Reinventing the Supply Chain and Manufacturings Role

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Reinventing the Supply Chain and Manufacturings
Role

• AMR Supply Chain Conference
• Rick Ciccone
• February, 2006

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Presentation Flow
Reinventing the supply chain

• About PG
• Why The need to reinvent the supply chain
• What An overview of PGs Consumer Driven Supply
  Network strategy and Manufacturings role
• How Measures linked to Business Strategy and
  building key capabilities

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About PGAt a glance
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• 67.9 billion sales
• 135,000 employees
• More than 170 manufacturing facilities in more
  than 40 countries
• More than 20 RD centers in 10 countries
• Unique organization structure

Unaudited proforma condensed combined financial
results of PG and Gillette
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PG Gillette
The worlds largest consumer products company

• Began operations as one company October 1, 2005
• Increases PGs position in faster-growing,
  higher-margin, more asset-efficient businesses
• Combines each companys unique consumer/shopper
  understanding to strengthen retailer
  relationships
• Common vision of supply network as source of
  value creates opportunity to share and accelerate
  best practices

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PG Gillette
Even stronger together

• 22 brands with sales of 1 billion or more
• 14 with sales between 500 million and 1 billion
• Expanded innovation platforms and pipeline

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Two Moments of TruthWhen she chooses and when
she uses
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About PGTwo moments of truth
When she chooses
When she uses
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Urgent Need to Address OOSOn average, retailers
lose the sale 41 of the timePG loses 28 of
the time

• Consumer behavior when confronted with an OOS
• 48 switch stores based on PG top 100 SKUs

Delayedpurchase 14
Other8
Substitutedanother brand 19
Did not buy product 10
Substituted same brand(different size)18
Purchased atanother retailer 31
2000 Shoppers Research (12 PG categories at 64
NA retailers)
? 2002 The Procter Gamble Company, All Rights
Reserved.
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Winning at the First Moment of TruthThe need for
a Consumer-Driven Supply Network
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Why The Consumer is BossEver-increasing
expectations

• Innovation
• Value
• Shelf presence
• Customization
• In-store experience

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Why Retailers Are RespondingChanging to win
with the new consumer

• Industry consolidation
• Importance of free cash flow
• Growth of private labels
• Focus on margins
• Seeking to be unique
• Seeking to offer solutions

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Why New Pressure on Manufacturers Todays supply
networks arent fast and flexible enough

• Pace of innovation
• Increasing number and complexity of products
• Demand for affordability and value
• Speed to market

20 increase in innovation for past three years
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The Consumer Driven Supply Network
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What Reinventing the Supply Network
From
To

• Chain
• Long and slow
• Forecast-based
• Manufacturer-driven
• Internal focus
• Designed from product forward
• Cost-reduction

• Network
• Fast and flexible
• Demand-based
• Consumer-driven
• External focus
• Designed from shelf back
• Value and growth creation

supplier
consumer
supplier
manufctr
retailer
consumer
retailer
manufctr
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What Manufacturings FocusEnable a Flexible,
Responsive, Highly Productive and Profitable
Supply Network

• Link to External Metrics
• Build capabilities to execute a Produce to Demand
  operating strategy

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What External metrics Understand how the supply
network performs from the shopper and retailer
perspective

• Right Place Shelf Out-of-Stocks, Case Fill Rate
• Right Product Quality at the Shelf
• Right Price Target Price
• Right Time End-to-End Supply Network Time
• Right Value Sales / Margin / Cost

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How Master PlanTranslate business need through
external metrics to Manufacturing Capability Plan
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Establishing Linkages
How
Corporate Business Strategy
Business Unit Vision, Mission Specific Goals
Measures
Leadership
Organizational Unit Compelling Business
Need Specific Goals Measures
Departments Specific Goals Measures
Teams Specific Tactics, Plans Measures
Results
Individuals Specific Goals Measures In the Work
Plan
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Linkage to Scorecard
How
Metrics
Organization
Metrics
Department
Packing Operations
Logistics Operations
Initiative Support
Work Plan
Individual
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Establish Foundation and Sustain Example - Plant
Cockpit
REAL TIME MONITORING
RESULTS TRACKING
Short Shipping xx SKU
OUTPUT MEASURES - PRODUCTION - INVENTORY -
SERVICE - QUALITY INPROCESS MEASURES -
EFFICIENCY - CYCLE TIME
SKU yy Miss Ship Tomorrow
ALERTS
IRA Out of Compliance
Line 1 Production Below Target
SKU xx above Buffer Inventory
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Produce To Demand Executional Continuum
Replenishment (Production) Triggered By FORECASTS
Replenishment (Production) Triggered By REAL
DEMAND Customer Orders, Customer Inventory
Levels, Consumer Purchase
Shorten Cycles lt 1 wk (Any Sku Any Day)
Produce To Order Today, Ship Tomorrow/Today
Produce Every SKU Every 2-wks
Customer POS Replenishment
Produce Every SKU Every Week
Produce To Replenish Customer DC
Inventory Withdrawal
Produce to Replenish Inventory
Produce Every SKU Every Month
FOCUS Supply Chain Synchronization Supply Chain
Integration Collaboration
FOCUS Improve Reliability/Capability Reduce
Inventory Levels
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How Demand DrivenManufacturing integrated with
end-to-end SN

• Collaborative business planning with retail
  customer
• Design product to move it efficiently to the
  shelf
• Collaboration on events, key merchandising
  activities and Initiatives
• Manufacturing flexibility and cycle response to
  produce-to-demand vs. produce-to-forecast
• Supplier relationships move from connected to
  integrated based on demand
• Speed and reliability of the supply system

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How Key Operating PrinciplesThe journey to the
Consumer-Driven Supply Network

• External focus culture change
• Operational excellence service and availability
• Synchronization information replaces inventory
• Shelf-back design
• Flexibility take time and cost out of the
  system
• Responsiveness customer andconsumer driven
• Customer collaboration joint value creation

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ResultsReinventing the Supply Chain

• Consumer wins
• Better in-store experience fresh quality product
  ON the shelf, more new products and innovations
• Customer wins
• Synchronized, reliable innovation flow
• Inventories reduced more cash
• Drop in OOS
• PG wins
• Drop in OOS
• Despite 2-3 times more SKUs, costs are lower,
  inventories are reduced and volume is growing

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