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Jim ONeill

Net Sales of $83.6B (1.4% growth over 2011) Net Profit of $10.756B (8.9% decline over 2011) No. of Stores: Primarily through retail partners, new P&G stores in select locations and eStore for direct marketing No. of Markets: Global No. of Employees: 129,000 (10% growth over 2011). Fortune 500 Rank: 26 Number of Brands: 300

P&G Worldwide Corporate Sites Albania Shqipe Algeria English Argentina Espaol Australia English Balkans English Belgium English Bosnia & Herzegovinia Bosanski Brazil Portugus Bulgaria Canada Franais | English China Costa Rica Espaol Czech Republic esk Denmark Dansk Egypt | English Estonia Eesti Keel Finland Suomen Kieli France Franais Germany Deutsch Greece Hong Kong | English Hungary Magyarorszg India English Ireland English Israel Italy Italiano Japan Korea Latvia Latvieu Valoda

Lithuania Lietuvi Kalba Mexico Espaol Moldova Limba Romn Montenegro Crnogorski Morocco Franais Netherlands Nederlands New Zealand English Norway Norsk Pakistan English Philippines English Portugal Portugus Poland jzyk polski Romania Limba Romn Russia Serbia South Africa English Spain Espaol Sweden Svenska Switzerland Deutsch | Franais Taiwan The Former Yugoslav Republic of Macedonia Turkey Trke Ukraine United Kingdom English United States English

Lengthening Payment Terms


P&G actually one of the last large CPG companies to act Many CPG companies stretching payment terms to supplier from 60-100 days Lengthening terms reduces working capital and increases cash flow Lengthening terms to 75 days would add $2 billion cash flow to P&G annually, this is free financing. My companies credit manager refers to this principal as Another building that we are financing and dont get our name on the title Increased cash flow allows for increased dividends to shareholders or buybacks, helping companies improve their standing on Wall Street CPG Companies must be careful to balance their own customers employing this same strategy on them P&G has developed its own SCF (Supply Chain Financing strategy):
Many small businesses borrow at a conservative 4% Interest rate due to tight banking regulations and a loan advisor looking over their shoulder P&G has developed a program with their banking partners to leverage their own AA credit rating to allow suppliers to borrow at lower rates to support business, around 2% P&G states that this actually shortens the number of days that suppliers get paid even when lengthening terms to P&G based on the calculation. Calculation of the cost of borrowing may actually decrease the payables days to around 15 with some suppliers

P&G goal to cut $4.5 Billion from supply chain Major successful initiatives throughout 2000s
Collaborative Planning Forecasting and Replenishment (CFPR) Consumer Driven Supply Network (CDSN) Control Tower Program HP Always On operating environment

CFPR:
Emerged when Pampers ordering patterns were analyzed, No glaring spikes at first glance until order patterns from Distributors and to key P&G raw materials suppliers analyzed, Creating the term Bullwhip Effect Causes of 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, etc. Players in supply chain often accumulate orders (Order Batching) prior to issuing order to P&G Rationing and Shortage Gaming (trying to guess demand)

CPFR Overview

P&G CPFR is to be built onto success of the Continuous Replenishment Program (CRP) that has delivered 99% service levels and reduced customer DC inventories by as much as 50% in customers that represent over 40% of P&Gs US and European business volume P&G has deployed CPFR to enable creation and integration of demand data. Demand planning helps P&G evolve from push to pull through marketing strategies and is the way of the future for efficient supply chains. Product under this system will flow from P&G manufacturing locations to customer DCs, then from customers DCs to retail store shelves and finally into consumers homes Model Illustration:

CPFR Model Nine Steps:


Developing collaboration agreement Creating joint business plan Creating accurate sales forecast Identifying exceptions for sales forecast Resolving collaborating on exception items Creating order forecasts Identifying exceptions for order forecasts Resolving/collaborating on exception items Generating orders CPFR output concentrates on improving inventory and reducing out of stocks, both objectives inversely proportional and trade offs must be made CPFR recognizes the main causes of above objectives are identical:
1. Ineffective trust based collaboration 2. Ineffective planning using visibility of POS (Point of sale) consumer demand 3. Ineffective forecasting 4. Ineffective product replenishment in response to demand fluctuations

