Supply Chain Management

Submitted by
Savio Cerejo 2010C25
Ayush Bhagat 2010C29
Krishna Bajaj 2010C37
Sohan Tulpule 2010C39
Kritika Priyadarshini 2010C40
Kunal Singh 2010C41
About P&G
Industry Consumer goods

Founded 1837

Revenue $78.9 billion

Operating income $16.13 billion

Net income $12.74 billion

Employees 127,000
Supply chain initiatives of P&G
Major Initiatives
 Collaborative Planning Forecasting and Replenishment
(CPFR)
 Consumer Driven Supply Network (CDSN)

Other Initiatives
 Control Tower Program
CPFR Pre scenario - Bullwhip Effect
 The concept emerged when the logistics executives at
Procter & Gamble (P&G) examined the order patterns for
one of their best-selling products Pampers. Its sales at retail
stores were fluctuating, but the variability was certainly not
excessive. However, as they examined the distributors'
orders, the executives were surprised by the degree of
variability. When they looked at P&G's orders of materials to
their suppliers, such as 3M, they discovered that the swings
were even greater.
 At first glance, the variability did not make sense. While the
consumers, in this case, the babies, consumed diapers at a
steady rate, the demand order variability in the supply chain
were amplified as they moved up the supply chain. P&G
called this phenomenon the "bullwhip" effect.
CPFR pre scenario - Bullwhip Effect
- Causes
 Separate demand forecast done by players in supply
chain.
 Price fluctuations manufacturers and distributors
periodically have special promotions like price discounts,
quantity discounts, coupons, rebates, and so on.
 Players in supply chain after receiving order accumulates
demands (Order Batching) before issuing an order.
 Rationing and shortage gaming.
CPFR - Overview
 Procter & Gamble’s CPFR focus is to build on the
current success of the Continuous Replenishment
Program (CRP). CRP has delivered greater than 99%
service levels, and has reduced customer distribution
center inventories by as much as 50% in customers
representing over 40% of our U.S. and European
businesses.
 P&G has deployed CPFR to enable creation and
integration of consumer demand data. This will trigger
product flow from our manufacturing plants to our
customers’ DCs, from the customers’ DCs to their
retail store shelves, and ultimately from the store
shelves into consumer homes.
CPFR - Model
CPFR is a nine-step process model consisting of

 Developing collaboration agreement

 Creating joint business plan
 Creating sales forecast
 Identifying exceptions for sales forecast
 Resolving collaborating on exception items
 Creating order forecast
 Identifying exceptions for order forecast
 Resolving / collaborating on exception items
 Generating orders
CPFR - Model
CPFR - Initiative
CPFR Processes Addressed

 Collaborative Processes
 Integrated Planning and Forecasting Processes
 Replenishment Processes
 Supply Chain Management Processes
CPFR - Initiative
 Primarily CPFR output concentrates on improving
inventory and reducing out-of-stocks. Since both the
objectives are inversely proportional; trade-offs must be
made.
 CPFR recognizes that the main causes of these
two issues are identical:
1. Ineffective trust-based collaboration.
2. Ineffective planning using visibility of POS consumer demand.
3. Ineffective forecasting.
4. Ineffective product replenishment in response to demand
fluctuations.
Challenges in Implementing CPFR
 Selection of CPFR Partners
P&G and Wal-Mart assess the potential relationship according
to anticipated, realistic benefits, pertinent to common business
goals, organizational and cultural issues.
 Trust Based Relationship
CPFR involves sharing sensitive information.To take full
advantage of the benefits of CPFR, P&G and Walmart created a
relationship founded on trust. Sharing sensitive data and close
collaboration demands reliability.
Challenges in Implementing CPFR
 Detailed Definition of Systems’ Capabilities
For the success of CPFR it is key to collaborate at the same
data level. In particular, best practice would be to collaborate at the
lowest data level; sharing promotional plans, forecasts and
replenishment orders per trading unit and per point of sales.

 Senior Management buy in

Senior management of P&G made sure that the necessary
resources (Human Resources, Technical Infrastructure, Time and
Project Budget) are prioritized and dedicated to the project.
CPFR - Benefits
 Improved responsiveness to consumer demand
The reduction of out-of-stocks and shorter cycle times leads
to a more responsive and reliable supply chain for P&G, thereby
improving on-shelf availability and increasing consumer satisfaction.
Through CPFR P&G reduced replenishment time by 20%.
 Greater forecast accuracy with single shared
forecast
Sharing a single forecast along the supply chain enables P&G
to benefit from potential synergies and brings together trading
partners’ efforts. Depending on their position in the supply chain
and supply chain activities, trading partners may have different
views of the market and information. Combining this knowledge is
the foundation for greater forecast accuracy. Through CPFR
forecast accuracy improved by 20%.
CPFR - Benefits
 Increase in sales
Collaboration on planning and forecasting potentially reduces
out-of-stocks, lost sales and increases on-shelf availability which leads
to increase in sale of P&G.
 Cost reduction
P&G has aligned the production schedule with the agreed
forecast, so costs has been reduced by decreasing set-up times, effort
duplications and variations.
 Improved relationship between the trading partners
The relationship between P&G, wall mart has improved when
collaboration takes place. Trading partners will gain a better
understanding of their respective businesses by regularly exchanging
information and establishing direct communication channels.
CPFR - Benefits
 Inventory reduction
Increased forecast accuracy facilitates a decrease in
the safety stock, reducing inventory levels and increasing
on-shelf availability. Thus the inventory cost for P&G has
reduced.
CDSN – Pre Scenario
 P&G believes in 2 moments of truth.
◦ First, when customer buys the product from shelf.
◦ Second, when they actually use it and like it.
 In order to handle the first moment of truth, it is
important to have stocks available on shelf.
 P&G realized that 48% of times their products
were unavailable on the shelf when the customers
wanted it.
 They were losing a large quantum of sales and
hence needed to take corrective action.
CDSN - Initiative
 P&G redefined its supply chain strategy under the
leadership of Keith Harrison – Head of Global Product
Supply Division.
 P&G decided to have a connection between actual sales
and the supply chain process.
Paradigm shift in viewing supply chain management from
forecast driven to actual demand driven.
Supply Network instead of a supply chain because of
information flow in all directions.
CDSN - Initiative
 P&G started its supply chain from store shelves and
moved back to its suppliers.
 This operating strategy was called Consumer Driven
Supply Network.
 CDSN required P&G to create a responsive supply
chain that would produce and supply products as per
demand at the customer level.
 Harrison was quoted saying:
“ We need to work off of real demand, so that we produce
what is actually selling, not what is forecast to sell.”
How did P&G implement CDSN
 P&G collaborated with its partners across the supply
network to win consumers at the point of purchase.
 Implemented an online system-”Web Order
Management”.
 This enabled retailers to connect to P&G and access its
scheduling, inventory and replenishment levels.
 Various other initiatives like using multifunctional
resources, joint scorecards and sophisticated
technology were undertaken in collaboration with
retailers.
CDSN – Intelligent Daily
Forecasting (IDF)
 IDF is one of the most important component of CDSN.
 IDF is a software used by P&G to forecast the demand
based on actual sales. Following are the Inputs and
outputs that this software provides.

