An Assignment on Supply Chain management at Procter & Gamble (P&G)

For the subject of: SUPPLY CHAIN MANAGEMENT

Submitted to: Ms. Suchi Patel Assistant professor Anand Institute of management, Anand.

Submitted by: Shah Chirag Nitinbhai Enrollment number: 117020592014 Batch: 2011-13

ANAND INSTITUTE OF MANAGEMENT (Affiliated to Gujarat Technological University)

1]

Supply Chain of P&G:-

Procter & Gamble, a world leader in consumer packaged goods, sells nearly 300 brands in more than 160 countries. It has sales of $40 billion a year and 130 manufacturing sites around the world. P&G decided that sophisticated demand chain management, establishing direct connections between sales and supply chain business processes, could be the key to maintaining its leading position in the consumer packaged goods industry. As a result, a multi-level initiative was launched, which P&G calls its consumer-driven supply network (CDSN) program. Retail changes put pressure on the supply chain:For the major consumer packaged goods manufacturers, the strategies that are currently being pursued by the worlds most competitive retail chains are changing the 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 level expectations. Cash requirements are creating pressure for shorter order-to-delivery cycles and a move towards flow-through distribution networks. These trends are already beginning to eliminate the safety stocks that used to be held in reserve in the retail supply network. This situation creates several new problems that P&G and other manufacturers need to come to terms with. Reaction times across the supply network have 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. Optimizing supply chain performance demands a radical new look at the way the partners in the supply network collaborate, involving retailers, manufacturers and service providers. P&Gs aim

has been to create adaptive, responsive supply networks that will link together sales and supply processes, inside and outside the organization, to improve product availability. This will allow it to develop demand chain management capabilities, especially for promotions. Promotional items are the highest priority, because of the large amounts of money involved in marketing programs. If manufacturers cannot deliver the product, they lose all the growth that should be generated by their marketing promotions, however much demand is stoked up. 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 global markets, for example) Ensuring that manufacturing sites serving both local and global supply networks are highly responsive to changes in demand, based on real-time data from the stores. Links between supply chain planning and supply chain execution processes are critical. In the transportation area, P&G expects a lot of change, including improved collaboration with logistics outsourcers and more use of techniques such as cross-docking. This system, under which inbound trucks are unloaded and the goods 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 delivery times. Daily planning will give way to continuous planmake- ship processes, which will demand improved loading techniques to make efficient use of vehicles as lot sizes become smaller. In the short term, P&G expects to see supply networks based on relationships, rather than entirely owned by manufacturers. This kind of collaborative organization offers the flexibility to vary capacity according to short-term or last-minute needs. End-to-end optimization is essential, as there is no point in optimizing one component (e.g. production responsiveness) at the expense of another (e.g. delivery and transport costs).

In export markets, with their longer replenishment lead times, this kind of improvement can be difficult to manage. But these are the very markets that may also offer the biggest rewards in terms of inventory reduction and improvements in availability.

In P&Gs vision of the consumer-driven supply network, daily demand updates provide timely warning of changes in product consumption. To make the CDSN work, this information must then be rapidly integrated into replenishment plans, internally and for partners and suppliers. P&G is also piloting new distribution requirement planning techniques that will make it easier to understand product requirement implications across the distribution network. For the CDSN idea to become a reality, some organizational changes were necessary, as existing processes could not keep up with the new business targets for customer and consumer service. But it was also clear that there were technology issues that must not be forgotten. The battle cry of Business strategy first, technology second is now accepted wisdom, but changing the business strategy would not have been feasible without changing the technology, too. Achieving optimization across the supply and demand chains requires network collaboration between partners, and a set of tools that will help and facilitate that collaboration. These tools must include a harmonized business applications portfolio, including, in P&Gs case, a globally standardized ERP platform predominantly based on SAP software. The final element required to make the CDSN concept work is technology for real-time tracking of products, cases and pallets within a manufacturing operation. P&G is one of the sponsors of MITs Auto-ID Center, which is working to develop cheap radio-frequency ID tags that can be built into packaging to provide real-time demand monitoring from the retailers shelves all the way back through the supply network.

