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Elucidate the benefits that P&G had derived from extensive digitization.

P&G has been a leading manufacturer of consumer goods for the past several decades. The
company generates $83 billion in annual sales, operates 130 plants across 80 countries and has
73,000 employees.1 A large part of its long-standing success stems from its excellence in supply chain
management. Digitization has enabled ever increasing fragmentation and specialization of products
and services, yet few industries feel the pressure of narrowing margins as much as consumer-
packaged goods. How does an organization of P&G’s size and complexity adapt to meet the
challenges of digitization to stay relevant in an intensely competitive industry?

With digital technology, it’s now possible to achieve a truly integrated and synchronized supply chain
whereby the manufacturer is digitally connected to the suppliers and customers via common data
warehousing. Such advancement would enable a supply chain to become more responsive to shifting
demands and unexpected events. Rather than having a decentralized network that is forecast-driven,
the manufacturer can base its production on real-time point of sale data coming from its retail
customers. This would help drive down inventory cost and dramatically reduce transaction errors
within the supply chain. CPG companies such as P&G rely heavily on data from external partners,
thus strong, long term relationships become even more valuable.

Digitization also offers major improvements in predictive maintenance and productivity. Machine
monitoring data that provide advanced warnings about potential failure of parts minimizes
breakdowns and maximizes machine efficiency. Smart, connected machines can also provide
detailed diagnostic information about what is broken, the availability of parts needed, and procedure
to complete the repair correctly the first time.

Finally, digital technology has enabled manufactures to connect and build closer relationship with its
consumers anywhere in the world. This relationship creates a competitive advantage and increases
the value of the product to the consumer. New insights driven by more and more consumer
behavioral data will help companies identify the activities that deliver value to the consumer and
eliminate those that are unproductive. Ultimately, this helps the manufacturers provide superior
pricing structures to capture greater value.

P&G has made it a priority to create a more responsive supply chain through better design of its
distribution network and improved transparency throughout its supply chain. The goal is to be able to
replenish 80% of its orders in less than 24 hours. To achieve this goal, P&G built six mega-
distribution centers in strategic locations within North America which are digitally connected to
retailers and receives real-time point of sale data. In addition, P&G is pushing suppliers to build
satellite manufacturing facilities called “supplier villages” close to its plants. It employs a digital
interface called Distributor Connect to directly link with the suppliers to reduce inventory across the
entire supply chain.
P&G is also leveraging digital technology to improve its operational efficiency. In its manufacturing
plants, the system enables the use of iPads to monitor production data in real-time. Eventually, the
goal is to not only trace every product as it moves through the plant, but to see the costs of that
product, which requires integrating the current operational system with the financial system. The use
of digitally enabled transportation and logistics program has helped P&G reduce “deadhead”
movement by 15 percent.

Discuss in detail the organizational changes that had facilitated the digitization of all the activities across
P&G.

