A week and a half ago I attended and spoke at the North American 3PL Summit and Chief Supply Chain Officer Forum in Chicago.
Procter & Gamble’s Julio Nemeth, SVP of Product Supply, also spoke. He spoke about P&G’s supply chain initiatives. He had some interesting things to say:
- They are now using demand sensing data in fairly sophisticated ways, such as the inclusion of customer web search data. However their forecast accuracy at the SKU is still only plus or minus 20 percent. Clearly, this is one reason they need a responsive supply chain.
- P&G has rather forgone talking about supply chain systems and instead talks about their investments in analytics. They believe their supply chain systems are too siloed and they are missing global optimization opportunities. They are looking for a “fully interconnected platform” that delivers “holistic optimization.” I did not get the sense Julio was talking about an ERP solution because he wanted a platform and applications capable of learning and getting better on a day by day basis. If they can get to a “real-time instrumented supply chain,” P&G believes the upside is a 1-2% sales increase, 2-5% margin improvement, and 5-10% improvements in asset utilization.
- The consumer goods giant has significantly sped up their planning cycles. They use to do S&OP monthly with weekly updates. Now the only part of the S&OP process done monthly is the financial forecast. In their fastest moving categories making demand/supply corrections twice a day!
- Supply network design has gone from a focus on where plants should be located, to a look at the whole supply chain system with an increased look at risk management drivers. Clearly in a network design project you want to build where customers are located, but they also look at transportation reliability (including the availability of carriers and drivers) and the location of suppliers. Ten years ago, they 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. Their plants tend to serve the region they are in. There is very small amount of finished goods shipments between regions.
- For risk management, they are using the MIT model which maps raw material and product flows and matches them to the financial flows. Those nodes which would significantly impact the financial flows need detailed contingency plans. A fire at a big plant would be one example.
Other than the keynote, this was the best attended speech that I was present for. Julio says that P&G’s core competencies are understanding consumer behavior and branding, but I would say that Mr. Nemeth is being modest. Supply chain management, even if they don’t call it that anymore, is clearly a core competence.