2]

Inventory management at P&G:-

Procter & Gamble Takes Inventory Up a Notch While it's very much on top of its supply chain game, Procter & Gamble still sees opportunity in reducing its worldwide inventory levels. That explains why the company is putting so much emphasis on emerging multi-echelon inventory management technology to keep inventory levels down and customer service high. A fresh look at inventory optimization So, how are companies like P&G now finding gold in supply chains that many thought had been stripped of surplus inventory? Years of experience with just-in-time deliveries, vendor-managed inventory activity, increasingly accurate forecasting, and responsive, collaborative disciplines such as sales and operations planning have indeed whittled work-in-process inventory and previously warehoused supplies and materials to levels that have sometimes turned out to be dangerously low. But traditional inventory management practices are being made obsoletethe result of increasingly global supply chains and the move to more contract manufacturing, more dynamic product life cycles, and multi-channel distribution. Many companies are now actively reevaluating their inventory management processes and technologies, says research firm

Aberdeen Group. Nearly two-thirds of the respondents to an Aberdeen study say they have recently made or been asked to provide recommendations to management on how to improve their inventory management technology. The new focal point is inventory optimization, based on new insights from mathematical models that allow managers to envision and plan around much more complex scenarios. Specifically, new software gives planners simultaneous views of inventory across several supply chain stages, or echelons. It's not always about sheer reduction of inventoryit's about optimizing the mix, explains Will McNeill, an analyst with AMR Research. You may end up still having $100 million in inventory but you may have a different mix that allows you to meet different service levels.

Inventory optimization is more than hype, adds Lora Cecere, AMR's research director for consumer products. The use of probabilistic optimization techniques to identify demand and supply variability, and the use of this analysis to make better decisions on inventory policy and strategy, can really improve the top line and service performance. Cecere says that companies that have deployed inventory optimization technologies report that the tools can trim overall supply chain inventory by 12 percent and more, with improvements of 0.5 percent to 2 percent in order fulfillment rates. Procter and Gamble turns up the heat Bill Tarlton is justifiably proud of P&G's prowess in managing its supply chains. Our customer service levels have been kept extremely highabove 99 percent order fill rates, he says. In recent years, operations have made huge gains in the measures that matter most to P&G: cost, cash, and time. P&G has integrated with suppliers to cut materials inventories, collaborated with customers to reduce inventory at retail, built better information systems that enable improved materials and production planning, and helped improve the responsiveness of the company's manufacturing and distribution systems. The payoff is evident in the company's financials: In fiscal 06/07, P&G's Beauty segment saw net earnings climb 13 percent, with sales gains of 7 percent. The year earlier, operating cash flowa crucial measure at P&Ggot a major boost from working capital improvements resulting from companywide emphasis on inventory management. Inventory days on hand in fiscal 06/07 were down by about eight days compared to the previous year. But Tarlton is under no illusions about the current challenges. There is no let-up in the pressure for asset efficiencya key contributor to cash flow growth and thus to total shareholder return. The Beauty segment, already a $23 billion business worldwide, is seen as a major growth plank for P&G, particularly in the developing regions.

Yet it's much less predictable than P&G's other business segments. We face high demand variability with highly differentiated products like eye shadows and lipsticks, where there can be lots of expediting, says Tarlton. In such short life-cycle businesses, we have higher risks of inventory obsolescence as well as higher risks of customer outages. About four years ago, Tarlton and his colleagues began looking at the new multi-echelon software tools as a defense against escalating supply chain risks. P&G had always prided itself on developing its own analytical tools, but this called for a different approach. We were dabbling in multi-echelon, says Tarlton. But in terms of the growth in volume and breadth of the product lineswith growing complexity and facing more and more product innovationwe just felt that our internally developed toolsets fell short. We believed we could get the fastest gains with third-party tools married to our supply chain expertise. P&G finds a partner The search began for a tool that would help the Beauty unit squeeze more inventory out of its holistic supply chains. We wanted the cash position improvementit was really about cash and cost, says Tarlton. Aside from reducing expediting costs, he expected to be able to improve forecasting and to find tools that could help his colleagues decide whether to carry safety stock or not. So, the software had to provide rich what if modeling capabilities. And it had to meet broad acceptance by the unit's business usersin other words, it couldn't be something that people would find ways to work around. Partway through 2005, the team had narrowed the list of potential candidates. Optiant was on the shortlist; coincidentally, the software provider was already at work within Gillette, which P&G was then about to acquire. Optiant got the thumbs-up from Gillette; another round of evaluation made its PowerChain tool the choice for P&G's new multi-echelon inventory initiative. In 2006, Tarlton led a pilot MEI project in one Beauty segment: the cosmetics business. This was something of a departure for P&G, which had conventionally piloted in less cyclical categories such as paper towels or toilet paperpart of the Household Goods unit. But the new argument was that if the software brought value to P&G's most complex businesses, it would be much easier to expand its use to the company's other businesses.

