Supply Chain Management

Submitted by

Savio Cerejo 2010C25

Ayush Bhagat 2010C29

Krishna Bajaj 2010C37

Sohan Tulpule 2010C39

Kritika Priyadarshini 2010C40

Kunal Singh 2010C41

About P&G

Industry Consumer goods

Founded 1837

Revenue $78.9 billion

Operating income $16.13 billion

Net income $12.74 billion

Employees 127,000

Supply chain initiatives of P&G

Major 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&G's 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.

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 pre scenario - Bullwhip Effect

- Causes

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 - Model

CPFR 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 - Model

CPFR - Initiative

CPFR Processes Addressed

Collaborative Processes

Integrated Planning and Forecasting Processes

Replenishment Processes

Supply Chain Management Processes

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 Daily

Forecasting (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 Daily

Forecasting (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 - Results

1. 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 - Results

4. 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 – 01-07-2004

CDSN helped create a balance between excess inventory and stock-outs

Financial Times once wrote,

“An effective supply chain helps manufacturers by reducing a retailer's “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

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.

Logistics optimized by making changes to the rate, route,

mode and method of transportation.

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

Thank You