This case study report is about the Supply Chain Management (SCM) that Procter & Gamble Company uses as part of their Information System. The research has done properly and full referencing is provided.
The clearly illustrate how the Supply Chain Management (SCM) works to Procter & Gamble, this report will discuss how SCM influence the company and its keys tasks and the Company’s strategies applying the Supply Chain Management that brings Competitive Advantage in the market that later on they referred to it as ” Supply Network”.
A Supply Chain Management is an integrated process wherein raw materials are manufacture into final products and then delivered to customers via distribution, retail or both.
In the conclusion, it is written that Supply Chain in an effective style will definitely help organizations by giving it a Competitive Advantage in the market over its rivals. By aligning most of their accounts with the suppliers and introducing change in their overall Supply chain structure, which they now call it, a Network allows communication between each and every level rather than only conferring to flow-on fashion.
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Procter & Gamble produces a comprehensive range of goods from detergents to pet foods to beauty products. The company operates in North America, Europe, the Middle East, Africa, Asia and Latin America , with products sold in over 140 countries. Procter & Gamble ranked 26th in Fortune magazine’s top 100 America’s largest company for the year 2011. (Fortune 500, CNN 2012)
Procter & Gamble began as a small soap and candle Company in Cincinnati, Ohio, USA in 1873. By 1980, Procter and Gamble had grown into a multi-million dollar corporation. The first overseas subsidiary was purchased in 1930 ( a UK-based soap manufacturer). From there, start-up operations sprang up in Latin America, Europe and Japan.
Procter & Gamble have many well-known brands, which include Pampers Nappies, max Factor cosmetics, Pantene shampoos, Iams and Eukaneba pet foods and Pringle potato chips.
2.0 The Procter & Gamble Supply Chain Management
Mastering the Supply Chain is very important aspect to achieve high customer satisfaction that will lead to profitability and greater market share. In order to make the Supply Chain capabilities as a core of the business model, the company needs to redefine its strategy. This entails both generating a new strategy and bringing the Company’s other core activities into alignment with this new business model most importantly, the account selection, in the customer operations, the channel strategy, the core operations capabilities and Management/Organization Structure. All of these activities must undergo comprehensive changes. Proficient Supply Chain creates a distinctive business model that modifies the major objective of Supply Chain Management from cost control to revenue enhancement to Customer satisfaction.
Procter & Gamble previously used Supply Chain mastery to pare out strong, long-term Competitive Advantage. The Company’s strategic focus toward Supply Chain-based service modernization transformed both the consumer products and retail industries. The method required direct distribution to major accounts. This channel arrangement enabled Procter and Gamble to develop an exceptionally high degree of customer confidence and on-going rounds of Supply Chain modernization in these accounts. At the same time, Procter and Gamble quietly moved to end its direct relationships with numerous smaller accounts, setting up a set of master distributors to service them. In turn, the main distributors had grown enough volume to sustain direct value-added relationships with Procter & Gamble.
For its part, Procter and Gamble developed operations capabilities in two key areas: First, it created a sweeping new set of industry change programs, e.g., Efficient Consumer Response (ECR), Customer Requirements Planning (CRP), and streamlined logistics. The programs required a solid new understanding of network economies and the impact of Supply Chain innovation. Second, to enable to raise service levels to meet the needs of the new system, the Company established sophisticated Information Technology (IT) bonds to coordinate its product flow. These going on changes remained organizational resistance, from marketing managers especially who were concerned about the other distributed vendors’ products by the new business. Concern also expressed over what would done with the major accounts that did not “fit” the business model.
There was a major need for creative and advanced solutions to overcome these issues and reach the customer without any delay and loss of market share. Therefore, they decided to use agent-based modelling complex, adaptive systems after doing a lot of research.
2.1 The Strategies
Procter & Gamble Supply Chain strategies are mainly involves on:
1. Concentration on acquisition of the companies and products, which are already well-established in the market place and with good performances with reasonable demands. In addition, becoming well-established products begins with a good, efficiently run Supply Chains. Thus, these Supply Chains enable their products to be sold at competitive prices to their intended markets.
2. Redevelopment and consolidation with the help of the well-qualified and experienced scientists, with a vision to broaden their consumer base on a reduced number of products per product type.
3. Reduce its capital spending to a certain percentage of Sales. For example, Supply Chain costs and those consumers should benefit from, because of reduced product prices.
4. Build up their core businesses ( fabric , hair, baby and feminine care) and leading brands into stronger market leaders. They develop value-generating activities throughout the entire Supply Chain for each of its core products, through for example, the pooling of knowledge, expertise and reach.
2.2 Procter & Gamble’s Key task for Supply Chain Management involve:
1. Creation of processes that support the flow of raw materials and finished goods to and from Procter & gamble facilities;
2. Facilitation of the transportation of raw materials to its manufacturing locations;
3. Development of strategies that will keep Procter & gamble leading the marketplace in logistics services;
4. Management of logistics information; customer orders and the prompt delivery of finished product to the trade customers.
3.0 Supply Network, an agent-based modelling complex, adaptive system
Procter & Gamble transform its Supply Chain system with the used of an agent-based modelling in which its fundamentals helped the company until they no longer even calls it a Supply Chain. “The Cincinnati-based maker of Tide, Crest, Pringles, Pampers, Clairol and 300 other products now call its connections to 5 billion consumers in 140 countries a “Supply Network”. (Computerworld 2010)
Larry Kellam, the Procter & Gamble’s Director of Supply Network (Memo to Oracle 2012) states that, ‘Chain connotes something that is sequential, that requires handling off information in sequence. We believe it has to operate like a network, like an internet, so everybody has visibility to the information.’