The first step was to configure the existing cosmetics supply chain in the Optiant model, pulling in the previous 18 months' demand history and using the previous three months' demand variability. Next, the tool was used to optimize the inventory strategy within that supply chain, with a constant eye on target service levels greater than 99 percent. A third step applied the software to identifying and evaluating alternate supply chain designs. And a final step yielded an optimal redesign of the supply network. Tarlton is delighted with the results to date. The pilot demonstrated the potential to reduce total inventory in cosmetics by more than 5 percentand closer to 10 percent in some product lines with no deterioration in service levels and with the more stable work processes and faster, more fact-based supply chain analytics and decision support. He expects that further optimization of inventory policies could yield an incremental one or two percent reduction. Overall, the largest percentage cuts have been in finished goods inventory. In one product line, the optimization outcome saw a slight increase in work in progress but an overall drop in net inventory dollars across the supply chain. The Optiant tool is in the process of being expanded to all other supply chains in the Beauty segment. Indeed, the initiative has been so successful that the MEI approach and tools are being rolled out companywidean effort that will take several years. We do view this as a very successful technology project at P&G, says Tarlton. We did a great job of aligning all the stakeholders. The key was that this initiative was led by the businessit was not an IT project. We also identified the right usersthe analysts and planners who had the right backgrounds. Tarlton has not needed to add headcount or invest in extensive re-training; nor has his unit had to change any of its supply chain metrics.

3]

Outsourcing Activity at P&G:-

Evolution of Services Provisioning at P&G P&G has taken a systematic approach to the development of the organizational structure of the support unit that provides the business services for the entire organization. The examination of the evolution of the business services organization at P&G identifies three stages: establishment of Shared Service Centers, engaging in outsourcing arrangements, and strategic alliance management. With the global expansion in the 90s and the ensuing need to manage the services necessary for the internal corporate clients, P&G set up a Shared Services organization and began to change the way certain type of services were delivered to its business units. Service centers were set up in Costa Rica, Manila, and Newcastle, and work was spread across these centers. Shared Service Centers offer organizations the opportunity to eliminate redundant activities and realize efficiencies in service delivery. Most of the savings with the Shared Services model come from standardizing processes, making it easier to provide support for multiple business units, while improving the speed and quality of service. The three Shared Service centers marked the first stage of a journey for P&G in the development of a best-in-class service management organization. In the next phase (2002-2003), GBS started an initiative to examine the possibility of transferring some of the work that was being done by the Shared Services organization to third party relationships. While the organization was achieving advantages from scale on its own, it could derive additional value in a well managed third party relationship with a service provider who had made the particular service its core competency. In the preceding stage, P&G had gained some experience with third party providers by taking small projects to offshore locations on a limited basis. The organization had also explored the capabilities available at global locations for different types of work, as well as the value to be derived from outsourcing relationships. Though P&G initially considered a single large deal that would encompass the entire scope of IT services, employee services, and business services, P&G decided to enter into three initial partnerships in 2003: IBM for employee services, Jones Lang LaSalle for facilities management, and HP for IT infrastructure, applications, and transactional accounts payable. With these relationships, these service provider organizations took on some of P&Gs employees and

