Q1. What were the key decisions taken by P&G in relation to distribution channel?

Could a mid-sized manufacturer have used such an approach?

In order to optimize their supply chain by reducing costs and improve the service level, P&G
launched several projects in the mid-1980s. The following are the key decisions taken by the
firm.
1. EDI (Electronic data exchange)
 This is a new approach that is used for replenishment ordering which was
started in 1985.
 Transmits data daily from retailer to P&G on warehouse product shipments to
each store.
 The quantity of orders to be shipped based now depends on shipment
information rather than retailer generated orders.
 Product Order quantities are computed such that sufficient safety stock is
assured, minimization of total logistic cost and also elimination of excess
inventory available in Retailers ware house.
 This approach resulted in the reduction of labour costs and improvement in
service level.
 But this process is expensive when compared to that of the earlier one.
 During the second trial, P&G changed the way of ordering in such a way that
there will be as less retail store stockouts and product acquisition costs as
possible.
2. Just in Time basis shipment
 Shipping products simply on JIT basis, by using retailer’s actual sales data
whenever required.
 Improve consistency and overall service levels by integrating many separate
systems that did not work well together across functions and product sectors.
 Current processes were automated and flexibility was added in order to meet
the needs of different sectors and functions.
 They started using a common data base for product pricing and specifications
to accomplish the vision of “Simplify, Standardize, then Mechanize”
3. Restructuring of Pricing
 Change from “high-low pricing” to “Value Pricing”
 Reducing the complexity in the pricing system in order to improve the quality
of the ordering process
 Eliminated the incentives for retailer’s forward buying
4. CRP Implementation, Pricing Restructure, ECR System and OSB Changes
 Encouraging CRP adoption by providing benefits to retailers.
 Reduction in the number of pricing changes from 55 per day in 1992 to less
than 1 per day in 1994.
 The flow of information between supplier, distributor, retailer and consumer
went paperless, timely and accurate.
 The product lines standardization was the result of changing from brand to
category.
P&G by 1985 was a multinational consumer good manufacturer which had almost $4 billion
in international sales alone. By 1993 it increased to $30 billion which accounted for fifty per
cent of their overall sales. This increase in their sales all over the world was a result of their
changes bought about in the field of supply chain management and value creation for their
consumers by their efficiency improvements and pricing policy changes.
These facts alone are enough to prove that P&G is financially much more capable compared
to a normal mid-sized manufacturer. Having deep pockets during the times when the supply
chain was gradually evolving to a much more fluid and efficient version was a huge
advantage in favour of P&G.
P&G had the first mover advantage by realising the importance of efficient distribution,
pricing, logistics and data management systems which served as a blue ocean for the
untapped demand of low and stable pricing by the end consumers. Being financially capable
at this point was a great advantage for P&G above mid-sized manufacturers. The approach
that P&G took would be much more difficult for a mid-sized manufacturer to implement in
the following ways:
 During the early logistics improvement trials with a moderate-sized grocery chain and
their test with initial EDI to transmit data from the retailer about their order details
was great in inventory reductions for the retailer, but the cons outweighed the pros for
P&G as this proved to be much more costly than the old one.
 For a mid-sized manufacturer costs like these would place a huge burden on their
finances and therefore would be difficult for them to implement and perfect. P&G
took many trial and errors before bringing their logistics to todays level and it would
be impossible for a mid-sized manufacturer to keep up with that.
 P&G followed JIT shipment which provided a huge advantage for not only them but
also their retailers. This was a major implementation under the Continuous
Replenishment Programme. As this made use of information sharing from the retailers
to the manufacturers to replenish their orders for them, this could be easily adopted by
mid-sized manufactures as it only made use of fax and phone in the initial days.
 But as it was faulty with manual data inputs and potential delays of processing EDI
had to improve parallelly along with it. This would require the mid-size
manufacturers to invest in improvement of EDI and upgradation of existing systems
which would prove to be difficult for them.
 These changes also required major management and policy changes which would be
challenging for any organisation.
 The OSD systems changed the system completely and took many years along with
million of dollars to complete. This required upgrading to the already old system form
1960s. Changing the system and upgrading the hardware with a learning curve
involved would have been difficult for any mid-sized manufacturing organisation.
The bottom line is that P&G invested a lot of resources to bring about these changes. These
steps required not only huge monetary investments but time was also one of the key factors
along with it. This required technological innovation with constant improvement over time to
achieve the results that we see today. Mid-sized manufacturer would be more at an advantage
from technology adoption than competing on the same level as P&G.