Lean Manufacturing's Unexpected Windfall: A Lower Carbon Footprint
Reinventing the Supply Chain and Manufacturing's Role
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Transcript of Reinventing the Supply Chain and Manufacturing's Role
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Reinventing the Supply Chain and
Manufacturing’s RoleAMR Supply Chain Conference
Rick Ciccone
February, 2006
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Presentation Flow
•About P&G•Why: The need to reinvent the supply chain•What: An overview of P&G’s Consumer Driven Supply Network strategy and Manufacturing’s role•How: Measures linked to Business Strategy and building key capabilities
Reinventing the supply chain
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• $67.9 billion sales*• 135,000 employees• More than 170 manufacturing
facilities in more than 40 countries• More than 20 R&D centers in
10 countries• Unique organization structure
About P&GAt a glance
*Unaudited proforma condensed combined financial results of P&G and Gillette
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P&G + Gillette
Began operations as one company October 1, 2005•Increases P&G’s position in faster-growing, higher-margin, more asset-efficient businesses•Combines each company’s unique consumer/shopper understanding to strengthen retailer relationships•Common vision of supply network as source of value creates opportunity to share and accelerate best practices
The world’s largest consumer products company
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P&G + Gillette
•22 brands with sales of $1 billion or more•14 with sales between $500 million and $1 billion
= Expanded innovation platforms and pipeline
Even stronger together
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Two Moments of TruthWhen she chooses and when she usesAbout P>wo moments of truth
When she chooses When she uses
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*2000 Shoppers Research (12 P&G categories at 64 NA retailers)
Purchased atanother retailer 31%
Substitutedanother brand 19%
Substituted same brand(different size)
18%
Other
8%
Did not buy product 10%
Delayedpurchase 14%
Consumer behavior when confronted with an OOS• 48% switch stores based on P&G top 100 SKUs
2002 The Procter & Gamble Company, All Rights Reserved.
Urgent Need to Address OOSOn average, retailers lose the sale 41% of the timeP&G loses 28% of the time
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Winning at the First Moment of TruthThe need for a Consumer-Driven Supply Network
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• Innovation• Value• Shelf presence• Customization• In-store experience
Why: The Consumer is BossEver-increasing expectations
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• Industry consolidation• Importance of free cash flow• Growth of private labels• Focus on margins• Seeking to be unique• Seeking to offer solutions
Why: Retailers Are RespondingChanging to win with the new consumer
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Why: New Pressure on Manufacturers Today’s supply networks aren’t fast and flexible enough
• Pace of innovation• Increasing number and complexity of products • Demand for affordability and value• Speed to market
20% increase in innovation for past three years
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The Consumer Driven Supply Network
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What: Reinventing the Supply Network
Chain
Long and slow
Forecast-based
Manufacturer-driven
Internal focus
Designed from product forward
Cost-reduction
Network
Fast and flexible
Demand-based
Consumer-driven
External focus
Designed from shelf back
Value and growth creation
From To
supplier manufctr retailer consumer consumer
manufctr
supplier
retailer
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What: Manufacturing’s FocusEnable a Flexible, Responsive, Highly Productive and Profitable Supply Network
• Link to External Metrics
• Build capabilities to execute a Produce to Demand operating strategy
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What: External metrics Understand how the supply network performs from the shopper and retailer perspective
Right Place: Shelf Out-of-Stocks, Case Fill RateRight Product: Quality at the ShelfRight Price: Target PriceRight Time: End-to-End Supply Network TimeRight Value: Sales / Margin / Cost
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How: Master PlanTranslate business need through external metrics to Manufacturing Capability Plan
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TeamsSpecific Tactics, Plans & Measures
DepartmentsSpecific Goals & Measures
CorporateBusiness Strategy
Leadership
Results
Business UnitVision, Mission
Specific Goals & Measures
IndividualsSpecific Goals & Measures
In the Work Plan
Organizational UnitCompelling Business NeedSpecific Goals & Measures
Establishing LinkagesHow:
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Linkage to ScorecardMetrics
Packing Operations
Logistics Operations
Initiative Support
Organization
Department
Metrics
Individual Work Plan
How:
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Establish Foundation and Sustain Example - Plant Cockpit
REAL TIME MONITORING
Short Shipping xx SKU
IRA – Out of Compliance
ALERTS
SKU yy Miss Ship Tomorrow
Line 1 Production Below Target
SKU xx above Buffer Inventory
RESULTS TRACKING
OUTPUT MEASURES
- PRODUCTION
- INVENTORY
- SERVICE
- QUALITY
INPROCESS MEASURES
- EFFICIENCY
- CYCLE TIME
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Produce To Demand Executional ContinuumProduce To Demand Executional Continuum
Produce To Demand JourneyProduce To Demand Journey
Produce EverySKU Every Month
Customer POSReplenishment
Produce To ReplenishCustomer DC InventoryWithdrawal
Produce To Order Today, Ship Tomorrow/Today
Produce to ReplenishInventory
Produce EverySKU Every 2-wks
Produce EverySKU Every Week
Shorten Cycles < 1 wk(Any Sku Any Day)
Replenishment (Production)Replenishment (Production)Triggered ByTriggered ByFORECASTSFORECASTS
Replenishment (Production) Replenishment (Production) Triggered By Triggered By REAL DEMANDREAL DEMAND – – Customer Orders, Customer Customer Orders, Customer Inventory Levels, Consumer Inventory Levels, Consumer
PurchasePurchase
FOCUS:FOCUS:Improve Improve
Reliability/CapabilityReliability/CapabilityReduce Inventory Reduce Inventory
LevelsLevels
FOCUS:FOCUS:Supply Chain SynchronizationSupply Chain Synchronization
Supply Chain Integration & Supply Chain Integration & CollaborationCollaboration
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• Collaborative business planning with retail customer• Design product to move it efficiently to the
shelf
• Collaboration on “events”, key merchandising activities and Initiatives
• Manufacturing flexibility and cycle response to produce-to-demand vs. produce-to-forecast
• Supplier relationships move from “connected” to “integrated” based on demand
• Speed and reliability of the supply system
How: Demand DrivenManufacturing integrated with end-to-end SN
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1. External focus: culture change2. Operational excellence: service and availability3. Synchronization: information replaces inventory4. Shelf-back design 5. Flexibility: take time and cost out of
the system6. Responsiveness: customer and
consumer driven7. Customer collaboration:
joint value creation
How: Key Operating PrinciplesThe journey to the Consumer-Driven Supply Network
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Consumer wins• Better in-store experience: fresh quality product ON the
shelf, more new products and innovations
Customer wins• Synchronized, reliable innovation flow
• Inventories reduced – more cash
• Drop in OOS
P&G wins• Drop in OOS
• Despite 2-3 times more SKUs, costs are lower, inventories are reduced and volume is growing
ResultsReinventing the Supply Chain
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