US-based group Procter & Gamble (P&G) manufactures and markets nearly 300 brands of consumer products including houseold names Lenor, Ariel, Pampers, Sunny Delight and Pringles. With a workforce of nearly 100,000 worldwide, the group operates in nearly 80 countries worldwide and made net sales of almost US$43.4Bn (£24.5Bn) in the 12 months to June 2003.
However while the organisation was built up into the “fantastically good” manufacturing organisation that it is today its supply chain was inefficient. As a result the company has been transforming its UK supply chain into an efficient and collaborative operation. This process has involved implementing a range of innovative schemes to help optimise and consolidate the supply chain and the group’s “first time fill rate” for customers now stands at 99%.
The transformation has proved so successful that the trailblazing ideas are now being introduced elsewhere within P&G’s European supply chain.
The challenge of revolutionising the group’s UK supply chain has been the responsibility of Chris Poole (pictured), P&G’s logistics director for the UK and Ireland and co-chair of consumer industry body ECR UK. The group’s new philosophy, explains Poole, is all about “winning at the first moment of truth. It is important that we make sure product is there at the store, looks good on the shelf, and has been delivered in the most cost-efficient way so that those cost savings can be ultimately incorporated into a lower cost. That’s not new. It’s just about great service and low costs, and trying to get that balance”.
For P&G there are two moments of truth:- l”On the shelf” – if consumers get to the shelf and the product is not there, they cannot buy it. The moment of truth here is whether the consumer will remain faithful to P&G’s product or choose a rival’s.
lThe second moment of truth is when the consumer, having bought the product, gets it home. Will the product do what it says it will?
The transformation of P&G’s UK supply chain began after three areas were identified that had to be dealt with in order to deliver a great on-shelf service. Poole explains: “The first is that we have to deliver a great basic service, we have to be good at the fundamentals. We don’t have the licence to do anything else with customers unless we are fantastic at that. Secondly, we have to and want to collaborate very closely with customers. We can’t do it by ourselves. And thirdly, we must work now on the future. We have to be innovative.”
Poole continues: “That’s different to what it was maybe five to six years ago where we were a fantastically good manufacturing organisation with a push out rather than an external focus starting with the shelf, and following the whole supply chain backwards. That is not how we did it. We were inefficient.
“The great basic service is about delivering what customers want, damage-free and on time, and we weren’t very good at that five years ago. We had a measure of missed cases – availability was 96% and the number of missed cases 4%. We were probably delivering only two-thirds of our order on time. We weren’t good enough.”
The 4% of missed cases amounted to seven or eight million cases a year and cost P&G an estimated £40M. “We were losing a lot of money each year so we put in place some big changes both in terms of the systems and processes that we had within the company and the physical infrastructure,” says Poole.
As a result P&G invested in providing much greater capability in demand driven logistics – its ultimate aim – starting with synchronising the supply chain in line with consumer demand. “We invested over US$40M to upgrade our whole logistics infrastructure.”
The changes included:-
lFocusing on supplier relationship management and improving the speed and accuracy of information flow up the supply chain.
lCreating two distribution centres in the North and South to deliver the full range of P&G’s ambient products on one truck.
lIntroducing innovative schemes such as cross-docking so that products bypass storage, saving time and resources by going straight onto store shelves.
lUsing IT solutions such as GPS tracking and electronic proof of delivery.
The transformation began with Procter & Gamble’s physical infrastructure. It had three sites from which customers could order products – paper towels and nappies were produced at Manchester, laundry products at London and some toiletries at Skelmersdale – which forced customers to buy from three different places, rather than in line with demand. The group decided to give customers the opportunity to buy its whole ambient range from one place so that they could take advantage of efficient truck load ordering and ordering less quantity more often, enabling them to order much more in line with demand.
P&G also built a brand new automated distribution centre (DC) at its London plant next to the Queen Elizabeth II Bridge at Dartford and upgraded its existing DC at Skelmersdale.
Poole says that those changes alone had a drastic effect on the supply chain. He comments: “That was good because it meant there was fewer inventory in the total supply chain.
The group also recognised the advantages of enabling its larger customers to buy direct from the plants. Customers can go through the service centres and buy a truck full of anything they want. Also, for the physically big fast moving bulky items like nappies and soap powder they can order them direct from the plants.
Poole says: “We’ve done that to a certain extent already from our London and Manchester factories – London makes laundry products and Manchester makes nappies and kitchen towel – and we are extending that to other plants that are on the Continent.”
P&G is operating a two-tier distribution network which has drastically improved the basic service, says Poole.
Over the past 15 months the percentage of missed cases has reduced from 4% to less than 0.5%. However, Poole says that while there are still more opportunities for further improvement, the interventions made so far have led to a big change in the service provided. “The intervention that we made was critical, and that has given us the licence to get in and really work with customers more closely.”
According to Poole a lot of people talk about demand driven logistics but P&G was one of the first of its size to “actually put our money where our mouth is and make that change”. He says the development has helped better supply chain information synchronisation because the group is delivering to demand. Losses – reduced inventory and fewer truck miles – have been cut out of the supply chain.
Having transformed the physical aspect of its supply chain, P&G turned its attention to having the right systems and processes in place so that it could collaborate with customers.
Changes here have included the creation of the Team Room, an area that has taken all the different disciplines of approach that the plants employ concerning day-by-day production and applied it to a logistics environment, putting daily, weekly, monthly and annual processes in place and ensuring that everybody works on the right system in the first place.
