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The evolving supply chains (SCs) environment requires a judicious
combination of flexibility, knowledge sharing, and decision making. As a result
there is need to provide judicious selection of supply chain flexibility levels and
stages. Thus, most real world supply chains having varying levels and types of
flexibility, employ decision knowledge with dynamic changing ability of the
system, so as to harness this flexibility when required. The dynamic SCs
environment involves the following activities, related to the decision initiation,
processing and implementation:
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Zeroing in on the first moment of truth Procter & Gamble, a world leader in
consumer packaged goods, sells nearly 300 brands in more than 160 countries. It
has sales of $40 billion a year and 130 manufacturing sites around the world P&G
measures consumer satisfaction at two levels, which it calls the two ³moments of
truth.´
The first moment of truth occurs when the consumer reaches the shelf and
finds that the desired product is, or is not, available. This is a critical moment,
because if the product is not immediately available, the consumer usually moves
on to buy a rival product.
P&G was ahead of the pack in realizing the significance of this, though other
manufacturers are now also focusing on the end consumer, which is one reason
why the industry is seeing so many new CPFR (collaborative planning, forecasting
and replenishment) and VMI (vendor-managed inventory) programs.
Top managers in P&G began to realize that the company¶s supply network
needed to be re-engineered so that it was genuinely responsive to consumer
demand. This was especially important for promotional items, because of the cost
of merchandising and promotional activities, and the long-term negative impact of
stock-outs on consumers. After customers have been unable to buy the desired
product and have switched to alternatives, it becomes hard to persuade them to
return to buying the initial product when they go shopping again. P&G decided
that sophisticated demand chain management, establishing direct connections
between sales and supply chain business processes, could be the key to maintaining
its leading position in the consumer packaged goods industry. As a result, a multi-
level initiative was launched, which P&G calls its ³consumer-driven supply
network´ (CDSN) program.
As the largest functional organization in P&G, Product Supply has almost
50% P&G employees, and 140+ plants in 40 countries. There are 5 disciplines in
Product Supply: Customer Service & Logistics, Engineering, Manufacturing,
Purchases, and Quality Assurance
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& The time from when a cash register
records the sale of a product to the purchase of raw materials to produce its
replacement. P&G wants to chop this in half, from 100 days.
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* +$ Determining an acceptable price point
for an item and then working it back through manufacturing and distribution to see
if that product can be delivered at a price acceptable to consumers and a profit
acceptable to P&G.
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For the major consumer packaged goods manufacturers, the strategies that are
currently being pursued by the world¶s most competitive retail chains are changing
the game in two important ways.
Cash requirements are creating pressure for shorter order-to-delivery cycles and a
move towards flow-through distribution networks. These trends are already
beginning to eliminate the safety stocks that used to be held in reserve in the retail
supply network.
This situation creates several new problems that P&G and other manufacturers
need to come to terms with.
Building collaborative supply chains at several levels (local market and global
markets, for example).
Ensuring that manufacturing sites serving both local and global supply networks
are highly responsive to changes in demand, based on real-time data from the
stores.
Links between supply chain planning and supply chain execution processes
are critical. In the transportation area, P&G expects a lot of change, including
improved collaboration with logistics outsourcers and more use of techniques such
as cross-docking. This system, under which inbound trucks are unloaded and the
goods are sorted and loaded straight onto outbound vehicles, without ever being
put into store, can be used to cut inventory and handling costs, as well as delivery
times. Daily planning will give way to continuous plan make-ship processes, which
will demand improved loading techniques to make efficient use of vehicles as lot
sizes become smaller.
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The potential to move large volumes of data fast. Data should be handled
automatically, without needing to be transformed or translated on arrival.
Enhanced back-up and recovery strategies for all the systems involved. The
technical challenges cannot be ignored, because batch processing windows soon
narrow right down. This is especially critical if these harmonized business
applications are going to be deployed on a global scale.
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P&G has launched a new demand planning system, which is
now used to forecast 80% of the company¶s sales volume. It is already showing
that it can produce forecasts with significantly improved accuracy.
These projects are all contributing to P&G¶s overall goal of building its consumer-
driven supply network, while producing immediate improvements in the
company¶s capacity to do business.