The effective management of a company’s supply chain (SC) is a pertinent topic in various academic and professional fields, including management, science, and policy-making activities. Enterprises now realize the crucial role played by their SCs with regard to improving their competitiveness in the marketplace. Ha (2017) supports this view by arguing that efficient SCs are distinguished as a competitive advantage. With a well-designed SC, a firm can easily deliver its services and commodities to its consumers at significantly lower costs while meeting their demands (Ha, 2017).
Every organization has to effectively structure its SC within the competitive environment to adjust to ever-evolving business surroundings. While redesigning their SC, companies should factor in the entire SC components, including logistics, procurement, inventory management, and distribution. This paper provides a comprehensive transportation improvement plan for a U.S-based company, Procter and Gamble (P&G); it contains an in-depth description of the enterprise’s current and prospective freight flows after the recommended improvement plan’s implementation.
P&G is a multinational company headquartered in the US, Ohio; specializes primarily in branded consumer commodities or products. It carries out its business operations in five major geographic segments: Latin America, Asia, North America, the Middle East, Africa, and Europe. Overseeing its manufacturing and business centers in more than eighty nations, the company sells its products in over one hundred and sixty countries (Ridder, 2020).
As of June 2020, the enterprise had around 99,000 workers across the aforementioned geographic segments (Ridder, 2020). The firm’s mission is to enhance or better its consumers’ lives by offering the best commodities within the market.
The enterprise’s vision is to achieve marketplace leadership worldwide by providing quality and value. P&G lives up to its vision because, according to Ridder (2020), it had attained a $66.832 billion net sale by 2018. Operating within the Personal & Household Product sector, the corporation has more than 300 brands classified into five primary classes: beauty and grooming, healthcare, fabric & homecare, feminine & family care, and baby products (Ridder, 2020).
The aforementioned commodities are retailed by their distributors and in drug and grocery stores, department stores, membership clubs, and specialty beauty stores. According to Ridder (2020), P&G has around 70,000 suppliers globally. Given its size, it is inarguable that P&G runs or manages a complex SC.
Procter & Gamble Supply Chain
The organization runs or manages automated distribution centers fitted with computer-operated inventory systems, which improves its SC’s efficiency. Conventionally, the enterprise would take approximately 600 miles to deliver inventory to its consumers; nonetheless, with its present-day SC design, the firm only takes around 400 miles (Banker, 2019). This SC structure enables the firm to deliver eighty percent of its inventory within a single day (Banker, 2019). The company achieved this efficiency level by developing flow-through or mixing centers that mimic cross-docks.
Inventory is brought in from one section of the mixing center; it is later staged and moved to the adjacent section without intermediate warehouse storage. For instance, in one of their several cross-dock door warehouses, particularly 263, sixty-three percent of its eight-thousand daily units are usually cross-docked; this facilitates the prompt delivery of goods, primarily within four days (Banker, 2019).
The company integrated or consolidated its North American marketplace segment into a single segment managed by around five hundred SC planners who, according to Banker (2019), handle about 4500 orders on a daily basis. This consolidation helped eradicate nonvalue and manual tasks, which led to the downsizing of the firm’s employees from 1300 planners to the current size (500) (Banker, 2019). The organization utilizes this structure to ensure prompt product delivery to its consumers, thereby gratifying their demands.
P&G uses an evidence-based decision-making approach based on the information generated by its SC management systems. The enterprise’s SC is demand-driven and powered by digital analytics, facilitating the forecasting and alignment of consumers’ needs with its planning operations (P&G, n.d.). P&G’s SC is also reinforced with an integrated business planning (IBP) approach, which entails developing an SC for varying time horizons using advancements in technology (Banker, 2019).
P&G also utilizes the Kinaxis RapidResponse to gather information, predict consumer demands, and oversee its SC operations. The aforementioned software’s functionality is grounded on the presumption that since changes may occur on a day-to-day basis, the SC’s flexibility should be enhanced to ensure it reflects any limitations and opportunities.
