P&G's Logistics Revolution: Co-creating Value

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P&G's Logistics Revolution: Co-creating Value

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Harrison asserts, “Our goal is to win at the consumer level, so the CDSN is a concept we have created to direct all of our activities to what is going on at the store-shelf level. We need to work off of real demand, so we produce what is actually selling, not what is forecast to sell.”7 However, P&G was faced with several competing priorities –meeting consumer value equation amid rising supplier costs, balancing global scale benefits with the need to offer local differentiation, meeting the diverse challenges of developed and developing markets and above all, reaching the global large-scale retailers as well as the small and local street shops. All this made P&Gcollaborate with its partners across the supply network to win consumers at the point of purchase. It implemented ‘Web Order Management' – an online system, which enabled retailers not only to connect with P&G anytime, anywhere(,) but also access P&G's promotions, inventory, scheduling information and easily replenish stocks. P&G's partnership with Wal-Mart exemplifies the success of manufacturer-retailer relationships.

P&G–Wal-Mart relationship traced its origins to 1980s(,) whenWal-Mart decided to allow P&G and other suppliers to access customer sales data gathered by its Retail Link computer system. The partnership began as a means to enhance their business ties but was mired in various complexities in due course. P&G operated 12 internal product divisions and each division had separate salesmanager,who approachedWal-Mart independently and never represented P&G as a whole. Further, P&G dictated Wal-Mart on quantities of P&G products to be sold and the pricing, while Wal- Mart warned P&G that it would either drop P&G products or allot poor shelf space. Thereby, Wal-Mart was reluctant to work with P&G due to its rigid and complicated processes.

This adversarial relationship began to change after the mid-1980s when P&G's vice president for sales, Lou PritchettmetWal-Mart founder, SamWalton for the first time. They decided to reexamine their relationship and developed a collective vision by assembling the top 10 officers of both the companies.A12-member team from different functions was formed to convert this vision into an action plan, which included various initiatives like using multifunctional resources, joint scorecards and sophisticated technology. They also set up a data-interchange link, which enabled P&GmanageWal-Mart's P&Ginventory. P&Gmonitored the shelves across allWal-Mart stores by receiving continuous satellite data on sales and inventory from individual Wal-Mart stores. As and when P&G products ran low at Wal-Mart distribution centres, P&G would ship the goods, directly from the factory to the individual stores.

Pilot testing of this process was undertaken at P&G's factory in Missouri where real data on store sales was used not only to estimate demand but also to schedule replenishment deliveries for a single product on a single store basis. Thereby, instead of shipping the required quantity to Wal-Mart distribution centre and then break up for each store, P&G tailored its shipments according to the requirements of each store. Thereby, as and when P&G truck would arrive at Wal-Mart's distribution centre, shipments would be transferred to Wal-Mart truck to be sent to the individual stores without any necessity for storage. Electronic invoicing and electronic transfer of funds completed the transaction cycle. This sped the order-to-delivery cycle by nearly 10 days and Wal-Mart paid for P&G goods shortly after they were sold to the end customer.

Industry experts observed that P&G was the first consumer goods company to use Retail Link data in this manner. Kevin O'Marah, logistics consultant at AMR Research(,) observes, “P&G is unusual in having actively demonstrated the importance of its supply chain as a driver of sales: P&G is in a leading position here . . recognition of the importance of the supply chain goes all the way up to [chief executive AG] Lafley at the top. Elsewhere, the idea has spread throughout everyone's PowerPoint presentations, but not to everyone's practices yet.”⁸

Despite access to such data by many companies, information was just held in blocks in their demand planning departments.Away fromthe traditionalmodel that involved redundant activities of order processing, billing and payment, the CDSN helped attain a balance between stock-outs and excess inventory. Financial Times puts it, “An effective supply chain helps manufacturers by reducing a retailer's “out-of-stocks”, which in turn prevents lost sales. Those sales also benefit the retailer, while efficient delivery of products to meet demand can also reduce the costs of holding inventory to the retailer.”⁹

Harrison estimates that the CDSN process would result in substantial savings on inventory. Following the success of the CDSN process of a single product atMissouri plant, P&G plans to extend the same to other products in the same factory and is also negotiating with other retailers regarding the same.
However, P&G may face several challenges. Firstly, building trust with retailers and reaching out to millions of customers is a great task. The $83.5 billion company (Exhibit III) has a total of 90,000 suppliers(,) who not only provide raw material to P&G's 150 manufacturing plants worldwide but also supply finished products for P&G's products like Mr. Clean Magic Eraser and Swiffer.

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8] “How P&G's logistics revolution supplied a new demand”, op.cit.
9] Ibid.