SUPPLY CHAIN MANAGEMENT OF

INTRODUCTION - COMPANY
Procter & Gamble Co. is a Fortune 500 American multinational corporation headquartered in downtown Cincinnati, Ohio that manufactures a wide range ofconsumer goods. It is 5th in Fortune's Most Admired Companies 2011 list. P&G is credited with many business

innovations including brand management and the soap opera. William Procter, a candlemaker, and James Gamble, a soapmaker, immigrated from England and Ireland respectively. They became business partners and on October 31, 1837, as a result, Procter & Gamble was born. P&G's dominance in many categories of consumer products makes its brand management decisions worthy of study. For example, P&G's corporate strategists must account for the likelihood of one of their products cannibalizing the sales of another. On August 24, 2009, the Irish-based pharmaceutical company Warner Chilcott announced they had bought P&G's prescription-drug business for $3.1 billion.

OPERATIONS
As of July 1, 2007, the company's operations are categorized into three "Global Business Units" with each Global Business Unit divided into "Business Segments" according to the company's March 2009 earnings release.

Beauty & Grooming

Beauty segment Grooming segment

Ed Shirley is Vice Chairman of Global Beauty and Grooming, with Charles V. 'Chip' Bergh as Group President of Global Male Grooming and Virginia C. 'Gina' Drosos as Group President of Global Female Beauty.

Household Care

Baby Care and Family Care segment Fabric Care and Home Care segment

Dimitri Panayotopoulos is Vice Chairman of Global Household Care with Martin Riant as Group President of Global Baby Care, Mary Lynn Ferguson-McHugh as Group President of Global Family Care, Jorge S. Mesquita as Group President of Global Fabric Care, and David S. Taylor as Group President of Global Home Care.

Health and Well-Being

Health Care segment Snacks and Pet Care segment

Proctor & Gamble manufactures a broad range of products from pet foods to detergents to beauty products. The Company is ranked in Fortune Magazines top 50 global companies and has operations in North America, Europe, the Middle East, Africa, Asia and Latin America, with products sold in over 104 countries. Procter & Gamble began as a small soap and candle Company in Cincinnati, Ohio, USA, in 1837. By 1890, Procter & Gamble had grown into a multimillion dollar corporation. The first overseas subsidiary was purchased in 1930 (a UK-based soap manufacturer). .

Manufacturing operations are based in the following regions:

United States Canada Mexico Latin America

Europe China (31 wholly owned factories) and other parts of Asia Africa Australia

TURNOVER / VOLUME
With $79 billion in sales across the world in fiscal 2010 and 24 brands with $1 billion of sales each, P&G is a global giant for household and personal goods. P&G divides its business into three Global Business Units (GBUs) that develop and produce products and its Corporate group which handles the operation and administration of the company.

Beauty (34.0% of 2010 sales, 38% of 2010 net income): The Beauty GBU includes all hair and skin products, medications, razors, electric shavers, and batteries. This business unit includes several product lines acquired when the P&G bought consumer products company Gillette in 2005. Proctor & Gamble's global market share in blades and razors is 70%, primarily centered around its Mach3, Fusion, Venus, and Gillette brands. In June 2009, P&G further expanded its men's grooming business with the acquisition of the high-end shaving company "The Art of Shaving" and the men's skin care line Zirh.

Health and Well-Being (18.3% of 2010 sales, 20% of 2010 net income): The Health and Well-Being GBU provides oral care, feminine health, pharmaceuticals, snacks, coffee, and pet care products. In oral care, the company has the number two market share position at 20% globally. In potato chips, the company's Pringles brand holds a market share of approximately 10%.

Household Care (48.4% of 2010 sales, 50% of 2010 net income): The Household Care GBU manufactures a wide range of products from laundry detergent to diapers. The company's baby care market share in 2008 was 29%.