P&G adopted Kinaxis, an SC planning software, to perform demand and supply planning needs multiple times within a single day. It allows the organization to change and shift transportation and distribution schedules on a day-to-day basis without impacting other SC operations. The software utilizes a state-of-the-art algorithm and computer-enhanced forecasting engine to create visualization effects and databases to streamline SC operations and support sales management and other operational processes to guarantee this particular capability.
Furthermore, P&G utilizes a single integrated data framework that enhances tradeoff visibility, which, in turn, promotes effective decision-making throughout its SC. For commodities within the global SC, for instance, Oral-B toothbrushes, the enterprise performs a weekly planning and execution process. In the event that the company runs out of stock, the software can create or issue alerts; this feature enables the firm to reposition its inventory promptly. It allows the firm’s manufacturers to redesign or restructure their production and shipment processes in alignment with customers’ demands.
The organization also utilizes the collaborative planning, forecasting, and replenishment (CPFR) technique, which facilitates data sharing with suppliers, prevents the likelihood of generating inaccurate demand data and promotes forecasting accuracy and inventory cost reduction. Erroneous demand forecasting can cause low or excess inventory, which could affect operational costs and growth margins adversely and cause a surge in input pricing or the bullwhip effect. The latter refers to a phenomenon typified by inventory fluctuations prompted by changing consumer demands; it can lead to SC inefficiencies.
Response to Customer Demands
The forecasting technology used by P&G has been instrumental in improving its forecasting accuracy and enabling the appropriate sizing of its inventory. The predictive technology used by the company facilitates data collection from its servers and its subsequent exchanges with the ERP databases and systems used by its distributors. The received information during this sharing process is later utilized to create reliable data for supply and pecuniary forecasting. The aforementioned innovation has significantly improved the firm’s forecasting capacity, replenished its planning process, and enhanced accuracy during the forecasting procedure. Furthermore, according to the enterprise’s CEO, the Kinaxis software allows them to respond promptly to their consumers’ needs.
The agile software is an example of another SC planning tool with the capacity to improve a firm’s production and shipment programs on a day-to-day basis without adversely impacting other SC operations. Typically, the organization utilizes only ninety to ninety-five percent of its warehouse space or volume. Therefore, when a client requests an incremental promotion, the firm (P&G) uses the Kinaxis software to confirm if its warehouse can meet the consumer’s demands. Based on P&G’s warehouse space, the organization can respond to clients’ incremental promotion requests promptly within minutes. According to the organization’s website, its SC advancements have been among the most significant innovative transformations that modified its planning procedures to meet its actual end-user demands.
P&G’s SC provides vast opportunities for minimizing inventory waste through the total demand forecasting approach. P&G utilizes predictive technology to minimize uncertainties and attain its IBP goals. The company incorporates Integrated Business Planning in its supply chain planning activities. With this approach, the supply chain management (SCM) team can predict or forecast customer demands in the coming month. The team then evaluates anticipated demands and determines whether they can manufacture and produce the demanded goods.
The integrated SC helps ensure that a balance between demand and supply plans is attained, maintained, and aligned with the firm’s objectives. Reducing inventory waste is identified as a strategy for promoting competitive advantage based on cost reduction (Ha, 2017). This presumption is grounded on the total quality management (TQM) theory, which argues that an organization can attain a competitive edge by implementing quality procedures focused on reducing waste and associated costs (Green et al., 2019).
P&G utilizes quality improvement technologies to minimize inventory costs and wastes linked with excessive inventory. By decreasing its inventory size, P&G can reduce insurance costs and inventory tax ascribed to high inventory levels, which can improve its profitability and efficiency.
