Tuesday, September 4, 2012

Procter & Gamble Digital Innovation in operations

McKinsey’s Quarterly recently interviewed P&G CEO Robert McDonald about the nature and progress of the company’s digitization initiative. An edited summary of the interview follows to show the implications that this digital innovation has had in their supply chain.

From factory to shelf
From an operational standpoint, Procter & Gamble believes that to be successful we’ve got to continue to improve productivity, and being digitally enabled allows for that as well. So we’re digitizing our operations everywhere—from our manufacturing plants to the stores where consumers purchase our products. We believe digitization represents a source of competitive advantage.
In our manufacturing plants, for example, we have systems that allow people to use iPads to download data off the production line in real time and communicate that to a place where we roll the data up. We’re not there yet, but we envision a system where I could literally see, on my laptop, any product at any moment as it goes through the manufacturing line of any one of our plants. And what I’d love to be able to do is see the costs of that product at the same time. It’s challenging because accounting systems aren’t designed today for operations—they tend to look backward—but we’re working on integrating our operational system with the financial system to move in that direction.
In transport and logistics, we created a digitally enhanced operational program we call Control Tower that lets us see all the transportation we’re doing: inbound, outbound, raw materials, finished product. We’re probably the second- or third-largest user of trucks in the United States, and through this technology we’ve been able to reduce “deadhead” movement1 by about 15 percent. This reduces costs and carbon monoxide. In circumstances where we use distributors, a similar interface, called Distributor Connect, lets us link directly with them and help them run their business. This benefits all of us by improving service and reducing inventory across the supply chain.
We want to be digitally connected to retailers too. For example, we use and support GDSN,2 which is basically a standardized data warehouse that allows us to do commerce with our retail partners in a totally automated way, with no human intervention. The industry association GS1 did a study a few years ago that found that 70 percent of orders between retailers and suppliers had errors. But if everyone used a common data warehouse like GDSN—where the data are kept dynamically correct—that number goes down to virtually zero, and it saves millions of dollars in doing commerce together.
Another thing we do is to use our scale to bring state-of-the-art technology to retailers that otherwise can’t afford it. Imagine a small store in the Philippines, for example—a country where I used to live. We can provide sophisticated ordering applications to help people there run their businesses better than they would be able to otherwise. We have mobile-phone applications that allow retailers to order from us wirelessly or, if they don’t have a wireless capability, to order when they go back to their office and set the phone in a base. It’s very easy to use.
We also have performance standards that retailers in developing markets can visualize on their phones. For example, we believe you should arrange your store in a certain way to maximize consumer sales. If you have a store that partners with P&G on this, you can call up the performance standards on your phone, hold it up, look around your store, and compare it with what you see. Eventually, I want to be able to take a picture of the shelf, have it digitally compared, and then automatically send action steps back to the retailer to help rearrange the shelf for maximum consumer sales. That’s where we’re going.
In fact, some applications like these will probably come back to the developed world as improvements because they’ll be simpler—there’s no question that progress will be accelerated by the leapfrogging of technology. Inevitably, everything’s got to be usable on the smallest, cheapest device possible because that’s what’s going to get the broadest distribution in a developing market.
Digitizing innovation
Data modeling, simulation, and other digital tools are reshaping how we innovate. The way we used to do innovation research required a lot of work and time setting up consumer panels—you need the right distribution of races, ages, and so forth to make them representative. Now, with the amount of data we have available, the “n” is so large that by definition we can immediately have a representative group.
When you design a disposable diaper the traditional way, for example, by the time you get to the point where you make a prototype, the prototype itself has cost thousands of dollars, if not more, and it was all made by hand. Now, using modeling and simulation, you can go through thousands of iterations in seconds. The key is that you’ve got to have the data. So the advantage for P&G is our scale. We have operations in around 80 countries, our products are sold in almost every country, and we touch more than four billion consumers every day. Imagine all those data points. We can literally fit any virtual diaper to any baby anywhere in the world.
virtualization picture

P&G’s ‘virtual wall’ uses multiple projectors to simulate store shelves for faster consumer testing.
We’re even digitizing the creation of molecules. For example, in the research and development for our new dishwashing liquid, we used modeling to predict how moisture would excite various fragrance molecules so that throughout the dishwashing process you get the right fragrance notes at the right time. We did that all virtually.
I think that digital technology will even help us identify new service components to our consumer products that wouldn’t otherwise be immediately obvious. For example, say you’re a consumer concerned about the environment. You go to one of our packages and photograph the QR3 code. We then could download for you all the ingredients in the product and their biodegradability—or tell you where the product was produced, the quality of the water, or how we’ve reduced carbon emissions in the plant. We can’t do that today, but it’s an aspiration.

Technology is a tool to be used in dynamic processes and systems but if these are not working correctly, then technology will not solve them so, I was wondering what makes the difference? Innovating in products that are more adaptable to changes in the supply chain in a globalized constantly changing world, or innovating directly in supply chain management to make it more flexible and avoid jeopardizing sales?

Chui, M. & Fleming, T. (November 2011). Inside P&G’s digital revolution. McKinsey Quarterly. Retrieved 09/03/2012. Available at: https://www.mckinseyquarterly.com/Inside_PGs_digital_revolution_2893

Jianghong, G. & Hongzhong, Z. (2010). Product Innovation Management Analysis Based on Supply Chain Management. Retrieved 09/04/2012. Available at: http://www.pucsp.br/icim/ingles/downloads/papers_2010/part_4/1_Product%20Innovation%20Management%20Analysis.pdf

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