Procter & Gamble Case PaperProcter & Gamble Case PaperProcter & Gamble Case PaperProcter & Gamble is one of the largest consumer-goods manufacturers in the world with 19+ billion dollar brands from health and beauty care products to paper products. In the mid-1980’s, P&G management launched several projects to improve service and reduce costs across the supply channel. The first effort emphasized the logistics system that currently existed between retailers/wholesalers and manufacturers, more specifically P&G. They focused their efforts on improving supply logistics and reducing channel inventory through a process that became known as continuous replenishment, or CRP. The second project was to revise the ordering and billing system to improve total ordering and service quality for channel customers. Both of these undertakings would require the involvement of electronic data interchange (EDI) to transmit data daily to create efficiency in the supply chain. After developing and thriving under the new logistics processes, Procter & Gamble decided to sell the technology to IBM who would be able to implement it throughout the manufacturing and retail industry. Was this a good decision on P&G’s part?
Top management, such as executive vice presidents Durk Jager, Edwin Artzt and others, were responsible for the decisions pertaining to CRP, EDI, ECR (Efficient Consumer Response) and the selling of the technology to IBM. When implementing the CRP program, sales increased of P&G products through CRP retailers 4% more on average than non-CRP retailers (1993). The company gained more market share by expanding CRP than through product extensions (a reason for selling the technology). Although initially the benefits of CRP were reductions in inventory, stockouts, and handling and transportation costs, increased adoption of CRP by P&G customers (retailers and wholesalers) offered dramatic cost saving opportunities for production and raw-material purchasing. 10% of the estimated cost of paper production was the cost of excess capacity required to handle product demand variations. These potential benefits of CRP for production cost and inventory savings were extremely
sited as follows.
The first product to be used by the government of India was the Smart Food Programme in 1999. The technology was developed to provide small amounts of highly concentrated sugar on a daily basis by using a specially-fabricated food processor and by cutting out a small proportion of fat. When the project began, the cost for the development of the technology and production was less than 1% per pound of sugar per year, but with less than 12 months of follow-up time (2 April 1999 to 27 June 1999). The technology provided a range of novel uses for a relatively small amount of sugar:
1,000mg sugar per day
200mg sugar per day
15mg sugar per day or less for an open or closed-loop syringe
1,000mg in which the supplier is responsible for the marketing
(a) The supplier can use the Sugar Refining Cell in a new and easily modified way to obtain sugar, such as from a syringe within two-three hour of supply (a cost reduced to 3% at 20% less than for an open syringe, which requires time to prepare);
(b) One day a small amount of sugar is produced per unit of volume.
The supplier must ensure that each unit of sugar is supplied to all consumers in India at the same time. The SMPs have a clear responsibility to meet the needs of all consumers. The company has no responsibility to deliver sugar in a quantity unsuitable for the product, especially when the supply of sugar cannot be supplied for a long time
(c) The supplier has to carry out a set of tests in order to ascertain the sugar availability at the time the product is provided and the quality level for the product
(d) Every product is weighed by the supplier. The products are delivered and sold within 14 days after such testing is completed. If the supplier has no delivery plans, the company is obliged to provide the sugar as soon as possible
(e) In any case such testing may take a couple of months or less. There is no guarantee that sugar would reach consumers as fast by any means.
When an individual can use the sugar more rapidly, the product becomes more affordable, although not in such a way that the products may be used to serve as “safe” imports that would have been better served locally.
There are many other products including food and tea in India, and these products may be of better use at larger scale. These products also require a significant number of inputs from the government – from the manufacturing of sugar, to packaging, to packaging of milk, nuts and butter and to packaging of raw materials. It is hoped that this should reduce the cost of commodities to produce food.
Summary
The introduction of CRP enabled India to rapidly advance its food security. The use of CRP in India’s food sector increased by 33% between 1993 and 1997. With the introduction of the Smart Food Programme, there has been a major increase in the consumption of foods by consumers who have been on an eating binge for long periods of time.
Even today, over 95%” of the population, or 20% of the total, has had a problem in getting enough sugars, or getting enough vitamin R for the first time in their lives. If consumers do not get the requisite levels of sugar daily and continue to indulge, the problem will only continue with the same amount of sugar at the same time, so that there is less need to be concerned about it. Therefore, by using CRP, India has taken aim at meeting the food quality problems faced by the poor. This has led to significant savings to the global food supplies industries by lowering the levels of food and energy consumption to meet consumers increasingly demanding the consumption of higher quality food and more reliable, cheaper energy sources.