Strengths and Weaknesses of the Supply Chain
SC integration entails consolidating the SC links into a close working interrelationship. This SC design type is closely correlated with mergers or loose data with several SC stakeholders. The SC approach adopted by P&G is the loose vertical integration: it enhances the organization’s capacity to control the SC, front to back (P&G, n.d.). An example of an instance where P&G used the loose vertical integration approach during its alliance with Walmart. Although both organizations were separate entities, their SCs and information systems vertical integration increased their sales eightfold (Marker, 2017).
To terminate the promo-driven pricing, P&G signed a partnership agreement with Walmart and became its sole supplier for some of its product lines. The company also integrated its back-end data system with Walmart to warrant the continuous replenishment of supplies to address the retailer’s needs.
Strengths of Vertical Integration
Vertical integration’s primary goal is to improve a company’s production time, minimize costs and waste, and respond effectively to consumers’ demands. Vertical integration has significant benefits: first, it increases a firm’s profitability and reinforces its competitive position within the marketplace. Second, it fosters an entity’s profitability by eradicating wastes and go-betweens, which, in turn, enables it to compete better “costwise” (Thompson, 2020). Thirdly, it allows the corporation to respond effectively to marketplace changes and consumer demands in real-time. Fourthly, it allows an entity to have a short product life cycle by guaranteeing fewer back-to-front SC links (Thompson, 2020). Fewer links promote efficient coordination between three major SC processes: warehousing, delivery, and transportation.
Weaknesses of Vertical Integration
Although this type of SC improves a firm’s capital investment, it can also lead to increased business risks, primarily if a disintegration exists between profitability and growth. Vertical integration, either forward or backward, compels organizations to continue investing significantly in value chain operations even in instances where some activities become suboptimal.
This typically occurs because abandoning suboptimal operations may cause employee layoffs and expensive write-offs, which could disrupt a firm’s performance (Thompson, 2020). Some players within the SC may be slow to implement new manufacturing or service delivery procedures and technology due to differing obligations and priorities; this can result in “all kinds of capacity-matching problems” (Thompson, 2020).
As previously mentioned, P&G’s data analytics software gathers information from its distributors’ ERP systems and data sources and its servers to create the forecasting data. Nonetheless, some of the distributors within its SC might be reluctant to integrate such innovations into their operations due to conflicting pecuniary interests. Thompson (2020) argues that vertical integration “… is a constant struggle for manufacturers that have integrated backward to keep up with all the ongoing advances in technology and best practice production techniques for each of the many parts and components they make in-house ….” Therefore, distributors and manufacturers within the vertical integration SC must have the capability of meeting other units’ needs or demands cost-effectively.
For instance, backward integration largely relies on human capital and a company’s capabilities. Without the aforementioned aspects, the enterprise may encounter significant challenges in creating and adding value to the SC. Put together, the aspects impact a firm’s flexibility, especially when it comes to adopting advanced product designs and innovations to respond to evolving buyer preferences. The appropriate management of these situational dependencies relies on a corporation’s management’s proficiency and capacity to integrate various components into the enterprise’s SC network.
Therefore, based on the above analysis, P&G’s SC’s success will depend on: a) its SC’s capacity to minimize costs and offer value to consumers; b) the expense or challenges associated with resource acquisition and its capability of managing its SC; c) the effect of its existing integrated SC on aspects, including investment costs or expenses, response time, and flexibility; and d) the administrative expenses linked with coordinating or aligning its value chain operations (Thompson, 2020). If an organization cannot meet the requirements above, vertical integration, whether backward or forward, is unlikely to be its preferred or effective strategy.
Metrics of the Supply Chain
An integrated SC is incremental, and it facilitates the prioritization of high return on investment (ROI). Nonetheless, it is impossible for players within the SC to attain or meet their collective objectives unless an alignment between their performance measures is well-established. The following measures can be utilized to assess the SC’s performance:
- Total or aggregate profitability or sales.
- The capacity to deploy value-adding and innovative technologies.
- Product development period.
- Waste reduction capabilities.
- Asset utilization (this includes the revenues and costs generated as an SC function).
- Capability utilization and inventory management.
- The consumer waiting time.
