Supply-Chain Integration through Information Sharing: Channel Partnership between Wal-Mart and Procter & Gamble
Michael Grean Director, Information Technology Customer Business Development The Procter and Gamble Distributing Company, 655 East Millsap Road, Fayetteville, Arkansas 72703 Michael J. Shaw Department of Business Administration University of Illinois at Urbana-Champaign Champaign, IL 61820
This paper describes the development of channel partnership between a manufacturer (Procter and Gamble, or P&G) and a retailer (Wal-Mart). Both major players in their industries, P&G and WalMart found a way to leverage on information technology by sharing data across their mutual supply chains. The resulting channel has become more efficient because channel activities are better coordinated. There are reduced needs for inventories with increased sales by focusing on selling what the customers want. All in all, the supply chain between P&G and Wal-Mart has adopted a much better customer focus through the channel partnership. And it is mutually beneficial. This integration of the supply-chain information systems will become increasingly important both for enhancing business-tobusiness electronic commerce and for supporting the increasing volume and customization in business-toconsumer electronic commerce.
Keywords: Integrated supply chains; information sharing; CRP; channel partnership
One of the major transformations in the rapidly evolving digital economy occurs in the supply chains of both traditional and e-commerce companies. Information technology has enabled channel partners to trade goods, share information, and integrate their processes, thereby reshaping the inter-organizational dynamics and resulting in more efficient channels. Electronic integration of data and the automation of business practices has driven costs down and built sales by better satisfying consumer needs.
This paper describes the development of channel partnership between a manufacturer (Procter and Gamble, or P&G) and a retailer (Wal-Mart). Both major players in their industries, P&G and Wal-Mart found a way to leverage on information technology by sharing data across their mutual supply chains (Figure 1). Because of the information partnership described in this paper, the resulting channel has become more efficient because channel activities become better coordinated. There are reduced needs for inventories with increased sales by focusing on selling what the customers want. All in all, the supply chain between P&G and Wal-Mart has adopted a much better customer focus through the channel partnership. And it is mutually beneficial.
The power of inter-organizational information systems (IOIS) is well know in the literature of information systems research. It has proven to be an effective tool for reducing transaction costs. But the P&G and Wal-Mart partnership has gone further. To understand the impact fully, one has to think about three progressive degrees of IOIS: transactional, operational, and strategic (Seidmann and Sundararajan, 1998). The strategic partnership is the most involved, with the greatest commitments from the partners and requiring the strongest trust. In this paper we will describe how P&G and Wal-Mart developed this partnership, the main initiatives adopted in the process, and how the two companies, who are at the same time competitors and partners, created values from the partnership. Furthermore, it is a partnership that started with sharing information, but has since permeated throughout all levels of the two organizations.
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Figure 1. Role of Information Technology in Supply-Chain...
References: (1) Cachon, G., and Fisher, M., “Cambell Soup’s Continuous Replenishment Program: Evaluation and Enhanced Inventory Decision Rules, “ Production and Operation Management, 6, 3, Fall, 1997, 266-276. (2) Clark, T. H. and Lee, H. G., “Performance, Interdependence, and Coordination in Businessto-Business Electronic Commerce and Supply-Chain Management,” Information Technology and Management, 1, 2000, 85-105. (3) Clark, T. H. and McKenny, J. L., Procter&Gamble: Improving Consumer Value through Process Redesign, HBS Case #9-195-126, Harvard Business School, Boston, MA, 1995. (4) Lee, H., Padmanabhan, P., and Whang, S., “Information Distortion in a Supply Chain: The Bull Whip Effect,” Management Science, 43, 1997b, 546-58. (5) Seidmann, A. and Sundararajan, A., “Sharing Logistics Information Across Organizations: Technology, Competition, and Contracting,” in Information Technology and Industrial Competitiveness, C. Kemerer (Ed.), Kluwer Academic Publishers, 1998.
Michael Grean is Director of Information Technology in the Customer Business Development department at the Procter and Gamble Distributing Company located in Fayetteville, Arkansas. He heads the IT group working with Wal-Mart, and wherever there is a Wal-Mart store, on developing the information partnership described in this paper.
Michael J. Shaw is a Professor of Business Administration and Director of the Center for Information Systems and Technology Management at the University of Illinois at UrbanaChampaign. He is also a Senior Research Scientist for the National Center for Supercomputing Applications (NCSA), and is a Professor at the Beckman Institute for Advanced Science and Technology. Shaw is on the editorial boards of eight academic journals and he has published over sixty refereed scholarly papers in journals such as Management Science, Information Systems Research, INFORMS Journal on Computing, Communications of the ACM, IEEE Internet Computing, IIE Transactions, and Decision Support Systems. He is the lead editor of the recently published Handbook on Electronic Commerce.
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