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Supply Chain Management Submitted by Savio Cerejo 2010C25 Ayush Bhagat 2010C29
Krishna Bajaj 2010C37 Sohan Tulpule 2010C39 Kritika Priyadarshini 2010C40 Kunal Singh
2010C41
2. About P&GIndustry Consumer goodsFounded 1837Revenue $78.9 billionOperating income
$16.13 billionNet income $12.74 billionEmployees 127,000
3. Supply chain initiatives of P&GMajor Initiatives Collaborative Planning Forecasting and
Replenishment (CPFR) Consumer Driven Supply Network (CDSN)Other Initiatives Control
Tower Program
4. 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&Gs 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.
5. 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.
6. CPFR - Overview Procter & Gambles 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.
7. CPFR - ModelCPFR 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
8. CPFR - Model
9. CPFR - InitiativeCPFR Processes Addressed Collaborative Processes Integrated Planning
and Forecasting Processes Replenishment Processes Supply Chain Management Processes
10. 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.
11. 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.
12. 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.
13. 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%.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. CDSN Intelligent DailyForecasting (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
21. CDSN Intelligent DailyForecasting (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.
22. 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.
23. Impact of CDSN - Results1. 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.
24. Impact of CDSN - Results4. 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.
25. Impact of CDSN - Results Jake Barr - In Charge Supply Chain Innovation was quoted
sayingTwelve 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 01-07-2004CDSN helped create a balance between
excess inventory and stock- outs Financial Times once wrote,An effective supply chain helps
manufacturers by reducing a retailers 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.
26. 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.
27. 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.
28. 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