- The period is taken to deliver commitments or respond to clients’ demands.
- Forecasting accuracy.
Flexibility and Responsiveness
- The period spent in distinguishing and delivering new products within the marketplace.
- Product flexibility computed as a function of marketplace demand.
- Product lifecycle; typically includes the period spent in developing, implementing, and modifying production plans.
- The period is taken between order placement and material delivery.
- The product distribution cost or expenses.
- Obsolescence – The number of inventories whose value reduce due to shelf-life expiration.
- Warranty costs – The cost incurred due to rework, replacement, repair, shipping, and costs linked to defective products.
Performance metrics must be designed to demonstrate how each SC player brings value to the overall performance measure. Otherwise, individual organizations may assume a unilateral action to better their specific competitive or fiscal status or position and possibly compromise the SC’s performance. Therefore, enterprises should compute their SC performance as a whole system; rather than its discrete components or elements. Every stakeholder must be accountable for their pertinent performance metrics to ensure the attainment of optimal performance.
The organization’s transportation system is established with the objective of attaining complete visibility on the three Cs: costs, consumer service, and carbon emission. Operating in more than one hundred and eighty nations, P&G has a complex transport model that considerably impacts the global carbon footprint (Ridder, 2020). P&G has implemented an end-to-end transport management framework as a crucial aspect of its sustainability objective of minimizing its carbon emissions.
The organization’s warehouses are structured as cross-docks to speed up their goods’ delivery procedure. This design enables the organization to have an eighty percent inventory delivery in a single day (Banker, 2019). The strategically situated centers of distribution (located near customers) are designed to receive cross-dock commodities from various business segments. The company also mandates its suppliers to develop “supplier villages” to respond promptly to its demands.
Conventionally, P&G had a single delivery and shipment transportation structure, which was simple and easy to establish with the manual planning approach. Nonetheless, as the organization developed strategically and diversified its operations, there was an increasing need for additional distribution centers. According to Banker (2019), manual planning became ineffective since relevant staff spent significant amounts of time planning and strategizing on how to load the firm’s trailers. Delivery delays emerging from inefficient trailer loading and overweight charges triggered the increasing need for an advanced axle weight management approach.
The trailer’s total capacity would be filled by inventory even before the licit axle limit is attained. During the loading of the trailers with heavy merchandise, the truck would achieve the regulated weight limit without even being full. These trailer loading procedures would cause transport inefficiencies totaling approximately €160 billion as well as substantial emissions of carbon to the environment.
The company’s commodities are distributed by carrying and forwarding agents who supplied distributors with inventories regularly. P&G’s system allows product compacting, a system that helps minimize transport volume, thereby facilitating the delivery of large stock volumes in a single shipment. The organization also has well-established transport corridors in regions where it transports products using trains. P&G also transports commodities for other non-competing corporations, such as Toyota, Nike, and Ikea (Bartholdi and Hackman, 2019).
Research typically distinguishes water and rail freight as greener transportation modes compared to road transportation; studies also identify water and rail freight as suitable transport modes for moving low-value and heavy items.
The firm also utilizes warehouse optimization systems to control axle weights and minimize the period spent loading trailers. These warehouse optimization systems play a crucial role in enhancing the firm’s productivity, decreasing inventory damage, and improving consumer service (Žunić et al., 2018). The AutoLoaderT3 facilitates the picking/selection of orders during loading operations; this, in turn, fosters more flexibility in its SC services.
The system computes inventory volume/weight using mathematical formulas that integrate crushability, pallet size, trailer size, as well as product sizing. These formulas help ascertain how to increase each trailer’s load and space. The subsequent outcome is combining heavy and lightweight inventory to maximize the utilization of truck space and decrease delivery miles or distance. P&G also uses the space utilization software, an innovation that offers data on space consolidation and product reordering space to maximize trailer loading and space usage.