The said model are extremely complex in many of its systems overall are in fact made up of semi-independent local “agents” acting on a few simple rules. One can apprehend and optimize the whole system by modelling and changing the behaviour of the agent. And by using this, Procter & Gamble saves in costs, inventories will be reduced and the consumer service will be better.
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In the simulations of the company’s computers, the agents of the software represent the individual components of the supply system such as trucks, drivers, stores, etc. The behaviour of each agent is programmed via rules that mimic actual behaviour, e.g., ‘Dispatch this truck only when it is full” or “Make more shampoo when inventory falls to x days demand.’ (Memo to Oracle 2012)
These simulations let Procter & Gamble performs what-if analyses to assess the effect of new logistics procedures on three key metrics: (1) inventory levels, (2) transportation costs, (3) in-store stock-outs. The models considered alternative rules on occurrences such as in ordering and shipping, policies on product allocation in distribution centre, forecasting of demand, etc.
” Agent-based modelling is believed to have brought some changes that Procter & Gamble fundamentally had to make if they were to be flexible and adaptable, “Kellam (Procter & Gamble’s Director of Supply Network Innovation) says, explaining that changes fell into the following three broad areas:
1. Relaxation of rigid rules, often counter intuitively, in order to improve the overall performance of the supply network that required some cultural changes, such as convincing freight managers that it is sometimes acceptable to let a truck go half-full.
2. More flexibility in distribution. For example, it is possible to restock a retailer in 24 hours rather than the customary 48 to 72 hours.
3. More flexibility in manufacturing. Because of insights gained by the models, Procter & Gamble is “fundamentally re-tooling” its manufacturing processes so that it is no longer produces long runs of a single product but instead is able to produce every product every day. The benefits include fewer stock-outs and happier customers.
Procter & Gamble uses Supply Chain Management software from SAP AG, but it turned to a tiny New Mexico company when its long efforts to decrease inventory levels produced only marginal improvements. “Procter & Gamble went to Bios Group because they think very differently from the way Procter & Gamble does things.” using this latest technology
has made Procter & Gamble deliver goods to the right place at the right time giving good customer satisfaction and increasing its market share. ( Daily Finance 2012)
A.G. Lafley, President and Chief Executive Officer Procter & Gamble, says, “So far, by using this technology, the biggest impacts on our business have been improvements in service, cost and speed. We know we’re delivering better consumer service, better customer and supplier service and better employee service throughout the world as a result of the way we’re using the Internet based, Agent-based modelling of complex, adaptive systems Supply Network.”
3.1 The Influence of the System to Procter & Gamble
Jeff Schomburger, Procter & Gamble’s Customer Business Development leader in Western Europe (Computerworld 2003) states that, ‘Out-of-stocks are an industry-wide issue, disappointing and putting at risk our loyal shoppers. We can fix these problems by making out-of-stock reduction a top industry priority. Retailers and Manufacturers need to work together on tools and processes to eliminate it.’
The most powerful brand names are worthless unless they are on products that appear on the right shelf at the right time to meet the expectations of their customers, the consumers globally.
The Supply Chain Management is so critical to Procter & Gamble’s profitability, and to its reputation for quality and reliability. Their Supply Chain teams have the challenge of ensuring that the products are on-shelf, on-schedule and on budget. Procter & Gamble works towards achieving the perfect balance involving its business strategies, its huge reserves of technical resources and most importantly, its people. Procter & Gamble has a strong record of technological and academic achievement and interpersonal skills, so that one can effectively work with people from diverse backgrounds globally.
Procter & gamble deliver superior customer and logistics services. Quality, value and technology are the core of their product supply organization, which includes Customer Services, Integrated Logistics, Purchases, Manufacturing and Engineering. Together, these disciplines deliver products of exceptional quality at the most affordable prices and ship those products in the safest, most efficient way possible, all to benefit consumers around the world.
Logistics is responsible for predicting customer demand, then ensuring the efficient distribution of their products through the Supply Chain to supermarket shelves. Customer service people focus on the final step of the Supply Chain that of delivering products to the customers in the right qualities at the right time and in perfect condition.
Purchasing has the skills in market analysis, building relationships, consulting top management, negotiating, and innovating global sourcing strategies to enhance the Company’s overall Competitive Advantage.
Manufacturing involves making the products. Procter & Gamble apply leading edge, high technology systems and processes to produce high quality at the lowest cost, which helps it to achieve very high value for its customers.
Procter & Gamble is really a global organization, with plants operating around the world in different countries that create jobs for to its people especially to the developing countries. Because they manufactured different kinds of product according to different categories, their competitors are becoming more plenty although there is no single, direct competitor, in 100% of its product lines, services and activities.
In his conclusion, (Sotelo 2010, Docstoc.com) he points that to create and maintains Competitive Advantage, Supply Chain Management has an essential part to it. By aligning most of their accounts with the suppliers and introducing change in their overall Supply chain structure, which they now call it, a Network allows communication between each and every level rather than only conferring to flow-on fashion.
This system had brought changes of what Procter & Gamble is today. Managing the Supply Chain attributes success to the company. Therefore, I can tell that an effective managing of Supply Chains will definitely help organizations by giving it a Competitive Advantage in the market over its rivals.
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