SAP Case Study

mySAP™ Supply Chain

Management

mySAP™ SCM
AT COLGATE-PALMOLIVE
COLLABORATIVE PLANNING FUELS GLOBAL GROWTH

AT A GLANCE
Strategic Goals
Enhance the competitive position of Colgate’s consumer
products business by continually improving margins, enhancing
service to the retail trade and internal customers, improving
responsiveness to promotions, and enabling a transformation to
globally standard operations.
Approach
Focus initially on employing the supply network planning (SNP)
capabilities in SAP® Advanced Planner and Optimizer (SAP®
APO) for replenishment optimization. Employ demand planning
(DP) and the collaborative engine in SAP APO for determining
demand. Ultimately, make use of a broad range of SAP APO
functions to enable Internet-based collaborative planning with
internal and external partners. Enhance and extend the initial
SAP APO implementation by embracing the solution across
global brands and incorporating emerging functions in
production planning and detailed scheduling (PP/DS) and
other areas of SAP APO.
Results:
These achievements in North America-based implementations
have set the stage for the global rollout:
• Achieved performance gains with SAP APO beyond what had
already been achieved with SAP® R/3®
• Improved on-time and complete orders from 70% to 98% for
vendor-managed inventory (VMI) replenishment, and
improved customer order fulfillment to 95%
• Reduced cycle times from 5 days to 1 day for VMI
replenishment and from 62 days to 33 days for cross-border
sourcing
• Deployed collaborative planning to reduce forecast error
from 62% to 22%, reduce inventory by 22%, contribute to
improvements in cycle times and customer service,
and benefit even further from the global sourcing model
• Provided a foundation for e-business developments, enabling
Colgate to maintain even better relationships with its partners
and customers
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mySAP SCM
AT COLGATE-PALMOLIVE
SUMMARY
Colgate-Palmolive Company is a U.S. $9.4 billion global consumer
products company. The company manufactures and markets a
wide variety of products in the United States and around the
world, including toothpaste, soaps, laundry detergents, and pet
foods. Colgate operates in over 200 countries, and approximately
70% of its sales come from international operations. The company
has about 37,000 employees, of which approximately 80% are
located outside the United States.
Colgate’s SAP R/3 implementation began in 1994, providing a
platform for responding to global customer requirements
through better understanding of costs and prices, for analyzing
sourcing options, and for determining competitive strategies.
With this SAP R/3 execution framework in place, Colgate
embarked on an ambitious plan to streamline its global supply
chain planning processes. Implementation of this plan would not
only enable significant operational improvements in service and
inventory reduction, but also position the company to move from
regional sourcing to a globalized model. This supply chain
strategy – allowing for a breakthrough in production efficiencies
and economies of scale – required full visibility of supply and
demand information worldwide and a highly responsive supply
chain planning process. These essential characteristics of Colgate’s
supply chain are being enabled by the optimization, scheduling,
and collaboration capabilities of SAP APO in mySAP™ Supply
Chain Management (mySAP™ SCM).
“The capabilities of SAP APO are critical to enabling Colgate
to take the next logical steps in enhancing global supply chain
performance,” says John Giroux, Colgate’s director of global IT
strategic planning. “SAP APO delivers solutions on three key fronts:
We gain visibility to global logistics data, optimize our operations
through use of advanced mathematical planning functions, and
provide a platform for collaboration with customers and partners.
By making use of SAP APO, our worldwide operations are truly
progressing toward excellence in supply chain planning.”
BUSINESS conventions, formulas and raw materials, manufacturing data and
Colgate has in place a powerful strategy for sustained financial processes, and financial information. These standardization
success. The company drives top-line growth by rapidly bringing initiatives supported by SAP systems contributed to tremendous
innovative products to world markets, strengthening its global improvements in efficiency. For example, in the operations arena,
brands, and concentrating on customer service. Colgate is also these efforts supported substantial consolidation of
focused on continually improving its profit margins by a myriad manufacturing facilities.
of cost-reduction programs. Colgate’s long-term trend of
improving its gross profit margin Colgate has now implemented
(from 39.2% in 1984 to 54.4% SAP R/3 in 49 countries covering
in 2000) is expected to continue. “The capabilities of SAP APO are critical 80% of its business, and by early
The company is targeting a 60% to enabling Colgate to take the next 2002 will be managing 95% of its
margin by 2008, and the logical steps in enhancing global supply global operations with SAP R/3.
anticipated savings continue While SAP R/3-enabled efforts
chain performance,” says John Giroux,
to be facilitated by supply chain produced significant results, the
programs and the enterprise-wide Colgate’s director of global IT strategic
competitive pressures in Colgate’s
SAP software. The broad global planning. global markets have driven the
reach of its products, coupled company to seek further
with these continuing margin improvements using mySAP SCM:
improvements, enables reinvestment in growth-building activities
and confers on Colgate a sustainable competitive advantage. • On-time and complete customer order fulfillment had been
improved from very poor levels to rates of around 90%.
SUPPLY CHAIN CHALLENGE However, these rates were hampered from further improvement
In 1993, Colgate recognized that it faced lack of standardization in by inadequate visibility into capacity constraints and demand,
systems and data throughout the world and incurred costly and the continuing lack of product availability meant
duplication of effort on many fronts. The company had inventory potentially losing out on revenue opportunities. Moreover,
levels that were unnecessarily high, order-related cycle times that these fulfillment rates were still significantly below the
were excessively long, and IT and other costs that were much higher increasingly stringent requirements of large customers.
than they would be with global standardization of systems and data.
• The replenishment order cycle time had been reduced from
In 1994, Colgate began its SAP R/3 implementation, which enabled nine days to five days in North America. However, Colgate’s
the company to improve operations through consistent, global order cycle times elsewhere in the world remained much
support for financial analysis, logistics planning, and other business longer, and competitors were gaining significant ground on this
processes. Moreover, a complementary standardization mandate service metric that customers were finding increasingly
came from senior management that covered all general naming important. Moreover, the long order cycle times represented
unacceptably high internal costs to Colgate.