portions of the Shared Service centers. Over time, the number of major alliance relationships grew. Each of these relationships had a team of individuals managing those relationships very effectively. GBS leadership knew that consistency in governance mechanisms would help derive the maximum benefit from the alliance partnerships. Lack of standardization and sharing of processes across relationships could prevent P&G from maximizing the value from these outsourcing arrangements. In 2010, GBS decided to set in motion a set of processes that would drive efficiencies and generate value for GBS as well as its corporate clients. As Bill Metz, GBS Strategic Alliances program manager explains, We were managing each of our partner relationships in a slightly different fashion it was more of an art than a science. We decidedlet us step back and try to understand how we can do all this more effectively. Can we come up with standard processes? Can we develop with standard tools and share them? The services provisioning and alliance management efforts of GBS were transformed through standardization of processes, helping P&G realize the maximum value from its outsourcing engagements. This third phase, the development and implementation of the strategic alliance management processes and tools by GBS at P&G, highlights the capabilities required for a highperforming service management organization. Best practices built on organizational processes Having realized value from the scale of operations at their Shared Service centers, GBS leadership was well aware of the benefits standardization could bring in large-scale operations. As the number of outsourcing arrangements grew, GBS decided to put in place an organizational structure that could establish ownership and accountability for each partnership, and ensure adherence to standardized operations and management processes across partnerships. Without such an organizational structure, oversight across all engagements was not possible; in addition, this lack hindered the standardization and sharing of processes and the development of a common set of resources. GBS turned to best practices within its core business in identifying the best way to manage these alliance partnerships. For example, GBS adopted a joint business planning process that was used extensively within the corporate environment between the different business units within P&G and between P&G and its clients. Similarly, in establishing structures for accountability, GBS looked to established corporate business processes. Metz puts it concisely, We run GBS as a business. The following sub-sections present some of the best practices in outsourcing management implemented by GBS.

Measuring the right things In most outsourcing engagements, measurement centers on the attributes captured in the service level agreements. However, to get a true assessment of service delivery, it is necessary to roll up the service level measures from a more granular level to an aggregate level. An examination of the governance processes across P&Gs outsourcing engagements at the start of the strategic alliance management phase in 2010 showed that different measures and different aggregation methods were being used across the many outsourcing arrangements. In response, a standard SLA methodology that makes it very clear how measures were to be created at the granular level was developed. Further, rules for how these service level measures should be rolled up and aggregated were put in place. This ensured that measurement and aggregation was done in a similar fashion across engagements, providing a uniform picture across all outsourcing arrangements. This new measurement process contributed to the desired standardization across processes; it also provided a true assessment of the services being delivered, a benefit for both organizations in the outsourcing arrangement. While service level measures are necessary to examine if the client is receiving the required level of service, it is difficult to capture all aspects of the engagement using just service level measures. Sometimes, there is an element of the work or relationship that cannot be measured effectively using the service level measures. In other cases, the wrong service level measures may have been used. In such cases, the engagement dashboard could show visuals indicating that the service levels are green, but clients may be unhappy because expectations are not being met. The service organization would then have to contend with the watermelon effect, where everything looks green on the outside, but there is all this red going on inside (Metz). To address this issue, GBS instituted a set of subjective measures, complimenting the objective set of service level measures. Using the subjective measuring process, performance data were collected at the operational level and the management level. The subjective measurement scheme helps GBS capture information beyond that provided by the service level measures, about the clients satisfaction with the services being delivered. When the subjective and objective measures are not aligned, it indicates a disconnect between what is being captured using service level measures and client expectations. Though small variances are possible, a significant variance would indicate the need for re-examination of the service level measures. In the presentation of the data captured through the different measurement processes, GBS demonstrated the sensitivity to the needs of the business user that has been behind the constant drive for improvement at this organization. When the data is presented in a two-dimensional form, essential information regarding the criticality of a business service may be missing. To overcome this problem, GBS uses bubble charts in their data representations.

