Procter & Gamble: Building A Smarter Supply Chain
To remain profitable, consumer products manufacturers must find ways to optimize the performance of their supply chains. They need to support marketing promotions better and avoid frustrating consumers with out-of-stock situations in the store.
Procter & Gamble realized it needed a “consumer-driven supply network” to stay ahead in the consumer packaged goods industry. Retailing’s “first moment of truth” is a key focus area for P&G. When the shopper reaches the shelf, is the product there?
Links between supply chain and CRM processes are critical. Business leads, technology follows. But the technology must be proven, practical and scalable. Even with immature solutions, it is possible to get rapid payback on streamlined demand and fulfillment processes for critical products. A harmonized ERP applications backbone is a basic requirement.
Secure management support before you start redesigning your supply network. Don’t let politics condemn the initiative to failure. Leverage the value IT can bring in connecting demand and supply side business processes. Simplify your applications architecture to allow collaborative business processes and cope with changes in network alliances.
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Related Research from GartnerG2 Gartner Core Research Methodology Maria Jimenez with Derek Prior
“Research has shown retailers lose 11% of sales
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due to out-of-stocks, and that same-brand substitutions win back less than 25% of a manufacturer’s lost sales.”
CAS-1202-0012 © 2002 Gartner, Inc and/or its affiliates. All rights reserved. GartnerG2.com. Page 1 of 7
Procter & Gamble: Building A Smarter Supply Chain December 2002
Zeroing in on the first moment of truth 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 buyer’s satisfaction when consuming the product. This, too, has a crucial impact on consumer loyalty, but is beyond the scope of this case study. Detailed consumer surveys in July 2000 told P&G that in 55% of cases (75% for promotional items), consumers were not satisfied when they looked on the shelf for the products they wanted. The exact product variant, in the size and packaging the shopper sought, was available less than half the time. Something had to be done. Responsibility for having the product on the shelf every time a shopper wants it used to be seen as purely a matter for the retailer. If retailers got their forecasts wrong and ordered the wrong volumes, the manufacturer was not aware of the problem, or at least not concerned about it. But, at the end of the day, both the manufacturer and the retailer were losing. P&G was ahead of the pack in realizing the significance of this, though other manufacturers are now also focusing on the end consumer, which is one reason why the industry is seeing so many new CPFR (collaborative planning, forecasting and replenishment) and VMI (vendor-managed inventory) programs. Top managers in P&G began to realize that the company’s supply network needed to be re-engineered so that it was genuinely responsive to consumer demand. This was especially important for promotional items, because of the cost of merchandising and promotional...
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