reinventing the supply chain and manufacturing's role

Reinventing the Supply Chain and

Manufacturing’s RoleAMR Supply Chain Conference

Rick Ciccone

February, 2006

Presentation Flow

•About P&G•Why: The need to reinvent the supply chain•What: An overview of P&G’s Consumer Driven Supply Network strategy and Manufacturing’s role•How: Measures linked to Business Strategy and building key capabilities

Reinventing the supply chain

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• $67.9 billion sales*• 135,000 employees• More than 170 manufacturing

facilities in more than 40 countries• More than 20 R&D centers in

10 countries• Unique organization structure

About P&GAt a glance

*Unaudited proforma condensed combined financial results of P&G and Gillette

P&G + Gillette

Began operations as one company October 1, 2005•Increases P&G’s position in faster-growing, higher-margin, more asset-efficient businesses•Combines each company’s 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

The world’s largest consumer products company

P&G + Gillette

•22 brands with sales of $1 billion or more•14 with sales between $500 million and $1 billion

= Expanded innovation platforms and pipeline

Even stronger together

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Two Moments of TruthWhen she chooses and when she usesAbout P&GTwo moments of truth

When she chooses When she uses

*2000 Shoppers Research (12 P&G categories at 64 NA retailers)

Purchased atanother retailer 31%

Substitutedanother brand 19%

Substituted same brand(different size)

18%

Other

8%

Did not buy product 10%

Delayedpurchase 14%

Consumer behavior when confronted with an OOS• 48% switch stores based on P&G top 100 SKUs

2002 The Procter & Gamble Company, All Rights Reserved.

Urgent Need to Address OOSOn average, retailers lose the sale 41% of the timeP&G loses 28% of the time

Winning at the First Moment of TruthThe need for a Consumer-Driven Supply Network

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

Why: The Consumer is BossEver-increasing expectations

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

Why: Retailers Are RespondingChanging to win with the new consumer

Why: New Pressure on Manufacturers Today’s supply networks aren’t 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

The Consumer Driven Supply Network

What: Reinventing the Supply Network

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

From To

supplier manufctr retailer consumer consumer

manufctr

supplier

retailer

What: Manufacturing’s FocusEnable a Flexible, Responsive, Highly Productive and Profitable Supply Network

• Link to External Metrics

• Build capabilities to execute a Produce to Demand operating strategy

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

Right Place: Shelf Out-of-Stocks, Case Fill RateRight Product: Quality at the ShelfRight Price: Target PriceRight Time: End-to-End Supply Network TimeRight Value: Sales / Margin / Cost

How: Master PlanTranslate business need through external metrics to Manufacturing Capability Plan

TeamsSpecific Tactics, Plans & Measures

DepartmentsSpecific Goals & Measures

CorporateBusiness Strategy

Leadership

Results

Business UnitVision, Mission

Specific Goals & Measures

IndividualsSpecific Goals & Measures

In the Work Plan

Organizational UnitCompelling Business NeedSpecific Goals & Measures

Establishing LinkagesHow:

Linkage to ScorecardMetrics

Packing Operations

Logistics Operations

Initiative Support

Organization

Department

Metrics

Individual Work Plan

How:

Establish Foundation and Sustain Example - Plant Cockpit

REAL TIME MONITORING

Short Shipping xx SKU

IRA – Out of Compliance

ALERTS

SKU yy Miss Ship Tomorrow

Line 1 Production Below Target

SKU xx above Buffer Inventory

RESULTS TRACKING

OUTPUT MEASURES

- PRODUCTION

- INVENTORY

- SERVICE

- QUALITY

INPROCESS MEASURES

- EFFICIENCY

- CYCLE TIME

Produce To Demand Executional ContinuumProduce To Demand Executional Continuum

Produce To Demand JourneyProduce To Demand Journey

Produce EverySKU Every Month

Customer POSReplenishment

Produce To ReplenishCustomer DC InventoryWithdrawal

Produce To Order Today, Ship Tomorrow/Today

Produce to ReplenishInventory

Produce EverySKU Every 2-wks

Produce EverySKU Every Week

Shorten Cycles < 1 wk(Any Sku Any Day)

Replenishment (Production)Replenishment (Production)Triggered ByTriggered ByFORECASTSFORECASTS

Replenishment (Production) Replenishment (Production) Triggered By Triggered By REAL DEMANDREAL DEMAND – – Customer Orders, Customer Customer Orders, Customer Inventory Levels, Consumer Inventory Levels, Consumer

PurchasePurchase

FOCUS:FOCUS:Improve Improve

Reliability/CapabilityReliability/CapabilityReduce Inventory Reduce Inventory

LevelsLevels

FOCUS:FOCUS:Supply Chain SynchronizationSupply Chain Synchronization

Supply Chain Integration & Supply Chain Integration & CollaborationCollaboration

• 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

How: Demand DrivenManufacturing integrated with end-to-end SN

1. External focus: culture change2. Operational excellence: service and availability3. Synchronization: information replaces inventory4. Shelf-back design 5. Flexibility: take time and cost out of

the system6. Responsiveness: customer and

consumer driven7. Customer collaboration:

joint value creation

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

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

P&G wins• Drop in OOS

• Despite 2-3 times more SKUs, costs are lower, inventories are reduced and volume is growing

ResultsReinventing the Supply Chain