 Input:
◦ Daily Order Information
◦ Daily Shipment Information
◦ Weekly shipment forecast
 •Output:
◦ Daily estimates for next 42 days
◦ Refreshed Daily
CDSN – Intelligent Daily
Forecasting (IDF)
 IDF tracks daily demand across different stores, and that
itself becomes the replenishment plan of P&G for those
stores.
 Actual demand is picked up from the scanner data at the
point of sale and it is made available at the plant where
it becomes part of the daily production schedule.
 As a result of implementing IDF, P&G is running few
plant at 6-8 hours response time.
CDSN - Challenges
 The $83 billion company had a total of 90000
suppliers with 150 manufacturing plants
globally.
 Reaching out to millions of customers across the
globe was a major challenge.
 Meeting the diverse challenges of developed and
developing markets as such markets like India
depended on unorganized retail.
 The challenge was to reach the global large-scale
retailers as well as the small and local street
shops.
 Creating consumer value and meeting rising
supplier costs.
Impact of CDSN - Results
1. Forecasting Accuracy: Improved forecast accuracy by
30%.
2. Shelf-Level Out of Stocks: The percentage of
products that are out of stock on retailers' shelves at
any given time. P&G has cut this to 5%, from 10% within
8 months of implementation.
3. Total Supply Chain Response Time: The time
from when a cash register records the sale of a
product to the purchase of raw materials to produce
its replacement. From six months, it came down to two
months.
Impact of CDSN - Results
4. Total Supply Chain Inventory: The hard count of all
products flowing through the supply chain at any given
moment, whether on store shelves, in back of the store, at
warehouses, in trucks or wherever. P&G got a daily count,
rather than weekly or monthly and hence reduced safety
inventory by 10%.
5. Pricing-Design From the Shelf Back: CDSN helped in
determining an acceptable price point for an item and then
working it back through manufacturing and distribution to
see if that product can be delivered at a price acceptable
to consumers and a profit acceptable to P&G.
6. Topline and bottomline: Increased overall sales by 15%
in one year. Net profits witnessed a 19% gain from $4.35
billion to $5.19 billion.
Impact of CDSN - Results
 Jake Barr - In Charge Supply Chain Innovation was quoted
saying
“Twelve months into the new pull system, the company is close to its
original goal of cutting out-of-stock conditions in half. Now 93% of outlets
working under the new system are experiencing no more than 5% out-
of-stock rates.That represents a yearly savings of $50 million to $100
million.”
Source: www.baseline.org – 01-07-2004
CDSN helped create a balance between excess inventory and stock-
outs

 Financial Times once wrote,

“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.”
Control Tower Program
 Logistics optimized by making changes to the rate, route,
mode and method of transportation.
 Helped in eliminating inefficiencies
such as loading and unloading delays,
rush transport up-charges, dead legs
(empty trucks) and production line
stops.
 The lead logistics provider centrally
controls and optimizes the product
flows, delivering maximum truck fill
for every kilometre travelled in the
fastest possible time, in an
ecologically friendly manner.
P&G Control Tower Program
 Kicked off in 2010 in Central and Eastern Europe,
Middle East and Africa (CEEMEA).
 Turkey and Egypt were the first countries in CEEMEA
region to adopt the Control Tower logistics optimization
effort.
Results
 Amount of empty truck journeys reduced by over 15% to date.
 58% reliability improvement on inbound operations in Egypt.
 68% improvement in our finished product inbound operation in
Turkey.
 67,000 metric tons reduction in CO2 emissions.
Bibliography
 http://www.supplychainbrain.com/content/industry-verticals/cpg/single-
article-page/article/procter-gamble-uses-consumer-demand-info-to-
drive-supply-network/
 Intelligent daily forecasting by Mark Kremblewski, P&G
 Proctor & Gamble – Building a supply chain by Gartner research, Inc
 Demand Sensing, Enabled Supply and S&OP Improvements at P&G - David
Mills, Procter & Gamble
 P&G annual reports & Sustainibility reports.
 VICS CPFR Committee http://www.vics.org/committees/cpfr/
 Gower Handbook of Purchasing Management
Thank You