Multi-Year Transport Improvement Plan
P&G should attempt to optimize its SC operations at the front end as opposed to the back end. Efficiencies in truck loading can be attained by exploiting the aggregate truckload capacity and reducing movement to minimize the kilometers traveled. Although P&G logistics operations have a well-established truckload efficiency, the company needs to implement appropriate strategies that aim to optimize and improve its transport system.
The organization has failed to fully apply bundling synergies since logistics service providers cannot adjust logistic volumes and transport orders. Given the elevated fragmentation levels which typify integrated SCs, it is impossible to ascertain whether all its SC shippers oversee its transportation system. As indicated earlier, P&G depends on technology to consolidate its inventory by combining heavy and light vehicles; this load consolidation has not reached its optimal levels.
Horizontal integration within the transport system can help minimize the under-exploitation of the transport system. The firm can align its SC operations with its supply network by partnering with other corporations’ transport network models. This horizontal integration approach will be instrumental in enabling P&G to attain its sustainability goals. Systems that promote horizontal transport management can help a firm realize significant improvements in its utilization rates and minimize the aggregate number of trips (“Horizontal collaboration in logistics,” n.d.).
Therefore, P&G could reduce its carbon emissions by decreasing the total trips made within its transportation network. A survey by Suárez-Moreno et al. (2019) also demonstrated that the use of horizontal transportation models powered by information systems, particularly the Internet of things (IoT) could considerably minimize negative externalities, carbon emissions, and congestion.
P&G corporation can partner with other organizations to use their physical transportation assets. It can also utilize IoT or other advanced technological systems to align these assets with its logistics network (Zhu, 2020). P&G’s alliance with other enterprises’ transport systems could increase the load factor from fifty to eighty-five percent (“Horizontal collaboration in logistics,” n.d.). Therefore, the organization should consider adopting the horizontal transport management system to better its SC efficiency.
Year 1: Planning Stage
The organization should elucidate its transportation network objectives and goals to ensure that it aligns with its strategic purpose.
The needs evaluation phase should distinguish warehouse storage space, inventory volumes, innovations used to oversee its operational procedures, material management approaches, vendor selection, budgets, human capital, and funding needs. Since the firm benefits from computer-enhanced procedures, it should distinguish the technological upgrades required to support the endorsed transport management model.
The enterprise should delineate its delivery procedures (intermodal and road transportation). Once the main delivery process is developed, it must choose the suppliers for every delivery method. The organization should also ascertain the key performance indicators (KPI) and transportation frequency to help it distinguish improvement opportunities. P&G should also perform a feasibility analysis to establish the institutional capacity required to implement the project.
The outcome of Year 1
- A well-developed draft comprising a model for the ultimate stakeholder decision; the developed framework should be subjected to the peer review procedure; it should also be approved by the relevant department and personalities within the company.
- Budget approval and appropriation.
Year 2: Implementation
The second year must be committed to implementing or applying a sustainable transportation system capable of creating synergies between all its SC players. The plan below delineates the strategies, vision, and improvement initiatives required to ensure the implementation of an appropriate horizontal transportation model.
To develop and control a sustainable transportation network that aims to improve collaboration between stakeholders.
The transport management system (TMS) should ensure a significant reduction in the number of trucks to minimize congestion, pollution, transportation costs, and travel time.
- Launch a mass transportation system; this includes a cargo rail enhanced with road networks.
- Improve the company’s current infrastructure; this includes its depots and measurement lanes.
- Develop an intermodal transport system that highlights fundamental hierarchies and pertinent functions.
Project 1: Redesign the Current TMS
Ensure that suppliers do not require new licenses to function within the new transportation network until the old system is eliminated. Adopt a communication strategy to inform stakeholders of the developed changes. These adjustments can be conveyed to stakeholders via emails, meetings, and seminars. The organization must ensure that its stakeholders are updated regarding the new distribution centers as well as persuade and convince them that the proposed changes are inevitable. Phasing out of the outdated transportation network might take approximately a year to allow the firm’s present-day suppliers to operate up to the termination of the old TMS’s functions.