These visualizations go beyond the adherence to service level measures and the magnitude of the service, to indicate the strategic importance of the business service. Delays or problems in less strategic services, while not excusable, are not as serious as problems with business-critical services. The additional knowledge about the size and criticality of the services presented in the bubble charts helps manage the delivery of services to ensure business needs are met. With the bubble chart, it is possible for the management team to see if something big and important is offtrack. Information about projects and initiatives are also presented in a similar fashion, using bubble charts. This focus on 360 measurement and meaningful representation highlights GBS commitment to continuous performance and provides exemplars for measurement and visualization practices. Accountability and Visibility keeps efforts on track Alignment between the goals of GBS and the organizational structure that it implemented also contributed to the effectiveness of the alliance management processes. GBS defined key roles for the management of the outsourcing arrangements. Executive Sponsor, Relationship Manager, Deal Manager, Transition Manager, and Alliance Architect roles were established, with operational governance and relationship management responsibilities separated. These roles were scoped where necessary to provide visibility across all the work performed by an alliance partner, and located within or as close as possible to the organizations consuming the services of an alliance partner. Borrowing another best practice from the corporate business, a single Relationship Manager was made accountable for each alliance relationship; this held true even when the supplier delivers services under multiple Work Statements to different areas of the business. Every one of these alliance relationships is subject to routine internal reviews, with the review reports going to the highest level of the company. These high levels of individual accountability and data visibility ensure a commitment to the highest level of performance possible in a relationship. Standardized processes, effective measures, and exemplary software tools will generate business value, only if the individuals involved in the management of the alliance partnerships leverage these resources. GBS used education and training and visible adoption measures to drive commitment from end users to the new methodologies and tools. In addition, competency development training, including IAOP Masters training for Deal Managers, was created and/or deployed. Outcomes :-The development and implementation of the strategic alliance management process by GBS at P&G was a successful organizational change effort with impressive results. The effort focused on every stage of the outsourcing lifecycle, including optimizing the process for establishing new outsourcing relationships, managing existing alliance relationships, and handling the renew/repatriate/recompete decision at the end of the relationship lifecycle. This new alliance strategy ensures that GBS gets the right work to the right partners faster, maximizing the potential of the alliance relationships for value creation. Standard processes and

tools reduce risk and improve effectiveness, efficiency, and speed of execution of established outsourcing relationships. The data management functionalities built into the Alliance Management platform and tool set improves visibility, enables easier benchmarking, and establishes one version of the truth. GBS uses this assessment to quickly recognize and reward good performance, and drive continuous improvement by identifying and correcting systemic issues. Sophisticated data visualization methods enable GBS to quickly assess if the most important services and initiatives are on-track. The knowledge management capability within the Alliance Management platform has been used to create a knowledge base of standard process models, training, CBAs, templates, examples, and named SMEs; this knowledge repository supports reapplication of the leanings from collective experience. A major change effort of this nature, which encompasses multiple functional units, can be successful only with the support of top management. The effort was sponsored by the executive responsible for strategic alliances, led by a program manager, and carried out by a network of resources from a variety of functions and organizations. The approach is multi-functional (including roles for HR, Legal, Finance, Purchases, Stewardship, and External Relations), it covers the entire lifecycle, and it is used across P&Gs largest and most critical relationships. The overall result is alliance relationships that are more efficient and effective. Lessons Learned In an outsourcing environment that is as complex and globally distributed as the one managed by P&Gs GBS, introducing change can prove difficult. Two challenges faced by P&G in the transition from ad-hoc to standardized processes for alliance management were the consolidation of the different processes and alignment of a large number of resources. P&G was able to knit together components to create a software tool that provided a platform for collaboration and data management and supported processes including joint business planning, performance visualization, and innovation portfolio management. This Alliance Management platform offered a comprehensive set of resources for the management of the partnerships. Still, changing the way people had interacted with partners for years was a challenging task; however, once the value of the process was realized, it became easier to get buy-in to the new strategic alliance management process. Clear articulation of the benefits and alignment of leadership were key in getting this buy-in. Visibility of alliance management indicators in the Alliance Management platform portal has also been a significant factor in the adoption of the new processes and tools. As the number of outsourcing relationships grew, the expansion in scale required a mature approach to the management of partnerships, leading to the development of the strategic alliance management process by GBS. Given the number of alliance partnerships and the magnitude of the engagements, it was critical for GBS to invest time and effort to develop the standard processes and tools. Successfully managing outsourcing relationships can have a true impact on the business and create a win-win drivingmore value for both the customer and the partner. This is how to transform the way business is done.