CPFR Initiative:

Challenges implementing CPFR:

Selection of CPFR Partners:


P&G and Wal-Mart assessed relationship according to anticipated, realistic benefits pertinent to common business goals, organizational and cultural issues

Trust based relationship:


CFPR involves sharing sensitive information. Sharing sensitive data and close collaboration demands reliability.

Detailed definitions of systems capabilities:


It is key to collaborate at the same data level, sharing promotional plans, forecasts and replenishment orders per trading unit and per point of sales

Senior management buy in:


P&G ensured that necessary resources (HR, Technical infrastructure (IT), Time and Project Budget) were prioritized and dedicated to project

Benefits of implementing CPFR:

Increase in sales:
Reduce out of stocks, lost sales and increase on shelf availability all lading to increased sales for P&G

Cost reduction:
P&G aligns production schedules with collaborated forecast, reducing costs by decreasing set up times and variables

Improved relationship between trading partners:


Collaboration fosters teamwork and relationship building. Partners gain better understanding of each others business and enhance direct communication channels

Improved responsiveness to consumer demand:


Reducing out of stocks and shorter cycle times creates a more efficient supply chain, thereby improving on shelf availability and increasing consumer satisfaction: P&G has reduced replenishment time by 20% so far under CPFR

Greater forecast accuracy with single shared forecast:


Enhances synergies between partners and creates better more accurate forecast

Inventory reduction:
Increased forecast accuracy facilitates a decrease in safety stock, reducing costly inventory levels while increasing on shelf availability. This reduces inventory costs for P&G and partner

Consumer Driven Supply Network (CDSN):

P&G decided to strive for connection between actual sales and the supply chain. Paradigm shift in viewing supply chain management from forecast driven to demand driven Supply Network vs. supply chain due to information flow in all directions P&G two moments of truth:
1. When customer buys product off the shelf 2. When customer use product and like it

In order to get to first moment of truth, stock has to be available


Prior to CDSN, 48% P&G product wasnt available on shelf when customer wanted it Losing a large quantity of sales demanded corrective action

P&G collaborated with partners across supply network to win customers at the point of purchase Implemented online Web Order Management enabling retailers to connect to P&G to access scheduling, inventory and replenishment level data Joint scorecards used to keep partners honest

Intelligent Daily Forecasting (IDF)(CDSN):

IDF most important component of CDSN IDF is software used by P&G to forecast demand on actual sales:
Inputs:
Daily order information Daily shipment information Weekly shipment forecast

Output:
Daily estimates for next 42 days Refreshed daily

IDF tracks daily demand across various stores, converting information into replenishment plan for those stores Actual demand is picked up from scanner data at point of sale (POS) and made available at production plant Implementing IDF, some P&G plants operating at 6-8 hour response times

Results of CDSN:

Forecasting accuracy has improved by 30% Shelf level out of stocks: percentage of products out of stock at retailer have dropped from 10% to 5% and improving Total supply chain response time: the time from when a cash register rings to the purchase of raw materials to produce replacement dropped from 6 months to 2 months Total supply chain inventory: Reduced safety inventory by 10% Pricing design from shelf back: CDSN helped identify acceptable price point, working it back through manufacturing and distribution to assess price acceptability to consumer and P&G profit expectation (deciding which products to keep) Top & Bottom Line: Increased overall sales by 15% in one year, net profits gained 19%

Challenges of CDSN:

P&G has 90,000 suppliers and 150 manufacturing plants globally Reaching out to millions of global customers and gathering data very difficult Meeting challenges of developed and developing countries such as India depended on unorganized retail partners Challenge to reach global large scale and small scale stores Creating consumer value and meeting supplier rising costs