NEED FOR SUPPLY CHAIN MANAGEMENT Procter & Gamble (NYSE:PG) is the world's largest producer of household and personal products by revenue, with its products reaching 4 billion people worldwide including Tide detergent, Pampers diapers, and Gillette razors, that generate over $1 billion in revenue annually. Business dynamics have been growing increasingly complex in the consumer products industry. Product and process innovation are increasing at greater speeds. Product categories are broadening in response to consumer needs. Increased need for packaging enhancements is leading towards SKU proliferation. As a result, P&G's multi-echelon global supply chain has also been growing increasingly complex due to global suppliers, unique materials requirements and increasing demand from developing markets. is one of demand-driven supply chain and continuous improvement, P&G was not done yet. P&G understood that continued inventory reduction would require a multi-echelon inventory optimization tool that would meet its string entrequirements. Hunt Valley also wanted to develop a more robust, structured, and sustainable process for global inventory management supported by deeper supply chain intelligence. Proctor and Gamble looks to bring in new product ideas from outside the company. Connect + Develop has led to the development of 42% of new P&G products in recent years. In February 2010, the company said it will launch a "flurry" of new products globally, using innovation to boost sales in fiscal 2010 coming out of the global recession.

Innovation at P&G: Advantage through Process Focus

P&Gs ex-CEO, Lafley, believes that The heart of a companys business model should be game-changing innovation. With that belief, Lafley started to build a sustainable culture of innovation at P&G and establish innovation as a process that was superior to its competition. A process that is scalable, repeatable, sustainable, and hence superior to its competitors. The result: P&Gs continuous success as a profitable and growing business. This is the gist of an article on P&Gs Innovation Culture bystrategy+business magazine.. That is the core concept behind creating advantages through capabilities, designing processes that are superior, because they provide one of the four basic tenets of advantage: time, cost, efficiency, or quality. In case of P&G, the process of innovation provides them more throughput (ability to introduce more number of new products and brands than its competition) and better time-to-market by shrinking the time it takes to introduce new products to the market

P&G Key Performance Indicators:

1. 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%. 2. 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. P&G wants to chop this in half, from 100 days. 3. 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 wants a daily count, rather than weekly or monthly.

4. Shelf-Level Quality: The percentage of packages damaged or otherwise unappealing when a customer sees them on a store shelf. The goal: zero. 5. Pricing-Design From the Shelf Back: 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.

STRUCTURE OF SUPPLY CHAIN

The success mantra behind P&Gs efficient supply chain that enables it to transfer the consumer products giants detergents, soaps and personal care products to the 5 billion customers in 170 countries is the robust relationship between the organizations marketing department and supply chain department. P&G heavily relies on its marketing strategies and consumer demand to determine what, how and what quantity of a product they need to produce. They follow the simple maxim: Cut out piles of inventory and produce only those products that consumers are actually buying. And it is cost effective too! By having less inventory, they reduce costs like warehouse rentals, maintenance, depreciation cost of the product etc. For example, one of their tactics which they used in the sale of Pampers was to offer a gift with purchase. Success rate at P&Gs supply chain increased even more when they concentrated on the information about the products and used it to their advantage. P&G is definitely one of the

best organizations when it comes to supply chains and an excellent entity for many organizations to base their supply chain model on. NO. OF PLANTS: Procter & Gamble is truly a global organization, with 520 office/lab buildings dispersed across 180 countries. COUNTRY OF OPERATIONS: P&G is a global manufacturer and marketer of consumer products. The company markets more than 300 brands in over 180 countries spanning Americas, Europe, the Middle East and Africa, and Asian region. The company is currently organized into three separate Global Business Units (GBUs. The three GBUs are: Beauty, Health and Well- Being, and Household care. It has manufacturing capabilities in over 42 countries around the world with 130 manufacturing sites in the world. SUPPLIERS, DISTRIBUTORS, RETAILORS The company has 5,000 key retailers and more than 30,000 key suppliers to help make sure that its products are always in stock and ready for purchase. VALUE CHAIN ANALYSIS The Value Chain Analysis has been utilized in both organizational and business studies for many decades. This fundamental approach allows a company such as P&G to obtain a competitive advantage over the other competitors in the industry. Specifically, the value chain analysis is a process that starts from the acquisition of the raw materials to the actual physical

products

sold

by

the

company.

Analysis of primary activities: P & G developed extensive economies from its scale of operations in finance, logistics, marketing, research, new product development, innovation, technology and other functions. It is the global leader in all its four core categories - fabric and home care, beauty care, baby and family care, health care. Its products are sold in over 180 countries worldwide with manufacturing capabilities in over 42 countries.