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• Reductions in inventory had been achieved, including an
increase in turns per month for finished goods inventory in
North America. However, internal inventory costs remained
unacceptably high, and the high inventory levels were indicative
of the limited visibility that continued throughout Colgate’s
supply chain operations.
• Despite various reductions in capital and expenses that had been
achieved, price competition continued to drive a focus on cost
reduction. Plant operations, packaging, and transportation costs
were all targets for further reductions.
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Finally, the very source of Colgate’s competitive advantage
created supply chain challenges. Rapid global introduction of
new products, the needs for customization, and services to global
customers created continued complexities for the company’s
supply chain.
IMPLEMENTATION
While brands in Colgate have been managed globally, the
company realized it must also manage demand and supply on a
worldwide basis. The Colgate Global Supply Chain initiative began
in November 1999 with the objective of building on the company’s
investment in its core SAP R/3-enabled business processes in order
to further improve supply chain performance. These performance
improvements would be achieved by focusing on the
fundamentals – globally standardizing internal supply chain and
business-to-business processes, implementing shared services,
sourcing strategically, and implementing cost reduction
programs. Colgate identified three major supply chain strategies
to achieve the company’s goals:
• Roll out a vendor-managed inventory (VMI) program with key
accounts to drive significant channel inventory and cycle time
improvements
• Implement Cross-Border Sourcing (CBS), a global planning
initiative to enable Colgate to move from a regional to a global
sourcing model, thereby driving forecast improvements and
safety stock reductions, enabling consolidation of assets, and
taking advantage of economies of scale on a worldwide basis
• Implement collaborative planning, thus enabling development
of a closed-loop process to manage promotional demand and
synchronize activities throughout the supply chain
Vendor-Managed Inventory: VMI is a pull process by which
Colgate replenishes customer distribution centers (DCs) based
on daily transmitted inventory and demand information.
The current focus on VMI is in North America, where 40% of
shipped cases from five plants are managed using VMI. The
implementation includes 40 customer DCs at 12 customers,
covering all categories of Colgate products (about 1,000 SKUs). As
supply and demand are more precisely matched, this VMI
implementation enables lower finished goods inventories, higher
rates of on-time and complete orders, and reduced replenishment
cycle times.