4]

Information technology used in Supply chain at P&G:-

One of the major transformations in the rapidly evolving digital economy occurs in the supply chains of both traditional and e-commerce companies. Information technology has enabled channel partners to trade goods, share information, and integrate their processes, thereby reshaping the inter-organizational dynamics and resulting in more efficient channels. Electronic integration of data and the automation of business practices has driven costs down and built sales by better satisfying consumer needs. Channel partnership between a manufacturer (Procter and Gamble, or P&G) and a retailer (WalMart). Both major players in their industries, P&G and Wal-Mart found a way to leverage on information technology by sharing data across their mutual supply chains. There are reduced needs for inventories with increased sales by focusing on selling what the customers want. All in all, the supply chain between P&G and Wal-Mart has adopted a much better customer focus through the channel partnership. And it is mutually beneficial. The power of inter-organizational information systems (IOIS) is well know in the literature of information systems research. It has proven to be an effective tool for reducing transaction costs. But the P&G and Wal-Mart partnership has gone further. To understand the impact fully, one has to think about three progressive degrees of IOIS: transactional, operational, and strategic (Seidmann and Sundararajan, 1998). The strategic partnership is the most involved, with the greatest commitments from the partners and requiring the strongest trust. In this paper we will describe how P&G and Wal-Mart developed this partnership, the main initiatives adopted in the process, and how the two companies, who are at the same time competitors and partners, created values from the partnership. Furthermore, it is a partnership that started with sharing information, but has since permeated throughout all levels of the two organizations. To fully comprehend the role that technology has played in the Procter & Gamble and Wal-Mart business relationship, an understanding of the business relationship prior to 1988 is needed. The business situation in 1988 between P&G and Wal-Mart was broken. The business itself was $375 million and growing. In spite of this, the business relationship between the two companies was poor. P & G had organized itself into12 different internal product divisions. Each division had different sales managers that would separately and independently call on Wal- Mart. These individuals were accountable for the sales results of each division and never came together to represent P&G as a whole. At that time, the relationship between P&G and Wal-Mart was characterized as anything but collaborative. As a matter of fact, their relationship was adversarial, obsessed by day-to-day transactions. Furthermore, their business relationship was conducted through fragmented processes. The details of these problems are summarized by the following characteristics:

(1) Adversarial relationship. Wal-Mart did not like doing business with P&G. P&G organizations were too complicated and inflexible. (2) Transactional focus. P&G were obsessed by day by day selling, in which success was that you got the order today - failure was that you did not. Efforts were made to push for sales irrespective of what the customer needed, or was rewarded for. There were no testing or long term planning. (3) Fragmented processes. Relationship and activities were managed by the buying and selling function only. The selling function within P&G was responsible for all customer activity. They were responsible for selling at the customer. The role that information systems played in the relationship was non-existent. The IT group typically got involved only after phone calls down the chain informed us that a technology project such as Electronic Data Interchange (EDI) was requested by the customer. In 1985, Sam Walton called Procter and Gambles CEO to inform him that Wal-Mart had awarded P&G their prestigious Vendor of the Year Award. The sales organization dealt with customers sent Mr. Sams call to the corporate office resulted in him being transferred 5-6 times. Having never reached P&Gs CEO, Mr. Walton decided to give the award to another vendor. P&G began to re-think the way it approached its customers about the same time. The newly appointed Vice - President of Sales of P&G met with Sam Walton and discussed the P&G / WalMart relationship. Mr. Walton indicated that it was a shame that two quality companies could not work together effectively. He shared that P&G had an extremely overcomplicated and inflexible sales organization. He stated if P&G thought of Wal-Mart stores as an extension of the P&G company, P&G would treat Wal-Mart differently. This challenge became the rallying cry for the two companies. Figure 2 (a) describes the relationship between the two companies before and after the partnership. Today, as depicted in Figure 2 (b), the two organizations collaborate on all levels in all business functions. Looking back over the ten-year period between Wal-Mart and P&G, information technology has created a common language, driven down costs, and provided an avenue for increased sales for the P&G and Wal-Mart partnership. Several key lessons learned are summarized in the following for understanding the role that Information Technology can play in the manufacturer / supplier relationship: 1) Use Information Technology Resources: Information Technology (IT) resources can play a big role in the business. IT can provide technology solutions to link suppliers and retailers. Ensure proper staffing of these resources to drive volume and reduce cost. 2) Teach them the business: Take time to train your IT about the business. The days of the business ignorant programmers are fading. IT professionals have to know the business perspectives.