Control Tower Program

Control Tower Program:

Kicked off 2010 in Central and Eastern Europe, Middle East and Africa (CEEMEA) Logistics optimized making changes to rate, route, mode and method of transportation Eliminate inefficiencies such as loading/unloading delays, rush transport up-charges, dead legs (empty trucks) and production line stops Lead logistics provider centrally controls and optimizes product flows, delivering maximum truck fill for every mile traveled in fastest possible time, in an ecologically friendly manner Results:
Empty truck journeys reduced by over 15% since 2010 58% reliability improvement on inbound operations in Egypt 68% improvement finished product inbound to Turkey 67,000 metric tons of CO2 reduction

Zero Waste Strategy:

25% or 45 of P&Gs facilities have reached zero waste goals creating $1 Billion in value over last 5 years
Waste from Charmin toilet tissue used to make inexpensive roof tiles for homes in Mexico Waste products from Gillette shaving foam are composted to grow turf for commercial facilities Scrap from Pampers diapers used as upholstery filling

Goals by 2020: Started installing solar panels at facilities Purchasing more renewable energy Aiming for 100% recycled packaging content Cut out 100% landfill waste As of April 2013, company claims that 99% of global waste recycled $1 Billion in new revenue shows that this is not just a program to look better to consumers but also a financial opportunity

Geographically diverse business Global market leader Economies of scale Heads and shoulders (Consumers) Innovative technology Celebrity endorsements Bargaining power with retailers Strong Leadership (Questionable Board decisions to replace McDonald as CEO) Innovative culture Diverse business Stable business Successful business acquisition model Importance of hygiene in emerging markets Gillette military use Fashionable products Tritech lithium polymer underwater battery Major storms create need for products Increased demand for cell phones Demand for electric cars Green/Eco Friendly product expansion Social Network marketing expansion Divest non core assets/business units Leverage supply chain and distribution network Strong balance sheet Emerging Markets

Strengths

Environmental issues/Animal testing Dangerous ingredients (to manufacturing and consumer environment) Weak online presence Losing market share in key product offerings Process heavy operating environment Mature markets provide limited product expansion

Weaknesses

Opportunities

Currency volatility Rising manufacturing costs Emerging market wage increases (China) Lower cost products Competitors to Gillette Alternative energy (battery division) Duracell competition Private label hurts premium products International competition rising Commodity prices rising Government intervention and regulation

Threats

Proctor & Gamble is a leader in all things including supply chain and will continue to be a great company. Should not try to compete with retail partners, should stick to manufacturing. P&G worked too hard to get to where they are in becoming more demand driven with partners to ruin that relationship by entering the retailing space. In my opinion, a mistake to fire McDonald as the CEO as he listened to employees, consumers and tried to get involved in all aspects of the business. Board of directors overreacted prematurely to poor financials driven by extremely challenging financial times.

Supply chain digest: http://www.scdigest.com/ontarget/13-05-021.php?cid=7006&ctype=content Forbes: http://www.forbes.com/sites/billconerly/2013/04/17/procter-gamble-basispoint-wise-percentage-point-foolish/ Shared Services Link: http://www.sharedserviceslink.com/file/95458/procter-andgamble-enlists-hp-to-improve-supply-chain.html AMEinfo.com: http://www.ameinfo.com/procter-gamble-awarded-top-award-supply340873 Greentech Efficiency: http://www.greentechmedia.com/articles/read/How-ProctorGamble-Created-1-Billion-in-Value-with-Waste CNN Money: http://tech.fortune.cnn.com/2013/04/30/procter-gamble-bobmcdonald/ Brainstorm Green: http://tech.fortune.cnn.com/2013/04/30/procter-gamble-bobmcdonald/ Information Week: http://www.informationweek.com/global-cio/interviews/pg-ceoshares-3-steps-to-analytics-drive/240148065 Slideshare: http://www.slideshare.net/kunal2k3/pg-supply-chain-management