Traditionally P&G was protective about its patents and wary of licensing them to outsiders. In 1999, before the Connect
and Develop programme was introduced, less than 10% of P&G technologies were being used in products (Sakkab,
2002). The objective of the new strategy using open innovation practices is to turn more technologies into products. As a
result of its Connect and Develop strategy, P&G aims to drive new innovation through collaboration with external
partners in at least 50% of cases. A number of organizational initiatives have been introduced to assist the process
(Sakkab, 2002). P&G has created a Technology Acquisition Group (TAG). This group is part of the new attitude to
licensing at P&G and it actively seeks out new complementary technologies from external sources. In addition P&G is
active in licensing its own technologies to increase its returns on investment. P&G brought the many sources of
information for innovation together at Innovation 2000, a ‘deal-making/technology trading expo’, where P&G
showcased its most promising technologies. Over 5000 P&G researchers attended. Those who could not attend were
able to take part via web casting and satellite technology, which acted in the same way as a news TV station with
broadcasts, news flashes and commercials. In addition P&G distributed cell phones to P&G employees so they could
record new ideas and make new connections. External suppliers were also invited to showcase their technologies in the
hope of making new connections. The event was heralded a success, with over 2,200 ideas for new products and new
applications for P&G technologies. P&G has also pursued other initiatives, including buying entrepreneurial companies
and the creation of internal seed funds. Crest Spin-Brush is an example of the former. This product was developed by
four entrepreneurs. It was initially licensed by P&G, which went on to buy the company and subsequently employed
three of its founders. The product has been an outstanding success and returned the company’s investment ten times
over in only 2 years. The Pur Sachet is an example of a product developed through internal seed funding. P&G provides
seed funding between $20,000 and $50,000 for innovative new ideas. This product emerged in the company’s
Newcastle, UK laboratory from a project team hoping to recycle rinse water with detergents in it. The researcher
concerned was funded to help with the larger problem of transforming dirty water into drinkable water, and the
product, Pur Sachet, which could prove to be a truly significant global innovation, is the result. Both these cases reveal
the extent of changes in the organization and culture of P&G. It is prepared to bring in ideas from outside sources,
including using the entrepreneurial advantages of small firms, and it allowed a young and relatively inexperienced
individual researcher a free hand in the development of the product, in contrast to its past autarkic approach and high-
level supervision culture for new product development. Throughout the study, numerous members of P&G staff
referred to the significant cultural changes accompanying the move towards an open innovation strategy. Neil McGlip,
says that ‘C&D is more a way of life than a technological strategy. It is about your mindset. It is ensuring you are open
day and night to new possibilities’. According to Larry Huston, such changes in organization require a deep cultural
change which in P&G’s case took place over decades. The change was assisted by the company pursuing an intermediate
strategy in between that of its historical centralized self-reliance in R&D to its current global networking model.
Do you think there would be potential downside to organizations like P&G having excessive focus on
digitization? Justify

To make P&G the most technologically enabled business in the world.”

Why digitization.

 Better innovation
 Higher productivity
 Lower costs
 Promise of faster growth

Real time Insights

Want to be the company that creates intimate relationships with our brands, and digital technology enables this.

 Consumer Feedback:
o CassetteTapes, Blogs,Tweets, FB Fan page
 Consumer Pulse
o Scan the universe of comments (for each brand)

Digital Revolution in the entire value chain

From factory to shelf

 Digitize operations everywhere – from manufacturing plants to the stores where consumers purchase
the products.
 We believe digitization represents a source of competitive advantage.

Manufacturing

 Use iPad in the production line


 See the entire manufacturing process on the laptop
 See the costs of the products on the same time
 Integrating operational system with the financial system

Transportation & Logistics

Control Tower

 Can see all the transportation activities in one go


 Inbound, Outbound, Raw Materials, Finished Products
 Reduced deadhead movement by 15%  reduce costs & carbon monoxide

Distributor Connect
 Improving service and reducing inventory across the supply chain

Retailers

 Use & support Global Data Synchronization Network


 Do commerce with the retail partners in an automated way
 No human intervention prevents from order taking errors and saves millions of dollars
 Mobile Applications for Retailers ▪ easy to use and send orders wirelessly
 P&G also have performance standards that retailers in developing markets can visualize on their phones
 Arrange your store in a certain way to maximize consumer sales (compare your shelf space)

Arrange your store in a certain way to maximize consumer sales.

Digitizing Innovations

Virtual diapers:

 P&G uses modeling and simulation tools to speed up innovation and lower costs.

Dish washing liquid

 Get the right fragrance notes at the right time

P&G virtual wall uses multiple projectors to simulate store shelves for faster consumer testing.

Usage of QR Code on product packaging

 You go to one of our packages and photograph the QR code.


 Download all the ingredients in the product and their biodegradability, where the product was produced,
the quality of the water, etc.

Improve date at Source

 P&G’s high-tech conference room (dubbed ‘Business Sphere’) allows company leaders to harness massive
amounts of data to make real-time business decisions.

The digital Workforce

 Every employee from top-management to the entry level, should have digital skills
 During the recruitment process, each applicant evaluated on the basis of digitalskills inventory he acquired