Proctor & Gamble (P&G): A Forecasting Success Story

Gartner, Inc, a company that specializes in information technology research and consulting, annually ranks companies based on the supply chain effectiveness.  Proctor & Gamble (P&G) has consistently ranked highly on this list; the company has been in the top six since 2010.[1]  P&G has excelled in supply chain management over the years in part because of its implementation of various best practices regarding forecasting and fulfilling demand.

In their book An Introduction to Supply Chain Management, authors Edmund Prater and Kim Whitehead delineate various forecasting best practices including: (1) continuously improving forecasting methods; (2) usage of a reliable forecasting software; (3) retain source data for decision making; (4) emphasize short-range forecasts as opposed to long-range ones.

If one reads the following articles, he or she will conclude that P&G does an especially excellent job of practicing the four best practices listed above:

Steve Banker, “Procter &Gamble Speaks at the Chief Supply Chain Officer Forum,” Forbes, June 20 2014, http://www.forbes.com/sites/stevebanker/2014/08/25/amazon-grows-rapidly-traditional-retailers-struggle-should-brick-and-mortar-retailers-partner-with-google/.

“Procter & Gamble Implement Demand Sensing,” Supply Chain Movement, July 8, 2013, http://www.supplychainmovement.com/procter-gamble-implement-demand-sensing/.

P&G is constantly assessing the accuracy of their demand forecasting and working to improve.  Last year, the company implemented Terra Technology’s Multi-Enterprise Demand Sensing (MDS), which not only incorporates consumer behavior in all markets into forecasting models, but also utilizes “data from all available sources – including POS, channel inventory, warehouse withdrawals, distributor data and retailer forecasts.”[2]

P&G has come to recognize the importance of short-run forecasting and has “significantly sped up their planning cycles.”[3]  The constant incorporation of new data has resulted in demand and supply forecast adjustments twice a day for high turnover products.[4]  

P&G also understands the importance of coordination across the supply chain.  For example, when planning new facilities/a network design project, in addition to looking at the concentration of customer demand, P&G also analyzes other logistics, such as transportation reliability, supplier availability, and manufacturing costs.[5]  The company’s CEO discussed this in June 2014 at the North American 3PL Summit and Chief Supply Chain Officer Forum: “Ten years ago, they [P&G] were building fewer and bigger facilities. But today logistics costs are higher than manufacturing costs and that is driving them toward building more and smaller facilities.”[6]

I think it is fascinating how forecasting models can incorporate so many different inputs and can constantly be updated.  I am especially interested in consumer behavior, so I enjoyed learning that P&G is “using available information about consumer and customer behavior in all markets.”[7]  I would like to know more about the extent of which models incorporate data from other markets.  For example,

•  Do they mostly incorporate consumer behavior in substitute and complement product markets or is holistic consumer behavior inferred from global or regional economic trends, and if the latter, how?
• P&G also uses internet activity to monitor consumer behavior.[8] I know that internet activity can often predict current trends; I wonder to what extent internet activity can be used to predict events or trends in the not immediate future.  Given that the best forecasting models focus on the short-run, would predicting events and trends in the far future even be useful in supply chain forecasting and meeting demand?

Less related to this week’s reading, I find it interesting that P&G’s CEO mentioned that the relatively low costs of manufacturing is now influencing the location and size of new facilities.  I think this issue will be accentuated, not just for P&G, but for all companies, when 3D printers become more refined and prevalent.  I wonder if the anticipation of future technology/future reductions in manufacturing costs also influenced P&G facility building decisions. 

•          Do you think companies should begin adjusting supply chains now in anticipation of 3D printing technology?
•         How big of an impact will 3D technology have on various supply chains?

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[1] Gartner Supply Chain Top 25, Gartner, 2014, http://www.gartner.com/technology/supply-chain/top25.jsp. 

[2] “Procter & Gamble Implement Demand Sensing,” Supply Chain Movement, July 8, 2013, http://www.supplychainmovement.com/procter-gamble-implement-demand-sensing/.

[3] Steve Banker, “Procter &Gamble Speaks at the Chief Supply Chain Officer Forum,” Forbes, June 20 2014, http://www.forbes.com/sites/stevebanker/2014/08/25/amazon-grows-rapidly-traditional-retailers-struggle-should-brick-and-mortar-retailers-partner-with-google/.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] “Procter & Gamble Implement Demand Sensing,” Supply Chain Movement, July 8, 2013, http://www.supplychainmovement.com/procter-gamble-implement-demand-sensing/.

[8] Steve Banker, “Procter &Gamble Speaks at the Chief Supply Chain Officer Forum,” Forbes, June 20 2014, http://www.forbes.com/sites/stevebanker/2014/08/25/amazon-grows-rapidly-traditional-retailers-struggle-should-brick-and-mortar-retailers-partner-with-google/.