Procter & Gamble (P&G), the global consumer goods powerhouse, is known to have one of the best supply chains in the world. They rarely speak about their approach to supply chain management in any detail. So, it was a treat to hear Bob Herzog, the Global Planning Digitization Leader for Supply Chain, and Pedro Noriega, Planning Director, North American Product Supply, speak at Kinaxis’ Kinexions 2019 user conference.
Kinaxis is a supplier of supply chain planning software. Their customers select Kinaxis because the software supports what they call concurrent planning but what might be better labeled continuous planning.
At the heart of many companies supply chain processes is Integrated Business Planning (IBP). In IBP, a supply chain plan is developed for a variety of time horizons for a variety of purposes. But one key focus is to match demand with supply for the next thirty days. That monthly plan is what I will focus on in this article.
The traditional IBP process has a demand team come up with a demand forecast for the coming month, the supply team looks at that plan and sees whether they have the capacity to produce the goods in the demand plan, and finance makes sure the plan will achieve the company’s financial targets. There are back and forth adjustments, a plan is agreed to by executives, then at many companies the plan is largely locked down. What is manufactured and shipped is largely based upon the plan.
The problem with this sequential process is that things change. Suppliers may not be able to fully deliver what they have promised, the demand forecast does not fully reflect what is really ordered, customers may want to do special promotions, storms may make it difficult to execute the plan in affected regions, and a whole host of other events can cause a significant divergence between the monthly plan and what the market really wants.
In robust continuous planning, a new monthly demand and supply plan is produced that balances demand with supply with financial goals much more frequently. Procter & Gamble is using Kinaxis’ RapidResponse platform to do this. There will still be a monthly (or perhaps weekly) plan. But it is a tentative plan. It is known that things will change on a daily basis; that the supply chain will need to flex up and down to reflect changing opportunities and constraints.
In P&G’s case, they do the demand/supply planning for products like Tide multiple times a day! This means what is manufactured and shipped may be adjusted several times a day! For other products, like Oral-B Electric toothbrushes, which has a global supply chain, the plan/execute cycle is weeks. This agility, this ability to do quick scenario planning, opens new opportunities. Mr. Herzog spoke of the ability to respond to an incremental business request, for example a request from a retail customer for an incremental promotion. “We can respond in minutes. These kinds of requests use to take multiple days to respond to. Now we can respond on the spot.”
Mr. Herzog and Noriega did not go into detail surrounding their IBP process, and the company has not spoken publicly for many years on this process. But one way a demand supply matching process could move so fast is that the IBP monthly (or weekly) plan does not fully load the factories. They might plan to utilize 90 to 95 percent of their factories’ capacity. They then use Kinaxis to do a check on whether they have the capacity to fill a retailer’s request for an incremental promotion that would happen in the next few days or weeks.
An alternative way to look at the IBP process is that the aggregate demand forecast is based on forecasts for many products and locations; some of these forecasts are highly certain, others have a higher degree of uncertainty. It is known that some portion of the forecasted demand will disappear and can be replaced by new opportunities and new demand. The more certain portions of the forecast ensure that the IBP goals are largely met.
Having a platform that supports this is a technological marvel. Other suppliers have come out with similar solutions, but customers that want continuous planning usually select Kinaxis. Kinaxis is growing nicely, a 22 percent CAGR over the past five years. But one of Kinaxis’s new executives asked me why they are not growing even faster, why were they not even better known as a supplier of premium supply chain planning solutions.
My answer to him is that this kind of agility, changing what you are scheduled to make and ship daily, blows the minds of supply chain executives. They can’t conceive of how their supply chain could accommodate all that change. Executives need to hear this pitch several times to begin to believe this kind of flexibility is possible.
Mr. Noriega said that before they put in Kinaxis as their supply planning solution at their global control tower he would arrive in the morning and spend four or five hours just to figure out what happened the day before. Then he would spend the rest of day try to solve the biggest problems. “We could not solve enough of them.” At the end of the day, he would “answer ‘love letters’ from vice presidents telling me how I was screwing up their business, that they could not grow because of supply chain screw ups.”
But now Mr. Noriega comes in and it takes only a few minutes to figure out the problems at the beginning of day. “We have a morning meeting that lasts about an hour where we look at what will happen the next three or four weeks. 80 percent of the talk is forward facing. There is not a bunch of wasted time to figure out what needs to be done.”
“The 2017 hurricane season,” Mr. Herzog said, “was a big event on our journey. We saw Irma coming, a Category 5 hurricane, and its path.” They were able to leverage their digital tools to see what plants, supplier plants, and customer distribution centers were in the path of the storm. P&G activated its business continuity plans and repositioned inventory so that when the hurricane passed, they could supply consumers with what they needed most.
Mr. Noriega singled out their first RapidResponse planner as critical to their response to the hurricane. “That kid really saved the day during hurricane.” Their planner was able to tell them by brand and by stock keeping unit where they would run out of product and on which day that would happen. “We never had that before.” They soon saw that by repositioning inventory they could solve all their problems except for one. P&G saw that they could not supply bottles to one of their partners. Then someone said, “why don’t we use the old bottles.” That solved the last problem. Mr. Herzog added that P&G’s competitors told Wall Street their revenue would take a hit based on the hurricane. “We did not have to do that.”
The ability to flex up and down is not infinite. There are limits to how far a supply chain can flex. A supply chain can flex further if it is storing a lot of just in case inventory. But that is expensive. The goal is to flex without carrying all that inventory and adversely impacting cash flow. P&G’s strategy is to be customer centric, so they say they are willing to carry more inventory and incur greater costs than consumer goods companies that are more focused on being low cost providers.
To be able to flex, without carrying gobs of inventory, means that the structure of the supply chain also matters. In P&G’s case they changed their network several years ago. Before the network changes, the average length of a delivery to a customer was 600 miles. They put in six North American mixing centers and cut the average customer deliver down to 400 miles. That allows 80 percent of their volume to be delivered with a one-day transit.
These mixing centers are flow through centers – that means goods come in on one side, are staged, and then carried out on the other side without ever being put away. Their Dayton Ohio mixing center, for example, is 1.8 million square feet, has 263 dock doors, and services 400 trucks per day. 8000 stock keeping units flow through the center but because 60 percent of the volume is cross docked, all that inventory turns in just four days. So, while P&G says they will carry more inventory to support customer service, they really aren’t for most of their products. They are replacing inventory with visibility and speed.
Mr. Herzog said that if a company is making a digital supply chain transformation, the digital tools matter, and the network matters, but that people are most important. That is their current focus, developing more “citizen developers” that can do advanced analytical work. One thing this means is using the RapidResponse platform to help them develop continuous performance projects that will deliver good ROI and a more robust supply chain.
They have made progress on this journey. They have consolidated North American planning in one control tower staffed by 500 planners creating plans for 4500 orders per day. In contrast, five years ago there were 1300 planners. Mr. Herzog says they have taken a lot of manual, nonvalue adding work out of the planning process. Further, today 100 of their 500 planners fall into the category of citizen developers.
The supply chain organization has become such a competitive weapon for P&G, that their 2018 annual report highlights this capability. P&G’s 2019 annual report sums up the company’s work in developing digital supply chain capabilities. “Over the last few years, we made major investments to ensure our supply chain remains a competitive advantage. We’re creating a synchronized network based on real-time demand signals to serve the evolving needs of consumers and customers.”