Poole says: “That was the other part of the jigsaw, and in the Team Room one of the walls features the annual plan, strategies and where we are on each of those. We also have a daily meeting at 8.30am between all elements of the supply chain – the service centre, the DCs, the people that work with customers, the market planners and our order management people – so that everyone knows what happened yesterday, what’s going to happen today and what needs to happen with customers.”
Promotion forecasting was one area that had to be tackled and the Team Room has a board which highlights all the critical elements in putting together a big promotion. “Everyone can see whether things have been done or not.”
Poole says that a typical promotion can be for a physically big bulky product such as tissue towel for a supermarket chain. The number of cases involved could be at least 100,000. Poole cites another example where in the lead up to Christmas and he and his team and to ship cases of snack food Pringles to one of P&G’s major customers. Poole says 150 40ft trucks were used over the Christmas period.
P&G has also introduced joint forecasting within its supply chain. Poole explains: “Joint forecasting is about sitting down and agreeing quantities and delivery times together so that there are no surprises. With each of our customers we set up joint forecasting processes and for big customers and big promotions the forecasting detail – when they need it, how much is needed and delivery time – has to be signed off by the logistics and the commercial people on both sides so that everybody knows what the deal is. The nightmares only come because there are surprises through lack of communication.”
Working with customers has improved P&G’s service levels but, says Poole, the crusade continues. “Collaboration with customers is critical. You have to get in with the customers and understand what they want, working through the solution. Anything that improves service on shelf and reduces total supply chain costs from the factory gate outwards is up for grabs.
“What we don’t want is to shunt value around the supply chain. We used to do that when customers had three sources to deal with – we were saying ‘to get the best price you’ve got to order a truckload’ and they would do that. What we were actually doing was washing our hands of it, and that wasn’t good enough. All we did there was shunt the inventory and the problem onto another supply chain.”
Poole stresses that companies have to sit down with customers and create a “logistics hit-list” highlighting the areas that will be mutually beneficial, improve service and reduce total supply chain costs. “That’s the basis of our collaboration with any customer – let’s work together to find the best way to improve service and reduce costs.”
In transforming its supply chain, P&G also approached major customers for input on improving its supply chain. “That’s not to say we did everything they said,” says Poole, “but we listened to them. And that’s how it continues now. The collaboration work is based on what we can do to improve the flow of information up the supply chain; how we can make that faster and more accurate.”
The aim, says Poole, is to achieve demand driven logistics where P&G ultimately delivers exactly in line with a consumer buying a product. “You’re never going to get that but the closer you can get to that ideal, the better.”
P&G wants to push product up through the supply chain – not push it down – and the group is already working on innovative schemes to progress that including working with customers on data synchronisation. The group already trades with all its customers through EDI for order acquisition and payment – about 92% of orders are done electronically – and is continually working on joint forecasting.
“Our ideal would be to produce to demand, rather than produce to forecast as we do now. It would make the manufacturing part of our supply chain more efficient, more responsive. Ultimately that could be delivery straight to shelf, although putting in the techniques or the mechanics to do that would be another thing, ” he says.
In terms of developing innovative schemes for the future, Procter & Gamble is currently implementing trials with customers. One such trial concerns cross-docking some of its products. Product arrives at a customer’s warehouse but rather than being put away in racking, it is picked and sorted immediately. Such a development would prove useful for some products, especially big and bulky items like tissue towel which take up so much space in the warehouse.
Poole says other innovative developments that P&G is getting into include making it easier for product to get from a store’s back door through to the shelf. “I can’t on the one hand say this is all about first moment of truth and then say ‘OK, we’ll abandon product once it gets to the customer’s back door’.”
He believes there are things that suppliers can do to achieve that aim. P&G is currently trialling with Tesco wheeled dollies for promotions. However, he acknowledges both the advantages and the disadvantages of using such a system: “To be able to put dollies on the bottom of each pallet is a monumental task. However, that investment is likely to be worthwhile because the extra in-store presence that we get, and therefore extra sales, mitigates the extra effort.”
The group is also trialling at a Tesco store in the North-west the use of wheeled half pallets for laundry cleaning products. P&G is also looking at making sure its product is easily distinguishable in the back room of a store or a warehouse to ensure pickers select the right product, a visual approach as opposed to seeking out a barcode.
He says retailers have not got anywhere else to build shops “in an organic growth kind of way” so they are trying to make much more use of the space in the store.
“Working with customers to understand how we help them in the last 50 yards is something that we are working on right now, and there’s probably a lot more that we can do. The be all and end all is whether the product on the shelf. We have to go right through to the shelf.”
Procter & Gamble is also developing a “satellite pen” for signatures and is thinking about providing 24/7 deliveries. “We need to be ready for that and be aware of quality on the shelf. We need to ensure products look good and fresh,” explains Poole.
According to Poole the fundamentals of logistics will never change – it is about servicing cost, although going through to the future it is all about finding ways that are positive to increasing service, and that do not bring extra cost into the supply chain.
Since it made the investment in the London and Skelmersdale facilities, which only came online about a year ago, P&G bought Clairol and its business has grown 7% or 8% year-on-year. “We’re full. So we need to update them, and are making significant investment to expand London and Skelmersdale as well to meet our logistics requirements for the next five to ten years.”
Despite all that, Poole believes collaboration with customers is key to an efficient supply chain. He concludes: “A real focus on joint and collaborative planning with customers has been critical. It’s all very well putting in great capability and structurally changing our supply chain but at the end of the day you can’t make it happen unless you work with your customer.” n