Proctor and Gamble reworks its supply chain

Dramatic changes for industry, most recently demonstrated in the huge stock market slide Friday and Monday, has consumer goods giant Procter and Gamble Co. looking to reinvent its supply chain together with its partners. Procter and Gamble CIO Steve David offered an inside look at some of his company's goals for supply-chain management at AMR Research's Retail and Consumer Goods Executive Conference here Tuesday.

By 2005, Procter and Gamble plans to put in place Web-enabled alliances with partners and a customer- and consumer-driven supply chain.

Previous work has reduced the company's supply-chain cycle from 140-plus days in the 1950s through the 1980s to 130 days in the 1990s. Through an initiative the company calls Efficient Consumer Response II, Procter and Gamble is looking to reduce the cycle further to 65 days, David said. But the company has its work cut out for it. Currently Procter and Gamble has 4,000 internal Web sites, 25,000 organizational nodes, 70,000 materials, 200,000 products, 500,000 customers, and 1 million parts.

"We have to clean up our act," David said.

The impact of supply-chain inefficiencies is nothing to be trifled with, David said. For example, retailers lose 11 percent of sales due to out-of-stock items. Customers who experience an out-of-stock event are more likely to spend their money at another store or not at all, David said. And same-brand substitutions recover less than 25 percent of lost sales for manufacturers.

Rather than choosing either a private or public exchange, David said he believes a solid strategy includes using both kinds. Companies can use exchanges to help prevent forecasting and planning discrepancies, reduce manual redundant processes, and improve their capability to operate on a global scale.

Exchanges can also help speed time to market, which improves total shareholder return by 50 to 100 percent, David said.

"The innovation leader acquires all the new market growth," David said.

However, some business-to-business exchanges will fail in the coming months and years, David said. But those failures will be caused by poor business plans and models, underestimated costs of customer acquisition, and buying into vendor pitches of amazing results.

By employing exchanges and improving the supply chain, companies can improve consumer value and business results and reduce their working capital requirements, David said. For example, supply chain-driven reductions in working capital can reduce inventories by 50 percent, David said.

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