Themes: New Product Development
Pub Date : July 2009
Countries : Global
Industry : FMCG
They are a true source of advantage.”3 Such efforts coupled with the digital boom and Internet of the 21st century
improved P&G's operational excellence.
However, consumer goods companies like P&G, which sell their products directly to consumers through retailers
were vulnerable to fickle consumer decisions. Various factors like packaging, advertising, point-of-sale promotions,
product placement in the store shelves, etc. were found to have a profound impact on the customers' decision-making
process. They may change their choice even within the time they walk down the store aisle and price-based decisions
may take a back seat. Thereby, the necessity to influence consumers more effectively at the point-of-sale or ‘Shopper
marketing', as it is also called as, gained greater momentum as global retailers like Wal-Mart, Costco and Target
accounted for substantial part of the consumer goods companies' sales.
Therefore, in the highly competitive industry of consumer packaged goods, it was essential for P&G to know
consumers' pulse and understand their needs better than its competitors. It was crucial not only to offer innovative
products that consumers look for but also ensure the speed of delivery to the market.
However, apart from internal complexities, P&G was pressurised with external factors like rising commodity and
energy prices, impact of inflation on the consumer disposable income, global economic crisis, etc. Besides, higher
raw-material prices could not be transferred to consumers in the form of higher prices.
Under such conditions, P&G turned towards cost-cutting strategies and realised that its success would lie in its
ability to connect with the consumers and reach the fragmented retailers across the globe – from small street shops to
mega malls; all without losing focus on bottom-line cost efficiencies. Hence, it reinvented its supply chain with a
focused approach to the end user.
P&G redefined its supply chain strategy under the leadership of Keith Harrison (Harrison), head of its global
product supply division. Since his appointment in 2001, he focused on cutting costs and helped P&G achieve longterm
growth in sales and earnings despite soaring input costs. Since 1995, P&G's annual cost savings accounted for
more than $1 billion and the figure rose to $2 billion in 2007.4 He brought a paradigm shift in viewing supply chain
management from being an add-on businessmodel driven by forecasting to the one that focused on real-time demand.
He used the term ‘supply network' instead of ‘supply chain' as the information flows in every possible direction rather
than in a single horizontal line. He developed it not only as a core corporate concept but also as an operating strategy
and called it ‘Customer Driven Supply Network' (CDSN) (Exhibit II). In the past, supply chain process started with the
procurement of supplies and then moved through the organisation to retailers. Now, through CDSN, P&G starts its
supply chain from store shelves and moves back to its suppliers.
Mike Power, president of GBS, asserts, “We're changing our overall approach to supply chain management to
become even more consumer centric. When consumers walk into a retail environment, they want the right product at
the right time at the right place. They don't want to find it out of stock. That's a disappointment to them and a lost sale
for us. Systems based on real-time data allow us to deliver a much better result, meaning fewer out of stocks, on time
delivery, more desirable products, and a very satisfied consumer.”5 For P&G products, the average level of out-ofstocks
is between 10%–15%range. Itmeans that 10%–15%of the time a consumer cannot find the specific product he
or she is looking for. Harrison said that from 2005 to 2007, P&G has cut its out-of-stock level to half.6
Companies which win consumers choice are the ones which perform best at two critical ‘moments of truth'. The
first moment of truth is when the consumer stands at the store shelf and makes the purchase decision on a particular
brand. This became the centre for P&G's CDSN, which works back through the supply network starting from the store
shelf. The second moment of truth was when the consumers use the product and decide whether it was satisfactory or
not. Therefore, the complex consumer goods supply chain system of P&G(?), linked by sophisticated technologies
and logistics systems, was centred round the consumer.
3]“2008 Medal of Professional Excellence: P&G is king of collaboration”, op.cit.
P&G's Logistics Revolution: Co-creating Value
P&G's Logistics Revolution
4] Ibid.
5] “Procter & Gamble”, http://www.cisco.com/warp/public/779/ibs/solutions/supply/pgcasestudy1.pdf, 2001
6] Wohl Jessica, “P&G supply changes can lead to $1 bln in sales”, http://www.reuters.com/article/ConsumerandRetail07/idUSN1841019320070619, June 19th 2007