The VMI business process is supported by supply network

planning (SNP) in SAP APO. Daily inventory levels and demand
from customer DCs are transmitted to SNP, which calculates
replenishment orders. SNP incorporates plant capacity
information to determine production requirements and any
supply constraints. The replenishment orders are transmitted
DCs and then through to the supplying plants. Replenishment
back to the customers via electronic data interchange (EDI) for
is also based on further demand information provided by the
acknowledgement and for handling the customers’ information
Colgate sales subsidiary, such as increased demand arising from
processing requirements.
promotions. The cross-border sourcing business process is
supported by SNP in a manner similar to vendor-managed
The benefits of VMI will be multiplied as implementation extends
inventory: SNP calculates replenishment orders based on daily
toward all transacted business in North America and to other
inventory levels and demand signals.
geographic regions.

With this business process, demand and supply are more exactly
Cross-Border Sourcing: Colgate sales subsidiaries around the
matched, forecast accuracy measures become almost irrelevant
world have traditionally developed monthly demand forecasts
because of the specific order pegging, and the supplier can send
with low levels of accuracy. These forecasts have determined
shipments much more frequently to the DC. This enables lower
replenishment requirements from offshore manufacturing sites.
finished goods inventory levels, reduced replenishment cycle
times, and higher rates of on-time and complete orders for both
Colgate’s Cross-Border Sourcing initiative establishes a global
internal replenishment and customer orders. Case fill rates and
sourcing process to replenish the sales subsidiaries. The new
asset utilization are improved through the use of finite capacity
process is a weekly pull process, fully incorporating information
replenishment planning techniques. The impact on transportation
about demand and supply. The supplying plants assume
costs is not significant, despite the more frequent shipments, due
responsibility for replenishing the Colgate DCs, based on visibility
to the better overall planning inherent in the CBS process.
to orders pegged from customers through in-country Colgate

