INTERNATIONAL SUPPLY CHAIN

MANAGEMENT
ARTICLE: Supply-Chain Integration
through Information Sharing: Channel
Partnership between Wal-Mart and Procter
& Gamble
CIA 1-A
SUBMITTED BY
NAINA AGARWAL
1823668
5 FIB B
We are not blinded by the power of inter-organizational systems (IOIS) as an effective tool for
reducing the transaction costs. But what P&G and Wal-Mart have goes deeper than just IOIS.
These two companies are competitors as well as partners at the same time and this is what this
paper talks about. The partnership is a strategic one which helps in better distribution of P&G’s
products rather than just ‘selling’ them to the consumer. It has been explained as to how the
relations between these two companies weren’t that great before and they one day stumbled upon
the idea and the partnership has grown ever since for the betterment of both the corporations.
The result was that the supply chain became more effective due to: category management,
continuous replenishment and process co-ordination. The paper is further divided into 5 sections
discussed below:

 BUSINESS BACKGROUND
This section explains the relationship between Wal-Mart and P&G prior to 1988 to know
what change technology has brought about. Although the business was growing at a fast
pace, the relations between the two were not that great. There were a lot of problems which
contributed to the lack of collaboration between the two. One major reason was that P&G
was too complicated and inflexible as an organization. The major focus of P&G was only
daily sales wherein a sale meant success and the lack of it was considered a failure. Without
proper market testing consumers were more like pushed towards buying a product. They was
lack of technical element in the working between the two. For P&G business only meant
selling and IT came in to picture only when some form of electronic data interchange was
initiated by the customer. Then, one day it so happened that the CEO of Wal-Mart Sam
Walton tried to reach out to the CEO of P&G as P&G has won the title for “The Vendor of
the Year” but due to the mismanaged technical systems at P&G, Walton could not connect to
the desired person and the award was passed on to someone else. That is the time when the
new Vice President of P&G and Sam Walton discussed the relationship between the two
companies and concluded that they were missing out on a lot effective management and huge
market opportunities by nor working together. The two companies came transparent about
the problems and it was decided that if P&G thought of Wal-Mart stores as an extension of
P&G company, then it would treat Wal-Mart differently.
The resulting change is seen in the image above. Today, the two companies use technology as a
method to get rid of extra costs and openly share data for the better understanding of their joint
customer which is the consumer. For the future planning the two companies made joint score
cards to make an assessment of the joint business and further make plans to reap out the desired
benefits.
This is an example of the first scorecard made between the two to assess the performance of joint
business.

 CHANNEL COLLABORATION AND INFORMATION PARTNERSHIP

P&G’s reporting framework was segmented according to the 12 divisions based on market
and geographical factors. The sales were tracked on product basis being sold in a particular
division. However, there was no track record of the total product sales by customer. Wal-
Mart had some but obvious questions regarding the quantity of products sold at store, number
of customers buying P&G products and which of these were most profitable for both the
companies. The answer to these questions and a technical link was needed to understand the
customer needs. Thus, P&G and Wal-Mart together developed a data highway to reduce cost
and understand customers to meet their needs and preferences.

This is a pictorial representation of

the data highway between Wal-Mart
and P&G. Wal-Mart had scanners in all
of their stores to track measure and
analyze their business. Wal-Mart
collected its own data then analyzed the
results. P&G also had data about the
consumer which was used to make
product decisions. This combined with
the internal affairs in Wal-Mart created a data highway. Distribution of goods to the end user
requires a number of steps including delivery of raw materials, conversion to a finished product,
shipment to a manufacturer or distribution center for the customer, shipping to the store and
placement on the shelf. The degree to which all involved parties can drive out costs from these
systems leads to consequent savings that can be passed on to the consumer in the form of lower
product costs.

 INFORMATION SHARING AND CONTINUOUS REPLENISHMENT

 The major advantage of information sharing is reduced need for inventory which further
helps save cost. It also helps in quick management of processes like Continuous
Replenishment Process (CRP) the frequency, quantity and the timing of shipments rather
than waiting for the retailer to place orders. When P&G and Wal-Mart incorporated this, it
helped in the better management of P&G’s inventory in Wal-Mart stores and continuous
availability of P&G products on the shelves. The figure below shows the decrease in
inventory level after the initiation of information sharing.

Another angle that can be given to the benefits of information sharing is the “bull-whip effect”
wherein slight demand fluctuations tend to be slowly exacerbated as it tends to move up the
supply chain. This all works however, when there is a sense of mutual trust amongst both the
sides. Such a kind of information sharing is beneficial to reach the desired financial goals. Now,
Wal-Mart’s aim is to sell goods so quickly that it wants its goods to be out of the store even
before it pays its suppliers. The best part about managing supply chain along with information
system for Wal-Mart is that the P&G product stays not more than 8 hours on the shelf of Wal-
Mart.

 ADDITIONAL BENEFITS OF INFORMATION SHARING

The main role of the technology was to communicate key business documents between P&G and
Wal-Mart. By 1990 however the sale targets of Wal-Mart and P&G had picked up and both the
companies were proud of this new partnership, still there were issues in regards to the accounts
payable/receivable. An example of this is an instance wherein P&G developed a billing accuracy
system to measure the accuracy of P&G’s invoices against Wal-Mart’s purchase orders and
according to P&G Wal-Mart’s accuracy came to about 95% which is very good. Whereas, when
Wal-Mart did the same calculation for itself, it found out that P&G was one of their worst
vendors with 15% accuracy. After a team looked into this problem, it was found out that both
companies had different definitions of billing accuracy. P&G considered only the number of
cases shipped to Wal-Mart whereas Wal-Mart considered the number of cases as well as the
dollar value. Another reason for the invoices to not match was the different prices of the same
product a Wal-Mart and P&G. technology played a key role in the identification and correction
of pricing errors. For the purpose of this a tool called Consumer Table Checking Tool came into
picture.

Every Monday morning before any purchase orders were created, P&G linked into Wal-Mart’s
item file of P&G products and compared them to the pricing and product specifications in P&G’s
item file. If any of the items did not match, they were flagged as an exception and electronically
corrected. This ensured smooth and correct flow of data and as a result this tool has been adopted
for P&G customers worldwide

 CATEGORY MANAGEMENT
By the use of design technology of data sharing, both the companies- Wal-Mart and P&G
could make better customer decisions. The major questions included what the consumer was
going to buy, where to put it, how to price it and when to promote it. The following three
sources of data were integrated to answer the question:

- MANUFACTURERS’ MARKET DATA

- RETAILERS’ INTERNAL POINT-OF-SALE SYSTEMS AND
 - THIRD PARTY MARKET DATA PROVIDERS SUCH AS NIELSEN OR IRI.

Finally we can conclude that:

Innovation keeps on assuming a job among producers and providers. On the supply side, they
have moved from EDI purchase orders and invoices to taking a gander at Collaborative
Planning Forecasting and Replenishment (CPFR). This industry model gives a stage to the
coordinated effort of a joint estimate among makers and providers that will at last drive the
recharging procedure through the whole flexibly chain. This may inevitably prompt the
disposal of procurement requests and solicitations as we probably are aware of them today.

Second, watch for industry standard ways to deal with share the interest side information like
the principles they have set up today for EDI. Building up an industry based methodology for
sharing retail location information, showcase information, and customer information for joint
dynamic will be a key to progress. What's more, driving key outsider information suppliers,
for example, Nielson and IRI to give quality information in consented to Industry standard
chains of importance will prompt better coordination between joint purchaser/vender
workstations. The Internet will give the specialized stage to trade data between makers,
retailers and outsider information suppliers.