Wednesday, October 1, 2014

When the shopper reaches the shelf, is the product there? - P&G CRP system

"We start at the store shelf and work our way back through our supply network," said Keith Harrison, the global product supply officer for P&G.

Procter & Gamble, the world leader in consumer goods, sells nearly 300 brands in more than 160 countries. It has sales of $80 billion and 130 manufacturing sites around the world. Probably every second, P&G brands touch the lives of people around the world. These products are divided into five business sectors:
- laundry
- paper products
- beauty
- food
- health

In the 1980s, P&G had come to identify two main issues:

  • Issues with ordering and billing: These five sectors had individual ordering and billing policies, thus lacked standardization. This led to inefficient shipments, and hence higher transportation costs. Also, sometimes, there were nine prices for a single item!! 
  • Stock-outs: When the buyer reached the shelf only to see that the product had stocked out, it was a critical moment. Naturally, the consumer would buy a rival product. Surveys suggested that the exact product, in the variant that the buyer wanted, was not available more than half the time. If the retailer had forecasted wrongly and ordered the wrong volumes, P&G was not aware of the problem. In the end, both P&G and the retailer were losing. That was P&G's Eureka moment. 

P&G reconfigured the current logistics system between them and the retailers. This was key if they had to be the world brand leader. They implemented the following systems to tackle the issues they were facing:

  • Customer Replenishment Process (CRP): To improve supply logistics and reduce in-channel inventory
  • Electronic Data Interchange (EDI): To remodel the ordering and billing system

This system to transmit information day-to-day was collectively called the Consumer-Driven (or demand driven) Supply Network (CDSN).

What is CRP?
P&G's CRP was a precursor to ERP. It is a tool managing product flow to the retailer to maintain optimum inventory levels, and also generating timely, accurate data. It enabled P&G to reduce the inventory and to plan shipments more efficiently. This was first implemented between P&G and Wal-Mart. P&G restocked Wal-Mart’s inventory depending on the data received from Wal-Mart’s distribution center (DC) as the products moved through the channel. This allowed P&G to ensure that their products were on Wal-Mart's shelves at all times. P&G was successful in reducing the order cycle time by 3-4 days. This JIT supply of products ensured that customers would never find the product stocked out on the shelf. Also since data was being shared P&G and the retailer, they learnt the inventory level of the retailer to manage the frequency, quantity,and timing of the shipments, rather than waiting for the retailer to place orders. A majority of the orders were computer generated and based on actual daily and weekly sales. Shipments were triggered only when customers actually bought the products. This practice actually integrated the retailer into the system.

For P&G:
Ordering and billing policies across the five sectors were standardized. P&G received better financial returns. Inaccurate orders were declined, and there were no more problems such as multiple prices per item. The reduction in paper invoices was substantial, since everything was electronically achieved.

For the retailer:
The retailer no longer faced over-stocking or under-stocking issues. This system also saved retailers hundreds of millions in inventory costs alone. Also, they could order several product lines at once, which were delivered on the same truck, thus reducing inefficient deliveries.

For the consumer:
The product was always in stock, and could enjoy new and fresh products. The savings from P&G through the retailers was passed on to the consumers in the form of lower prices. Hence, brand loyalty was greater.

The household goods producer for Pampers nappies and Wella shampoo which has since transitioned to SAP a decade ago, still remains a pioneer for the CRP system.

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