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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:

1.? Selection of dynamic parameters.


2.? Selection of major performance measures like cost, time etc.
3.? Collection of actionable information.
4.? Sharing of knowledge with other partners.
5.? Recognition of changes in the state of the system and determination of their
impact.
6.? Evaluation of alternative opportunities.
7.? Judicious flexibility type.
8.? Election of most suitable decision.
9.? Implementation of decision by providing necessary IT support.


















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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.

The second moment of truth depends on the buyer¶s satisfaction when


consuming the product. Detailed consumer surveys in July 2000 told P&G that in
55% of cases (75% for promotional items), consumers were not satisfied when
they looked on the shelf for the products they wanted. Responsibility for having
the product on the shelf every time a shopper wants it used to be seen as purely a
matter for the retailer. If retailers got their forecasts wrong and ordered the wrong
volumes, the manufacturer was not aware of the problem, or at least not concerned
about it. But, at the end of the day, both the manufacturer and the retailer were
losing.

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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Delivers supply chain integration through to our customers¶ shelves to


win the first moment of truth, which enables superior retail presence and improved
customer and consumer value. Our mantra is ³Always There, Always Preferred,
Always Affordable.´

   

Deliver a competitive advantage by innovating, providing and


protecting supply network technologies, systems and facilities in a safe and
healthful environment to maximize consumer value and increase project Net
Present Value and shareholder return.

  

Use different technologies, human resources and capital assets to


manage the making, packing, and assembly systems to produce the right products
at the right time with quality, consistency and total delivered cost reduction.

   

Use our understanding of global, regional and local market as well as


industry trends. Build supplier relationships to achieve the best overall value for
the Company when acquiring or contracting for goods, services, property and
equipment.

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Develop and establish a Company-wide vision, strategy and quality


policy that ensures the delivery of design and execution excellence within legal
and regulatory compliance. Build the business by leveraging quality to win at the
First and Second Moments of Truth while delivering consumer satisfaction.

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! "#$ The percentage of products that are out of stock on
retailers' shelves at any given time. P&G has cut this to 5%, from 10%.

%! &     '   & 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.

(!&  ð   The hard count of all products flowing through


the supply chain at any given moment, whether on store shelves, in back of the
store, at warehouses, in trucks or wherever. P&G wants a daily count, rather than
weekly or monthly.

)!  "  The percentage of packages damaged or otherwise


unappealing when a customer sees them on a store shelf. The goal: zero.

!  "   *     +$ 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.

‡ As consumers come to expect a greater assortment of product options, retailers


are responding with greater product differentiation, driving up service level
expectations.

‡ 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.

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P&G¶s aim has been to create adaptive, responsive supply networks that will link
together sales and supply processes, inside and outside the organization, to
improve product availability. This will allow it to develop demand chain
management capabilities, especially for promotions. Promotional items are the
highest priority, because of the large amounts of money involved in marketing
programs. If manufacturers cannot deliver the product, they lose all the growth that
should be generated by their marketing promotions, however much demand is
stoked up.







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P&G¶s vision of a consumer-driven supply network has two essential elements.

‡ 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.

In P&G¶s vision of the consumer-driven supply network, daily demand


updates provide timely warning of changes in product consumption. To make the
CDSN work, this information must then be rapidly integrated into replenishment
plans, internally and for partners and suppliers. P&G is also piloting new
distribution requirement planning techniques that will make it easier to understand
product requirement implications across the distribution network.













  

Out-of-stocks cost you one sale in nine


Though the consumer buys from the retailer, and not directly from the
manufacturer, the manufacturer cannot afford to ignore the problem of shortages at
the store or shelf level.


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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.

‡ An adaptive, dynamic approach that uses new business applications to monitor,


alert, evaluate and, where appropriate, trigger action.

‡ The ability to establish connections quickly on demand, if necessary within


hours.

‡ 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.

‡ ' "  P&G has introduced a pilot to support rough-cut


capacity planning processes in its detergents business. This has already succeeded
in cutting out-of-stocks by three-quarters and reducing inventory levels.

   .    Among others, there has been a successful
pilot project in P&G¶s North American cosmetics manufacturing facility,
supporting a daunting 10,000 permutations of product and distribution channel.

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P&G has also developed private e-marketplace facilities for both suppliers
and customers, allowing its key business partners to see its inventory levels and
production plans and perform real-time transactions via Web-enabled front-end
systems.
This approach has produced inventory savings across the whole supply
chain, and allowed the introduction of other improvements, such as automatic
invoice processing. Improved responsiveness to events has enabled P&G to
increase promotional product volumes, but still be left with less residual inventory
when each promotion is over.

`At its manufacturing sites, P&G is experimenting with early pilots to


support produce-to demand capabilities. These involve superimposing real-time
demand signals onto the production plan, and integrating real-time shop-floor and
warehouse data. It is also piloting a ³dynamic distribution requirements planning´
system, in which the planning cycle is automatically triggered by major events,
such as changes in demand or inventory, and could be run many times a day.
Though the pilots are still in early stages, incorporating these highly responsive
processes into the supply chain will eventually cut costs and lead to real
improvements in consumer satisfaction.

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.

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