or translated on arrival.

An adaptive, dynamic approach that uses new business applications to monitor,alert, evaluate and, where appropriate, trigger action.

The ability to establish connections quickly on demand, if necessary withinhours.

Enhanced back-up and recovery strategies for all the systems involved. Thetechnical challenges cannot be ignored, because batch processing windows soonnarrow right down. This is especially critical if these harmonized businessapplications are going to be deployed on a global scale.

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P&G is working with its IT suppliers to develop additional functionality like:

Demand planning: P&G has launched a new demand planning system, which isnow used to forecast 80% of the companys sales volume. It is already showingthat it can produce forecasts with significantly improved accuracy.

Rough-cut capacity planning: P&G has introduced a pilot to support rough-cut

capacity planning processes in its detergents business. This has already succeededin cutting out-of-stocks by three-quarters and reducing inventory levels.

Distribution requirements planning: Among others, there has been a successful pilot project in P&Gs North American cosmetics manufacturing facility,supporting a daunting 10,000 permutations of product and distribution channel.

Private e-marketplace facilities

P&G has also developed private e-marketplace facilities for both suppliersand customers, allowing its key business partners to see its inventory levels and

production plans and perform real-time transactions via Web-enabled front-endsystems.

This approach has produced inventory savings across the whole supplychain, and allowed the introduction of other improvements, such as automaticinvoice processing. Improved responsiveness to events has enabled P&G toincrease promotional product volumes, but still be left with less residual inventorywhen each promotion is over.

`At its manufacturing sites, P&G is experimenting with early pilots tosupport produce-to demand capabilities. These involve superimposing real-timedemand signals onto the production plan, and integrating real-time shop-floor andwarehouse data. It is also piloting a dynamic distribution requirements planningsystem, in which the planning cycle is automatically triggered by major events,such as changes in demand or inventory, and could be run many times a day.Though the pilots are still in early stages, incorporating these highly responsive

processes into the supply chain will eventually cut costs and lead to realimprovements in consumer satisfaction.

These projects are all contributing to P&Gs overall goal of building its consumer-driven supply network, while producing immediate improvements in thecompanys capacity to do business.