P&G has been a leading manufacturer of consumer goods for the past several decades. The company generates $83 billion in annual sales, operates 130 plants across 80 countries and has 73,000 employees.1 A large part of its long-standing success stems from its excellence in supply chain management. Digitization has enabled ever increasing fragmentation and specialization of products and services, yet few industries feel the pressure of narrowing margins as much as consumer-packaged goods. How does an organization of P&G’s size and complexity adapt to meet the challenges of digitization to stay relevant in an intensely competitive industry?
With digital technology, it’s now possible to achieve a truly integrated and synchronized supply chain whereby the manufacturer is digitally connected to the suppliers and customers via common data warehousing. Such advancement would enable a supply chain to become more responsive to shifting demands and unexpected events. Rather than having a decentralized network that is forecast-driven, the manufacturer can base its production on real-time point of sale data coming from its retail customers.2 This would help drive down inventory cost and dramatically reduce transaction errors within the supply chain. CPG companies such as P&G rely heavily on data from external partners, thus strong, long term relationships become even more valuable.
Digitization also offer major improvements in predictive maintenance and productivity. Machine monitoring data that provide advanced warnings about potential failure of parts minimizes breakdowns and maximizes machine efficiency. Smart, connected machines can also provide detailed diagnostic information about what is broken, the availability of parts needed, and procedure to complete the repair correctly the first time.3
Finally, digital technology has enabled manufactures to connect and build closer relationship with its consumers anywhere in the world. This relationship creates a competitive advantage and increases the value of the product to the consumer. New insights driven by more and more consumer behavioral data will help companies identify the activities that deliver value to the consumer and eliminate those that are unproductive. Ultimately, this helps the manufacturers provide superior pricing structures to capture greater value.
Recognizing both the challenge and opportunity in digital technology, P&G has taken bold strides to become the most digitally enabled company in the world says Bob McDonald, CEO (2009-2013) “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.”4
P&G has made it a priority to create a more responsive supply chain through better design of its distribution network and improved transparency throughout its supply chain. The goal is to be able to replenish 80% of its orders in less than 24 hours.5 To achieve this goal, P&G built six mega-distribution centers in strategic locations within North America which are digitally connected to retailers and receives real-time point of sale data. In addition, P&G is pushing suppliers to build satellite manufacturing facilities called “supplier villages” close to its plants. It employs a digital interface called Distributor Connect to directly link with the suppliers to reduce inventory across the entire supply chain.
P&G is also leveraging digital technology to improve its operational efficiency. In its manufacturing plants, the system enables the use of iPads to monitor production data in real-time. Eventually, the goal is to not only trace every product as it moves through the plant, but to see the costs of that product, which requires integrating the current operational system with the financial system. The use of digitally enabled transportation and logistics program has helped P&G reduce “deadhead” movement by 15 percent.6
In the next three to five years, P&G and other competitors in the CPG industry will make significant strides towards capturing more and more data using digitally enabled technology. The key in translating that data into meaningful breakthrough innovation lies with the better-equipped workforce with a new set of skills than those traditionally found in manufacturing companies. Thus, P&G should invest in hiring and training its employees to become digitally savvy so that it will be well positioned to take full advantage of the growth opportunities ahead. I would also encourage investment in upgrading the company’s data security infrastructure. Given the amount of consumer and product information that is available, having a robust data security system will quickly become the price of entry.
Up to now, P&G has done a good job of integrating digital technology into its business and leading the disruption. However, if advances in technology enables 3-D printing to replaced traditional manufacturers on a massive scale, what would be the impact on companies like P&G and will they be able to adapt to survive?
- Matt Gunn, “How Supply Chain Transformation Saved P&G $1.2 Billion,” GT Nexus, April 29, 2015 http://www.gtnexus.com/resources/blog-posts/how-supply-chain-transformation-saved-pg-12-billion, accessed November 2017
- Bob Trebilcock, “What Does It Take To Remain A Supply Chain Leader?” Supply Chain 247, January 02, 2015 http://www.supplychain247.com/article/what_does_it_take_to_remain_a_supply_chain_leader, accessed November 2017
- Michael E. Porter and James E. Heppelmann, “How Smart, Connected Products Are Transforming Competition,” November 2014, Harvard Business Review
- Michael Chui, “Inside P&G’s digital revolution,” McKinsey&Company, November 2011 https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/inside-p-and-ampgs-digital-revolution, accessed November, 2017
- Matt Gunn, “How Supply Chain Transformation Saved P&G $1.2 Billion,” GT Nexus, April 29, 2015 http://www.gtnexus.com/resources/blog-posts/how-supply-chain-transformation-saved-pg-12-billion
- Steve Banker, “Procter & Gamble’s Futuristic Control Tower Environment,” Forbes, July 1, 2015 https://www.forbes.com/sites/stevebanker/2015/07/01/procter-gambles-futuristic-control-tower-environment/#7ba06bbd60e9, accessed November 2017