Procter & Gamble

The Road to Supply Chain Excellence - Continuous Improvement Industry

Case Study
Consumer Packaged Goods
Hunt Valley, Maryland is the home of Procter & Gamble's Beauty Care Group, which includes its highly
Optiant Solutions
successful Cosmetics product lines.
PowerChain Inventory
Business dynamics have been growing increasingly complex in the consumer products industry. Product
Business Drivers
and process innovation are increasing at greater speeds. Product categories are broadening in response
* CP business dynamics increasingly complex:
to consumer needs. Increased need for packaging enhancements is leading towards SKU proliferation. As
- Mandate to be more demand-driven
a result, P&G's multi-echelon global supply chain has also been growing increasingly complex due to
- Increasing speed of product and process
global suppliers, unique materials requirements and increasing demand from developing markets.
innovation
- Packaging enhancements leading to SKU
Through diligent work with suppliers to reduce material inventories, collaboration with customers to
proliferation
better manage inventory residing at retail outlets and implementation of corporate-wide ERP and APS
- Broadening product line categories
information systems, P&G had already made great progress in reducing its inventories and improving
- Industry competition
materials and production planning, while still maintaining superior customer service. Safety stock was cut
- Increasing focus on sustainability
by >10%.
* Developing global markets and commodity
cost pressures result in a more complex
However, because the company's overarching business philosophy is one of demand-driven supply chain
supply chain
and continuous improvement, P&G was not done yet. P&G understood that continued inventory
* Need to improve working capital turnover,
reduction would require a multi-echelon inventory optimization tool that would meet its stringent
including inventory
requirements. Hunt Valley also wanted to develop a more robust, structured, and sustainable process for
global inventory management supported by deeper supply chain intelligence.
Customer Supply Chain Business Challenges:
*Responsible for meeting aggressive profitability
P&G's inventory management strategy is a business process where strategic inventory decisions and
targets leading to mandate for overall inventory
policies are optimized periodically. This process is triggered by key events, such as new product
reduction, while sustaining superior customer
introductions, changes in market conditions, demand spikes, capacity shortages, and changes in supplier,
service levels
distribution or logistics strategy. A decision support tool that provided collaborative business intelligence
*Many SKUs among high and low volume product lines
would help P&G make sound strategic decisions around postponement, risk pooling, optimal inventory
*More supply chain intelligence needed for global inventory
mix, impact of service levels on total supply chain cost and strategic sourcing questions.
management
*Obvious inventory reduction initiatives already harvested
P&G's vision also included a more efficient and repeatable business process for tactical inventory
cost savings; require continuous improvement
planning, where its planners could continue to implement and refine inventory targets over time, easier
and more efficiently.
Course of Action
* Pilot PowerChain Inventory in one business, defining global IO
Optiant's presence at P&G first strategies for 2 product lines from rm through fg
began with the former, Gillette * Optimize inventory through-out supply chain to drive-out
Company. As a result of its excess cost, prove technology and value, gain acceptance in
implementation of PowerChain the business
Inventory, Gillette saw a 10-15% * Extend PowerChain Inventory to remaining 15 product lines
reduction in inventory in less than 6 * Roll-out to other P&G groups and divisions
months and an 8-point increase in * Utilize PowerChain Inventory to identify and evaluate
customer service levels. alternate supply chain network designs
Additionally, a new corporate group
was created, with global
responsibility for a corporate-wide
rollout of the solution.

P&G's Beauty Care Group now asked for Optiant's assistance in making recommendations in the following
areas:
- Setting of optimal safety stock targets for finished goods and selected raw materials by SKU and location
- Comparison of optimal targets with P&G's current policy and quantification of business opportunities
- Impact of varying levels of planned customer service on inventory investment
- What-if analysis on key parameters like demand variability, lead time, service level, cost, etc.
- Model 2-3 alternative supply chain scenarios and quantify the tradeoffs, e.g. alternate DC on west coast,
inventory held at the supplier rather than at P&G plant. Results-To-Date
* PowerChain Inventory Proof of Concept conducted in
In 2006, P&G selected Optiant's PowerChain Inventory to conduct a proof of concept for two product lines June/July 2006.
within the Cosmetics group, liquid make-up and pressed powder make-up product lines, to define inventory - Pilot demonstrated 3+% total inventory reduction.
optimization strategies from raw materials through finished goods. Over 180 SKUs were modeled. The - Additional incremental 2% savings identified with further
analysis recommended inventory safety stocks targets throughout the supply chain, driving excess cost out optimized policies
and validating the tool and its value within the organization. - Satisfied with results; solution validated; gained stakeholder
approval
After the successful implementation of all the SKUs in these two product lines, P&G expanded the scope of - A more robust technology rollout process deployed
the project and has now modeled all the remaining 15 product lines in Hunt Valley. Corporate-wide rollout is through-out Cosmetics division
planned for this Fall '07. * Business has the capability to perform more "what-if" analysis
in supply chain design, to support more timely supply chain
With the PowerChain suite implemented and in production, P&G will be on the road to achieving its vision decision-making
of supply chain excellence through continuous improvement in its inventory management processes, * Greater company roll-out beginning Fall '07
technologies and organizations.

* 7 New England Executive Park, Suite 130 * Phone: 781-238-8855 * Fax: 781-238-8887 * www.optiant.com*