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CBS has enhanced the benefit of consolidating manufacturing
by providing a means to optimally balance supply and demand for
a global source. CBS has a dramatic impact on Colgate’s overall
strategy because of the complete supply chain visibility, increased
planning cycle speed, and efficient asset utilization achieved
through the move from a regional to a global sourcing model.
Collaborative Planning: The demand planning (DP) capabilities
and collaborative engine in SAP APO provide the Colgate sales
subsidiary with a mechanism for communicating demand
information to the supplier and further synchronizing planning
across the supply chain network. For example, collaborative
planning, forecasting, and replenishment (CPFR) is being
deployed by Colgate by making use of SAP APO tools with
customers, enabling collaboration on promotional activity,
inventory levels, and demand forecasts. The associated CPFR
processes can drive forecast accuracy improvements and thereby
enable a range of cycle time and customer service improvements.
In particular, statistically computed-base demand is calculated
by DP and can drive repeatable replenishment processes, and
changes resulting from promotions can be incorporated using
collaborative processes. The support that the collaborative process
provides for separate management of base and promotional
demand is very valuable. Promotional demand management is
substantially independent of the base demand, and it is critical
information for driving manufacturing, product finishing, and
distribution in Colgate’s consumer products business.
To support the collaborative process covering promotional
demand, the collaboration engine allows the exchange of
up-to-date planning information, enables user-access security
restrictions, supports exception-based management, and facilitates
tracking of performance measures including forecast accuracy.
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OUTCOME
The SAP APO-supported supply chain implementations have
achieved significant, measurable benefits for the initial America-
based implementations. The competitive position of Colgate’s
business has been enhanced – by improving service to the retail
trade and internal customers, enhancing responsiveness, and
improving margins. Colgate has achieved performance gains with
SAP APO beyond what had already been achieved with SAP R/3,
and the company is well-positioned for multiplying the benefits
across the global enterprise.
The benefits achieved across the three initiatives include:
Vendor-Managed Inventory: The SNP-enabled VMI process
has enabled improvements to 98% in on-time and complete orders
and an improvement to a one-day replenishment order cycle. In
the eyes of Colgate’s customers and partners, these improvements
are very significant. The previous SAP R/3-enabled achievements
of 70% on-time and complete orders for VMI and the five-day
replenishment order cycle would not have been acceptable
in the unfolding competitive environment.
Cross-Border Sourcing: The initial single-country implementation
of Cross-Border Sourcing enabled the replenishment order cycle
time (which includes time for order preparation, processing, and
shipping) to be reduced from 62 days to 33 days. Supply and
demand were more accurately matched, so there was a significant
increase in shipments per month, a reduction in inventory by
about 22%, and an increase in case-fill rates from 94% to 97%. CBS
yielded a significant improvement in on-time and complete
orders for intracompany replenishment, and customer order
fulfillment increased to 95%.
Collaborative Planning: Responsiveness to promotions and
other changes in supply and demand have been enhanced due to
the closer link between producers and consumers. Improvements
in cycle times, fulfillment performance, and inventory levels were
supported through enhancements enabled by DP and the
collaborative engine. In particular, forecast error with a major
retailer was reduced from 61.9% before CPFR to 21.9% after CPFR
was implemented.
All three initiatives were supported by SAP APO’s real-time
integration model, where any changes in stock, sales orders, and
so on are transferred in real time between customer or internal
ERP systems and SAP APO. This ensures that modifications to the
plan can be made rapidly – which is particularly important to
facilitate planning for promotions.
The VMI, CBS, and collaborative planning implementations will
be extended globally. As these implementations are extended to all
brands and plants, Colgate expects to multiply the impact of the
current implementations substantially. Moreover, savings are
being achieved outside direct supply chain operations, including
in key areas such as IT.
As the standardization initiative is extended, visibility is being
improved throughout the supply chain, and consistent data will
be increasingly useful in management decisions covering tactical
and strategic plans. In particular, enhanced data availability using
mySAP™ Business Intelligence (mySAP™ BI) supports improved
tactical and strategic decision making at various levels in the
organization.
NEXT STEPS
Going forward, new forces are shaping Colgate’s use of systems
for enhancing competitiveness. These drivers include price
competition, the evolving attributes of global trade, and the
consumer goods industry’s use of promotional campaigns.
These factors are motivating Colgate to pursue continued cost
reductions through all aspects of the business and to make use
of collaborative tools that improve links with global customers.
E-commerce is growing at a high annual rate in the consumer
goods industry, providing further impetus for Colgate to make
use of e-business tools that strengthen its integration internally
and its links with partners and customers.
Colgate intends to continue to pursue supply chain
improvements that will enhance its competitive position. In
addition to extending the use of vendor-managed inventory,
cross-border sourcing, and collaborative planning globally,
Colgate is pursuing:
Repetitive manufacturing: Colgate is working with SAP to
implement repetitive manufacturing processes using the PP/DS
capabilities in SAP APO. These processes will perform repeated
production runs using a single bill of material, with backflushing
of material requirements. Production will become more
responsive to promotion-driven demand changes, as making
and finishing operations will be distinguished as separable
manufacturing processes, facilitating quick production scheduling
changes. Colgate is specifically supporting development of a
PP/DS-related Wave algorithm. This algorithm will provide
optimization of repetitive manufacturing during potential sudden
peaks and valleys in requirements and finite capacity constraints.
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Outsourced manufacturing: Due to the variations in supply

requirements resulting from the promotions-driven environment,
third-party manufacturing contractors are increasingly relevant
to Colgate’s business. Colgate expects to make use of SAP APO-
enabled collaborative planning links with these contractors.

Transportation planning: Colgate is planning to implement

Transportation Planning/Vehicle Scheduling (TP/VS) in SAP
APO to optimize its transportation network and derive ongoing
cost savings.

Supply chain event management: Colgate is planning to use

SAP supply chain event management capabilities to track carrier
tendering and customer shipments – and to provide early
warning of undue delays or problems.

Additional collaborative scenarios: Colgate will pursue

various additional forms of collaboration with customers
and partners. Of significance will be Colgate’s participation
in consumer goods industry e-marketplaces, which provide
exchanges for collaborative demand, procurement, and
logistics planning.

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