P&G case: Improving Customer Value through Process Redesign

Procter and Gamble Improving Customer Value Through Process Redesign

Group 5 – PGP 2012Dheeraj Kumar (1211180)

Gautam Punj 1211186)Parambrahma Panda (1211282)

Vishrut Shukla (1211314)Ravi Purohit (1211049)Customer Relationship Management

O Question 1: What were the key decisions taken by P&G in relation to distribution channel? Could a mid-sized manufacturer have used this approach?

• Transmit data daily from retailer to P&G on warehouse product shipments to each store with the help of EDI (Electronic data exchange)

• Quantity shipped based on shipment information rather than retailer orders

• Quantities were computed with the objective to provide sufficient safety stock, minimize total logistic cost & eliminating excess inventory at retailers.

• JIT basis shipment of products on the basis of retailer’s actual sales data . • Improve consistency and overall service levels by integrating many separate systems that did not work well together across functions and product sectors.

• Automated existing processes & provide flexibility to meet needs of different sectors & functions

• Common database for product pricing and product specifications with the vision of “Simplify, Standardize , then Mechanize”

• Change from high-low pricing to Value Pricing.• Encouraging CRP adoption by providing benefits to retailers.• Reduced the number of pricing changes at P&G from 55 per day to 1

per day in around 2 years of time

• Timely, accurate , paperless information flow between Supplier, Distributor, retailer and consumer

• Change from brand to category management helped in standardizing product lines.

Key Decisions

CRP Implementat

ion

Pricing Restructure

ECR System

OSB Changes

• Comparison between P&G v/s a Mid sized Company

Parameters P&GMid Size

Companies

Bargaining Power over customers

High (Strong customer pull due to big brand name, sales through multiple channels)

Medium

Economies of scale

High (Presence in multiple product segments , volume is high )

Medium

Financial Strength

High (Fund for Technology investment is easily available, $30 billion sales in 1993)

Medium

Capability to drive Industry

High (Sale of CRP system to IBM for increasing attractiveness of CRP for Industry)

Low-Medium

Risk taking capabilities

High ($459 in 1987 and $1746 in 1993 spent for cost of restructuring)

Low

Conclusion: The capabilities of mid-sized companies as compares to P&G don’t seem adequate to implement this approach.

The Case of Mid-Sized Companies

O Question 2: How important are the new IT technologies in P&G’s efforts?

Importance of New IT for P&G

Areas of Improvement KPI

Increased retail sales through CRP retailers : Due to increased availability of P&G products.

4%

Expansion of product line (exp Diapers), efficient management of increased number of SKUs.

Problems with order quality: Due to removal of human buffer, data entry errors were not caught at early stages leading to collection issues.

Cost reduction : Due to elimination of excess capacity because of better control on demand variations

10%

• CRP and EDI Systems of P&G

Channel Partners

Areas of Improvement KPI

Reduction in time delays and paperwork

Reduction in transaction costs.

Inventory reductions and service level improvements, reduction in stock outs.

Areas of Improvement KPI

Increased availability of P&G products due to reduced stock outs.

Reduced fluctuations in prices ; reduced dissonanceCustomers

Importance of New IT for P&G (contd.)

Areas of Improvement KPI

Financial Transactions : Improvement in billing accuracy, perfect orders, deductions resolved in favor of P&G

Billing Accuracy: 10%Perfect Orders: 20%Deductions: 50%

Improved on time delivery, reduction in returns and refusals

Perfect orders : 20%

• Order, Shipping and Billing Systems

Areas of Improvement KPI

Improvement in order quality, shipset quality and reduction in order entry errors, reduction in order cycle time

Order Quality: 35%

Reduction in price and promotion changes per day Change 55 : 1 p.d

Constant procurement costs for retailers, elimination of forward buying by retailers

Areas of Improvement KPI

Increase in brand loyalty as promotions reduced, reduced customer dissonance

Channel Partners

Customers

O Question 3: To what extent has P&G changed its strategy to take advantage of ECR?

Strategic Area

Strategy prior to ECR implementationChange in Strategy for maximizing ECR

benefits

Channel Relationshi

p

• Non harmonious relationship with retailers and wholesalers

• Trade based on negotiations over short term initiatives

• More collaborative and mutually productive relationships

• Focus changed from negotiations to collaborative efforts to meet consumer needs

Channel Logistics

• Retailer determined order quantities & timing, Inefficient operations (LTL shipments, stock outs)

• Forward buying behaviour by retailers (buying for profit) led to artificial demand creation

• P&G determined order quantities and timing based on warehouse shipment data sent through EDI

• Efficient operations through CRP implementation led to accurate demand forecasting -> Lower inventory, fewer stock outs

Pricing Strategy

• Multitude of promotional programs by P&G

• Large variable promotional discounts & allowances led to forward buying by retailers

• Value pricing program in lieu of frequent special programs

• Elimination of geographic pricing differences• Focus on brand-loyal consumers rather than

price-sensitive consumers

Operations / Manufacturing planning

• Excess capacity build up for meeting uncertain demand variations

• Inefficient use of capacity

• Efficient utilisation of plant capacity• Elimination of entire plants due to productivity

gains• Reductions in employment levels

Management /

Organisation Structure

• Organization structure based on ‘brand management approach’

• Brand managers had complete product responsibility

• Organization structure shifted to ‘Category management’

• Category manager responsible for overall pricing & product policies

Product Strategy

• Focus on individual brands• High product variations or large no. of

SKUs• Conflict between same branded products for

resources

• Focus shifted to fulfilling consumer needs through category management -> New product innovations

• Elimination of weaker brands• Standardisation of product packaging/labelling -

> Restructuring of SKUs

Industrywide

Standardisation

• Decisions based on short term horizon -> Focus on profit making

• Long term strategic focus -> Sale of CRP system to IBM to increase the adoption of CRP by other companies

Changes in P&G’s Strategy

O Question 4: What do you think the next steps are for P&G?

Area Actions

Do more with real-time CRM

data

Obtaining store-level PoS data from retailers to get real-time data on demand, SKU availability, consumer behavior, consumption patterns ideas for NPD

Continuous plan-make-ship processes; logistics innovation (eg: cross-docking)

Inbound Backward integration of CRP with suppliers to automate inbound sourcing

Different levels of

CRM engagemen

ts

Segment customers: Key Account, Strategic Partner for collaborative marketing

SCM CRM (Key accounts) E-Business Automation (Strategic)

Customer-driven supply network, Vendor Managed Inventory for Key Accounts

Collaborative planning, forecasting and replenishment for strategic partners

ReplicationExpansion of Value Pricing, CRP and category management to all product lines

Enhancing CRM

Systems & Processes

Adaptive, dynamic approach of monitoring and evaluating the health of P&G’s supply chain where alerts and actions can be triggered automatically

Ensuring reliability, uptime, recovery & high-availability of CRM-related data and systems deployed globally to guarantee business continuity at all times

Simplified CRM application and data architecture to allow integration of new global operations, customers and network alliances in the future

MetricsCarefully define & track metrics for value additions through CRM engagements

Next Steps for P&G’s CRM Strategy

Thank You.Questions?