Supply Chain Management

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 measures consumer satisfaction at two levels, which it calls the two moments of truth. The first moment of truth occurs when the consumer reaches the shelf and finds that the desired product is, or is not, available. This is a critical moment, because if the product is not immediately available, the consumer usually moves on to buy a rival product. The second moment of truth depends on the buyers satisfaction when consuming the product. 8

Optimizing supply chain performance demands a drastic new look at the way the partners in the supply network collaborate, involving retailers, manufacturers and service providers. P &Gs goal has been to create adaptive, reactive supply networks that will link together sales and supply processes, inside and outside the organization, to improve product availability

Distribution
Links between supply chain planning and supply chain execution processes are critical for P & G continued success. P&G expects major changes in the transportation area, including improved partnership with logistics outsourcers and more use of techniques such as crossdocking. 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, will be used to drastically cut inventory and handling costs, as well as delivery times. Daily planning will be phased out for a more efficient continuous plan- make-ship process, which will demand improved loading techniques to make efficient use of vehicles as shipment sizes become smaller. Sales and Marketing Currently, P&G sales and markets over 300 brands in over 180 countries to over 4 billion customers. Twenty-three of these brands are categorized by P&G as BillionDollar Brands. To be categorized at a Billion-Dollar-Brand a product must generate more than one billion dollars in sales each year. In the past, P&G would use what Barr called a "push" system for moving products out the store door. Independent of what retailers were doing, P&G typically forecast sales for its major product. Then P&G would tweak sales throughout the year by offering and distributing coupons and other incentives designed to entice enough customers to buy, moving products off store shelves. But with the majority of sales now coming from promotional events, Barr and his Global Product Supply team studied the pull systems of efficient distributors of consumer and industrial products.

Service
P&G places emphasis on its principal business goal of providing its customers with the right products at the right price all the time. The company spends over $80 million dollars a year on advertising its products. The company has 5,000 key retailers and more than 30,000 key suppliers to help make sure that its products are always in stock and ready for purchase. 9

Supply Chain Management is the combination of strategy and technology that helps a business find raw materials that they need to produce their products or services. It involves systems which control and communicate with suppliers, vendors, warehouses, transportation parties and customers. Some examples of supply chain management software include EDI system, online tracing and inventory system. Many 3rd party logistics companies are also providing supply chain solutions for other businesses. Two such companies are UPS supply chain solution and Fedex Trade Networks.

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To achieve high customer satisfaction which in-turn leads to profitability and greater market share, mastering the Supply Chain is an important aspect. A company needs to redefine its strategy in order to make Supply Chain capabilities the core of the business model. This requires both creating a new strategy and bringing the Companys other core activities into alignment with this new business modelmost importantly, account selection, in-customer operations, channel strategy, core operations capabilities, and Management/Organization Structure. All of these activities must undergo sweeping changes. Mastering the Supply Chain 11

creates a distinctive business model that shifts the prime objective of Supply Chain Management from cost control to revenue enhancement to Customer satisfaction.

NEW P&Gs Agent-based modeling of complex, adaptive systems: Supply Network:

Procter & Gamble used agent-based modeling which helped it transform its Supply Chain system so fundamentally that the Company no longer even calls it a Supply Chain. calls its connections to 5 billion consumers in 140 countries a Supply Network. Chain connotes something that is sequential, that requires handing off information in sequence, says Larry Kellam, Procter & Gambles Director of Supply Network Innovation. We believe it has to operate like a network, like an internet, so everybody has visibility to the information. Agent-based modeling is believed to have brought some changes that Procter & Gamble fundamentally had to make if they were to be flexible and adaptable, Kellam (Procter & Gambles Director of Supply Network Innovation) says, explaining that changes fell into the following three broad areas: Relaxation of rigid rules, often counter intuitively, in order to improve the overall performance of the supply network That required some cultural changes, such as convincing freight managers that it is sometimes acceptable to let a truck go half full. More flexibility in distribution For example, it is possible to restock a retailer in 24 hours rather than the customary 48 to 72 hours. The

Cincinnati-based maker of Tide, Crest, Pringles, Pampers, Clairol and 300 other products now

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More flexibility in manufacturing As a result of insights gained by the models, Procter & Gamble is fundamentally re-tooling its manufacturing processes so that it no longer produces long runs of a single product but instead is able to produce every product every day. The benefits include fewer stock-outs and happier customers.

