Procter and Gamble - Value Chain Analysis

Topics: Marketing, Procter & Gamble, Third-party logistics Pages: 5 (1300 words) Published: October 21, 2013
Proctor and Gamble


Proctor and Gamble (P&G) was incorporated in 1905 in Cincinnati, Ohio and is still headquartered there today. It is the twenty-fifth largest company in the United States by revenue, and employs 138,000 worldwide. P&G competes in the consumer goods industry, and boasts ownership of over 250 brands including Gillette, Bounty, Tide, IAMS, and Crest. Its products can be found in more than 180 countries around the world. P&G first became an international company when it acquired Thomas Hedley Co. of England in 1930. Since then the company has innovated- and acquired- its way into the large Transnational Corporation it is today.

Primary Activities
Research and Development - At P&G, the development of new products plays a vital role in the company’s success. As a result, P&G spends about spends about 4% of worldwide sales each year to fund 7500 researchers that it staffs in 71 countries. It also holds collaboration agreements with many external partners. More than half of all product innovations come as a result of such agreements. Currently, the company holds about 25,000 active patents. 1

Operations - For its existing products, Proctor and Gamble’s value chain begins here with the acquisition of raw materials, packaging materials, and fuel. P&G uses suppliers to provide almost all inputs to the manufacturing process with the exception of a few chemicals that it produces in-house. Currently, the firm uses a network of over 30,000 suppliers.2 After obtaining the necessary inputs, saleable products are created in one of the company’s 131 manufacturing plants, located in 42 countries. In the past, the company has operated using a push-supply system requiring local teams to forecast regional sales and conduct production runs in that same location, but recently the company has implemented a digital-integration strategy that enables it connect with plants around the globe and select the optimal production location considering logistics, shipping costs, supply costs, and distribution costs. With this system in place production activities have become a significant competitive advantage for the company. P&G has also recently introduced a third-party logistics company into the digital-integration network in order to improve the actual transport of needed input materials from suppliers.

Distribution – P&G has a very strong distribution infrastructure that consists mostly of exclusive-P&G-brand distributors. This enables it to deliver goods to market quickly and more cheaply than competitors. The company has about 5000 key retailers it distributes to around the world. These retailers include mass merchandisers, grocery stores, membership club stores, drug stores, and high-frequency stores. No retailer, other than Wal-Mart, represents more than 10 percent of total sales. Also, as noted in the section above, P&G’s recently-implemented integration system gives the company access to real-time distributor data, which allows it to more accurately meet consumer demand.

Marketing - P&G relies heavily on marketing and advertising to sell its products. The company spends about $80 million dollars a year to maintain a large sales force, fund advertising campaigns, and execute marketing strategies. One executive at the company attributes 60 percent of yearly sales to “events,” which include product promotions, price cuts, and other incentives.3 These events are planned by brand-strategy teams that develop overall strategies for each product. Brand-strategy execution has played a significant role in the success of P&G’s past marketing efforts, resulting in high levels of brand recognition and trust among consumers and a significant competitive advantage.

Secondary Activities
Materials and Equipment – Purchasing Managers use a software called MatrixOne to calculate raw materials- and commodities- needs as well as capital equipment needs, and order from suppliers across the globe The software is...
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