Procter & Gamble Builds New Relationships as a Digital Firm

Procter & Gamble Co. (P&G), the 163-year-old consumer goods giant, has traditionally aimed at doubling its sales every decade and has usually succeeded—until recently. During the last five years, annual sales growth slowed from 5 to 2.6 percent. A.G. Lafley, P&G’s new CEO, is trying to revitalize the company to make faster and better decisions, cut red tape, wring costs out of systems and procedures, and fuel innovation. Key components in P&G’s ambitious change program include using Internet technology to drive inefficiencies out of its supplier relationships, forging new ties to consumers, and pulling in new revenue from one-to-one marketing and electronic commerce.

P&G has launched dozens of Web sites to promote old brands and build new ones, hoping to deepen its relationship with consumers in the process., its main corporate Web site, links to numerous other subsites devoted to P&G products such as Tide, Pampers, or Mr. Clean. If consumers enter details at about a coffee stain, the site offers on-line advice on how to remove it. targets upscale women by letting them design their own custom-blended cosmetics and place orders for these items via the Web. An icon of a stylized test tube and beaker on invites visitors to send new product suggestions to the company. By using the Internet to interact with customers and test their interest in new products, P&G has cut its marketing research costs between 50 to 75 percent.

P&G’s management hopes its Internet and intranet initiatives will encourage employees to be more creative and to take more responsibility. An internal InnovationNet intranet allows users to post reports, charts, and videos to a common shared repository and to contact other people working on similar problems and issues. Another intranet called MyIdea provides a forum for employees to publicize their ideas for improving the company.

To slash inventory and cycle time, P&G instituted a collaborative planning, forecasting, and replenishment (CPFR) system in which it shares sales forecasts with its retailers such as Kmart, Target, and Wal-Mart in the United States and Dansk, Sainsbury, and Tesco in Europe. If actual sales are in line with forecasts, the system automatically orders items to replenish what has been sold in stores. If the results are sharply different from forecasts, the system automatically notifies companies about such “exceptions,” allowing company planners to adjust orders to accommodate spikes or dips in demand. Early tests showed that the CPFR system helped P&G reduce inventory by 10 percent and cycle time (the time required to get a product from the assembly line to the retailer’s shelf) by 10 percent. Sales increased by 2 percent as well because P&G was able to use the information in the system to take immediate actions to prevent out-of-stock items.

P&G recently developed an even more efficient system using point-of-sale data to keep retail store shelves stocked while meeting local customer demands. The system was first piloted in four U.S. food and drug retail chains, which collect data on customer purchases of P&G products from their checkout scanners and cash registers. These data are transmitted to a third-party company for analysis to detect changes in an item’s selling patterns that might indicate a potential out-of-stock situation. The system then sends alerts over computers and wireless devices to appropriate store personnel to reorder. P&G’s ultimate goal is a fully automated system that uses point-of-sale data to automatically trigger every event in the production and delivery of the product, from manufacturing and delivery to resupplying and restocking.

Sources: Kayte VanScoy, “Can the Internet Hot-Wire P&G?” Smart Business Magazine, January 2001; “Procter & Gamble Takes on the Supply Chain,” Intelligent Enterprise, July 20, 2001; Michael Totty, “Information, Please,” Wall Street Journal E-Commerce section, October 29, 2001; and Noah Schachtman, “Trading Partners Collaborate to Increase Sales,” Information Week, October 9, 2000.

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