Procter & Gamble uses Supply Chain Management software from SAP AG, but it turned to a tiny New Mexico company when its long efforts to decrease inventory levels produced only marginal improvements. Procter & Gamble went to Bios Group because they think very differently from the way Procter & Gamble does things. Meanwhile, Procter & Gamble says that by 2008, software agents will enable another leap forward in Supply Network Management. While agents have so far been used just for modeling, they will increasingly be deployed in Procter & Gambles operational software.

Using this latest technology has made Procter & Gamble deliver goods to the right place at the right time giving good customer satisfaction and increasing its market share.

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A.G. Lafley, President and Chief Executive Officer, Procter & Gamble, says, So far, by using this technology, the biggest impacts on our business have been improvements in service, cost, and speed. We know were delivering better consumer service, better customer and supplier service, and better employee service throughout the world as a result of the way were using the Internet based, Agent-based modeling of complex, adaptive systems Supply Network.

How does Procter & Gambles Supply Chain Management influenced its Results?
A new global study reveals that gaps on shelves are costing supermarkets up to four percent of sales. Thus, out-of-stock items can be quite expensive, when it is discovered that alternative items become competitor products. Out-of-stock items are more than irritations to shoppers. They are also a known source of lost income to fast moving consumer goods manufacturers. But the first ever global study on outof-stock items in the sector has confirmed that it is a bigger problem to retailers than previously thought. Worldwide, it causes an average sales drop of 4% on both sides of the equation, costing retailers and manufacturers billions of dollars a year. The Report, published by the Grocery Manufacturers of America and featured in the ECR Journal also concludes that more than two thirds of the problems occur within the four walls of the store itself. Over 70% of out-of-stock instances are attributed to insufficient ordering,

forecasting, or stocking of the shop shelves.

. Procter & Gamble deliver superior customer and logistics services. Quality, value and

technology are the core of their product supply organization, which includes Customer Services, Integrated Logistics, Purchases, Manufacturing and Engineering. Together, these

disciplines deliver products of exceptional quality at the most affordable prices and ship those products in the safest, most efficient way possible all to benefit consumers around the world.

Logistics

is responsible for predicting customer demand, then ensuring the efficient Customer

distribution of their products through the Supply Chain to supermarket shelves.

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service people focus on the final step of the Supply Chain that of delivering products to the customers in the right quantities, at the right time, and in perfect condition.

Purchasing

has the skills in market analysis, building relationships, consulting top

Management, and negotiating and innovating global and Pan-European sourcing strategies to enhance the Companys overall Competitive Advantage.

Manufacturing involves making the products.

it to achieve very high value for its consumers.

Procter & Gamble apply leading edge,

high technology systems and processes to produce high quality at the lowest cost, which helps

Key tasks for Supply Chain Management in Procter & Gamble, involve: Creation of processes that support the flow of raw materials and finished goods to and from Procter & Gamble facilities; Facilitation of the transportation of raw materials to its manufacturing locations; Development of strategies that will keep Procter & Gamble leading the marketplace in logistics services; and Management of logistics information, customer orders and the prompt delivery of finished product to the trade customers.

Major Competitors of Procter & Gamble

The fact that Procter & Gamble is a very large multinational Company represented in most countries around the world, and distributing its products throughout most of them, contributes to its large number of competitors. These competitors do not necessarily distribute all of the same types of products distributed by Procter & Gamble. Although Procter & Gamble does deal with food as well as beverages, it is only in a relatively minor capacity compared with, for example, cosmetics, hygiene and cleaning products. The real competitors of Procter & Gamble as far as food is concerned are Sara Lee, Frito-Lay and Nestls SA. These Companies, however, are not anywhere near as large as Procter & Gamble. The below lists shows Procter & Gambles main competitors, within at least some of its main product range: Amway Corporation 15

Avon, Inc. S.C. Johnson & Son, Inc. The Body Shop International PLC General Mills, Inc. Johnson & Johnson Consumer Products Bath and Body Works Unilever Colgate-Palmolive Company Johnson & Johnson Kimberley-Clark Corporation

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