Project 2: Capacity Building
This project’s objective is to ensure that all the players within the SC have access to sufficient resources to meet the newly developed TMS requirements effectively. Distinguish and communicate the technical requirements and equipment needed to ensure the appropriate functioning of the new TMS to both external and external stakeholders. Training must be offered to the firm’s internal stakeholders: expert assistance or on-the-job training should be provided to the firm’s human resources.
Improving the Supply Chain
The organization can ensure the proper alignment of its SC with its strategic goals by developing a feasible Triple-A SC. The Triple-A SC model is based on the assumption that a successful SC must demonstrate or be equipped with three major features: adaptability, agility, and alignment (Gligor et al., 2020). Without any of the aforementioned features, the theory posits that the SC will break.
According to Khanal (2020), agility helps organizations to respond to marketplace changes promptly following the abrupt modification in their demand and supply. The theory further proposes that successful SCs adapt to marketplace changes or modifications (Gligor et al., 2020). P&G’s SC is adaptive; this could be ascribed to its innovative SC technology that allows it to input and filter irrelevant information to monitor important market patterns.
Sustainability is currently distinguished as a crucial 3PL service offering dimension, which requires a company to adjust its operations to promote environmental conservation. P&G is already playing an instrumental role in promoting the green economy by minimizing carbon emissions through its intermodal rail-road transport system. P&G has a complex SC with vast numbers of distributors and suppliers, which makes it difficult for the company to align its entire SC with its sustainability objectives. A survey done by Ahi and Searcy (2015) revealed that dependent factors within the SC hinder the development of sustainable SCs.
P&G SC’s inefficiencies are primarily caused by conflicting interests between key stakeholders’ demands and priorities. This obstacle is eminent in its integrated transportation network. Not all logistic service providers within the firm’s transportation system operate highly advanced technological systems (“Horizontal collaboration in logistics,” n.d.). These capability differences may lead to conflicts, particularly in cases where suppliers with weak resources and capabilities fail to fulfill their obligations. Accordingly, this paper posits that the P&G SC lacks alignment, a critical success factor (CSF) for any supply chain.
The organization can implement the recommendations below to develop a feasible Triple-A SC:
The SC will respond to the dynamic consumer demands as well as disruptions within the marketplace promptly. The enterprise can develop an agile system by regularly offering its SC players reliable and sufficient demand/supply information to respond effectively to changes.
The whole SC must align with its technologies, strategies, and products to meet long-term fluctuations. P&G can attain adaptability by redesigning its procedures and components to give it a competitive edge. P&G should also consider creating SCs for different product lines and liaise with suppliers located close to its marketplace (for its low-volume products) to promote prompt responses to consumer demands. For high-volume products, it should commission production contractors located in low-cost companies to produce and supply goods.
P&G should attempt to align the interests of all SC participants with its goals to promote performance. To resolve misalignments and associated costs, P&G should provide equal opportunities to all players with regard to the information, roles, and responsibilities and sharing of risks, expenses, and incentives. All partners should have access to data: roles and responsibilities should also be clarified to minimize conflicts. According to Ha (2017), this approach will optimize each SC’s capability and improve its performance. Lastly, it should delineate partnership terms regarding equitable risk, costs, and reward sharing.
P&G Corporation’s SC allows it to meet its goals by satisfying consumer demands. The SC ensures prompt inventory delivery and reduced waste by enabling the company to maintain the right-sized stock levels. It allows P&G to address stakeholders’ needs using its innovative technology that fosters data sharing and ensures efficient data flow, minimizing erroneous demand forecasting.
The integrated SC can improve a firm’s competitiveness and profitability. Nonetheless, these benefits can only be attained if the enterprise adopts adequate cost savings strategies that justify investments in some SC operations. P&G could also improve its TMS by implementing a horizontal approach. This strategy will facilitate the attainment of its sustainability goals and promote stakeholder alignment.
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