The firm or agency that was analyzedfor this project is Procter and Gamble also known as P&G. Procter andGamble’s headquarters are in Cincinnati, Ohio and two men William Procter andJames Gamble founded the company in 1837. Procter and Gamble started as a small soap andcandle company that began in the midst of an economic downfall.
Despite the tough economic times and rumors ofwar Procter and Gamble was able to pioneer one of the nation’s firstprofit-sharing programs and was among the first in American industry to investin research laboratories. (Procter & Gamble, 2006) Procter and Gamble’sfocus has always been on innovation, growth and marketing and they are now theleader in manufacturing a variety of consumer-packaged products that are sold aroundthe world in over 180 countries. They specializein a wide range of cleaning and personal care products such as toilet paper,toothpaste, laundry soap and diapers. Today, Procter and Gamble generates more than$83 billion dollars, has over 73,000 team members, 130 manufacturing sites andmore than 200 distribution centers worldwide. (Trebilcock, 2015) I chose Procter and Gamble for thisproject because while I was doing research to try and choose a supplier I cameacross several articles that stated Procter and Gamble was considered a SupplyChain Master. A Supply Chain Master is acategory for companies that sustained leadership for seven of the last 10 yearsbased on The Gartner Annual Supply Chain Top 25. The Gartner Supply Chain Top 25, which beganin 2004 and is published annually in September, is meant to identify supplychain leaders and their best practices.
Procterand Gamble must be doing something right if they have been able to keep thistitle for 10+ years. Not to mention thatthis was once a small soap and candle making company that is now one of theleading manufacturing companies of consumer goods. I found this interesting and wanted to learnmore on how they were able to stay relevant and innovative in an industry fullof competition. Beginning in 2015, Procter and Gambleunderwent a complete supply chain transformation. This transformation was necessary due to competitionfrom other brands and negative revenue growth in all five of Proctor andGambles business segments. The revenuein 2016 was $65 million, 12% less than it had previously been in 2013.
The goal of this transformation is to increaserevenue, strengthen the portfolio by eliminating and consolidating brands andto make productivity improvements by re-organizing the supply chain to bettercontrol supply and demand. Procter andGamble’s goal in doing this is to re-make its supply chain into something moreefficient, effective and profitable. Procter and Gamble believing less ismore, decided to sell, discontinue and consolidate 100 of its brands and exitseveral areas of business to strengthen its portfolio. They currently have five business segments,which are Fabric and Home Care, Baby, Feminine and Family Care, Health Care,Beauty, and Grooming. (Morgan, 2015) Procter and Gamble made the decision toreduce its brands through elimination of poor performing and inefficientbrands.
Brands that were considered poorperforming or inefficient were those brands in which there was a decline inprofit or brands that did not have growth potential. The segment that had the biggest loss wasBeauty, Hair and Personal Care which revenue was down 7% to $18 billion. Beauty, Hair and Personal Care, whichconsisted of 43 brands, was sold to Coty for $12 billion dollars. Procter and Gamble later sold Duracell, aleading battery for $3 billion dollars, thus exiting the battery business.
By the end of the year, they had alsoannounced that they were going to sell soap brands Zest and Camay. The brands were sold for an undisclosed amountof money. By eliminating the poorperforming products, they were able to focus on the remainder of the 65 brandsthat were divided over ten business segments. The ten business segments made it easier to focus on productivityefficiency by reducing inventory and will ultimately be a growth strategy for theirleading brands. Procter and Gamble decided thatimplementing digital technology was necessary because staying digitallyconnected to your suppliers and customers can reduce errors and inventory costsand can also give you a competitive advantage. With digital technology now availableeverywhere, it makes it much easier to communicate with suppliers and customersin real-time.
By using digitaltechnology Procter and Gamble has been able to base production on actual pointof sale data that comes directly from its customers instead of relying onforecasts or inventory fluctuations to meet demand thus saving money. This was done by integrating the supply chainsoftware with that of the suppliers, distributors and retailers. Products can them be tracked throughout thesupply chain. Inventory count can bemaintained on all Proctor and Gamble products and the costs of storing andproducing excess inventory can be reduced. In creating a more responsive digitalsupply chain Procter and Gamble wanted to have distribution centers that canreplenish 80% of orders within one day.
Toachieve this goal Proctor and Gamble built six distribution centers that havebeen set up strategically within North America. (Gunn, 2015) These distributioncenters are connected to retailers and receive digital data in real-time. In doing so Procter and Gamble is able toreplenish inventory with suppliers quicker.
Procter and Gamble also pushedsuppliers to build manufacturing facilities called supplier villages. These supplier villages enable Procter andGamble to rapidly and effectively serve retailers and consumers. In turn, these supplier villages also giveback to the communities in which they are built by providing hundreds of jobsto the people that live there. Digitalizing the machinery offersimprovements in predicting maintenance, monitoring data that providesinformation that minimizes breakdowns and provides diagnostic information aboutwhat is wrong with the machine.
Procterand Gamble has made its whole operation digitalized and has plans in the futureto improve its operational efficiency by being able to monitor production datain real-time which means that they will be able to track every product as itmoves through the plant and once they integrate the operation system with thefinancial system they will be able see the cost of each and every product aswell. Procter and Gamble’s success of thispurchasing transformation was released in a statement in September 2017. The statement reiterated the reduction of thenumber of brands from 170 to 65 and that they now have the brands divided over tenbusiness segments.
These business segments are Baby, Feminine, Family, Fabric,Home, Hair, Skin and Personal Care, Grooming, and Oral and Personal Care. Procter and Gamble feels these ten businesssegments have the greatest potential for revenue and that the largest brands suchas Pampers and Tide are growing the fastest. The decision to sell the less profitable and inefficient brands was agood decision since according to the statement they are a stronger moreprofitable company and the changes that were made are delivering results. The changes overall have made animprovement on the entire company. The improvements were able to strengthentheir portfolio by making it a faster growing, more profitable and simplercompany.
The redesigned manufacturing andsupply chain has reduced overhead costs, and simplified the organizationalstructure and instituted a more focused advertising campaign to promote itsbiggest and largest brands. Coreearnings per share have improved by several points due to the restructuringeven though the sales growth has been slow. Procter and Gamble also exceeded its long-termgoal of free cash flow productivity. Adjustedfree cash flow productivity exceeded $12 billion up 20% from 2014 thanks tocost cutting initiatives. They willcontinue to measure their progress annually and have already projected 2% to 3%organic sales growth for 2018. They willalso continue to work on productivity improvement and cost savings to meet thisand other goals. Not knowing anything about supply chain managementI have learned that it takes planning, implementing and controlling of theoperation to make it truly successful. Supplychain management requires change and the change requires synchronization of theentire supply chain in order for it to be successful.
With today’s technology, having a completelydigitalized system is important it really can help to reduce the number oferrors and it takes the guess work out of forecasting. With everything being datadriven, having systems tracking supply and demand helps to meet the needs of customerdemand especially since supply chain management is so competitive one mistake canend up costing you hundreds to thousands of dollars or it can allow a competitorto take the business away from you. The importance of supply chain management isto control and reduce costs, speed up product flow to customers without sacrificingquality.
Procter and Gamble has been around for almost 200 years and they havealways been innovative. I think innovation is one of the things that has keptthem relevant in this ever-changing industry so it doesn’t surprise me that Procterand Gamble has one of the best Supply chains in the world