3) Focus on the consumer: Use data and technology to understand better the consumers needs. When a debate about approaches occur, ask yourself the question What is right for the consumer, what are her/his needs?. This will help you approach the problem differently. 4) Data can be information: Retailer data is typically used for quick decision support, P&G data is used for analytic decision support. When merged, this data create tremendous gains for both companies. Information Technology can also be used to sift through large amounts of data and provide exceptions or out of range business parameters. Using IT to identify key outages such as low sales on a fast moving item, out of stock on a key sku etc, will provide powerful business solutions for both companies. 5) Employ Industry standards: Driving towards common methods of communicating business transactions and data sharing reduces cost for the entire supply chain. Just as we have standardized logistics such as pallet size, truck dimensions from a supply chain perspective, automating business transactions will also drive down costs of the manufacturer/supplier relationship. 6) Commitment to Information Sharing: Sharing point of sales data. Market data, and consumer data among channel partners for joint decision making is a key to the success of the integrated supply chains.

5]

How P&G forecast its Product demand?

So-called winning at the shelf certainly begins long before the product gets there, and for a company such as Procter & Gamble (P&G) forecast accuracy is especially important. A more accurate forecast ensures that the right products are on the store shelves when consumers go to the store, enabling P&G to win at the first moment of truth, says Dick Clark, associate director, demand planning for P&G. Clark has been with P&G for 30 years, and is currently responsible for developing demand management capability and providing new solutions to enable more effective forecasting. He considers becoming demand driven to mean meeting consumer expectations for on-shelf availability and meeting retailer expectations for service, while meeting manufacturer expectations for lower costs. Consumer expectations become more and more sophisticated and more demanding around the variety of products and on-shelf availability. In addition, retailers are working to support those consumers and have their own expectations of service and having the right product available at the right time, says Clark. As a manufacturer we have expectations not only to meet the needs of the consumers and retailers, but also to be able to lower our costs. A demand-driven supply network is the way we see to address all of that. Demand-driven Ideals:The ideal of being demand driven according to Clark is to be able to produce any product on any day. What it really means, Clark explains, is improved demand visibility and responsiveness (being able to more quickly an accurately meet consumer/retailer needs); shorter frozen schedules/more flexible manufacturing; smaller batches/more frequent runs; late stage differentiation when possible; and compressing material lead times. Being a $70 billion manufacturer with more than 140 manufacturing facilities in more than 80 countries, the company needed sophisticated capabilities in a solution. Clark indicates they needed a solution to fit with P&Gs globally standard architecture and support a variety of business scenarios. In addition, we needed to address the belief that effective planning requires touching the forecast, he says. When the forecast is more accurate inventory is better aligned with demand, decreasing out of- stocks and cutting inventory costs. A more accurate short-term forecast reduces rework and non-value added problem solving for planners.

Planning for Demand:The development and deployment of a single set of globally standard work processes, tools and measures for demand planning is led by Clark and part of that initiative includes the implementation of Terra Technologys Real-Time Forecasting (RTF). P&G uses SAP APO for demand planning, and Terras software is a bolt-on solution that works with SAP APO to improve forecast accuracy in the short-term the time period from one to six weeks. RTF monitors daily signals of future demand, adjusts demand planning forecasts every day, by day, to create a best estimate of the future rather than an average of history. It enhances existing demand planning systems, integrating seamlessly with SAP R/3 and APO. It does not require additional staffing. RTF provides an automated daily update of forecasts, but this means that forecasts are not specifically reviewed by a person before being sent to supply systems. This prevents plannerinduced noise in the short-term forecast, but requires clarifying expectations of effective planning, Clark details. The company chose to pilot Terra Technologys Demand Sensing solution after reading about The Campbell Soup Companys success with the software, and P&G ran a pilot from March to June 2006 for evaluation. Clark says they got the exact results promised. He goes on, We began implementation of the software and are rolling it out globally over the next two years. He also mentions, as is often the case, master data and interfaces have been quite challenging the software requires detailed, clean, time synchronized order data. In the first business where the tool went live, forecast error has decreased by more than 30 percent, which enables more than a 10 percent reduction in safety stock. Clark says, With a rollout to key businesses globally, we expect to increase cash flow by more than $100 million. In addition, we are seeing productivity opportunities, as time spent adjusting short-term forecasts and time spent setting inventory targets has decreased. Clark emphasizes that demand-driven supply networks add value, but being demand driven does not eliminate the need for forecasts. He adds, This project is a key component of P&Gs supply visibility program to drive P&Gs inventories down and increase cash flow without sacrificing service levels.