Case Study: P&G gathers Web strength

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Grappling with slow growth in consumer staples and trying to change its image as an "old economy'' laggard, Procter & Gamble Co. is increasingly turning to Web-based e-commerce with retail customers and suppliers.

Beyond the widely reported summer launch of the Transora supply exchange-which links 49 consumer package goods giants representing more than $400 billion in purchasing power-package-goods companies are also launching a host of unilateral and multilateral projects of their own.

The goal: a "seamless supply chain'' that P&G, for one, believes can carve half the cost and half the time out of the process of transforming raw materials into finished products in consumer shopping carts.

In a meeting with analysts in September, P&G President-CEO A.G. Lafley cited Web-enabled e-commerce-both business-to-consumer and business-to-business-as a strategy that could be as important to P&G in the decade ahead as efficient consumer response and "everyday low pricing'' were in the 1990s.

"We're moving P&G on to the Web in a big way,'' said Lafley, who became CEO in June. "We're making it part of everything we do, because we believe it multiplies the value of every P&G strength.''

Early adopter

P&G was one of the earliest users of Transora, running an auction of potato flakes over the exchange in June. P&G ranks as the world's biggest buyer of potato flakes, the key ingredient in P&G's global Pringles brand, with annual sales of more than $1 billion.

The June auction, which accounted for about 24% of the company's annual needs, netted 137 bids and a winning auction price of 28 cents a pound. That represented a 29% savings compared with an initial expectation of 36 cents, according to P&G CIO Steve David.

So far, P&G has identified another 14 categories that lend themselves to Web-based auctions. It held four additional auctions this year.

In another auction last summer, P&G put its global expatriate relocation services up for bid, reducing the number of vendors it uses for such services from 350 to eight. Even better, it decreased annual expatriate relocation costs by 30% in the process, Daley said.

But the key to making Transora successful is tying retail-level consumer purchase data into P&G purchasing systems. That way, "when a consumer buys Bounty paper towels at Kroger, a pulper knows they need to ship us more pulp,'' said a company spokeswoman.

Combining internal systems integration with Web-based retailer and supplier links could reduce P&G inventories and working capital by $1.5 billion and eliminate $100 million in annual costs of servicing inventory, the company estimates.

To that end, P&G has set a goal of taking 50% of retailer orders over the Web by the end of 2001. This target will be in addition to its traditional electronic data interchange links with large customers such as Wal-Mart, which single-handedly accounts for more than 12% of P&G's sales globally. P&G believes it can cut two days off order cycle times using Web-based order management.

To move smaller retail chains toward Web-order management, P&G will promote its "customer portal.'' Besides Web order management, the portal includes information about new products and promotional initiatives, as well as market research data tailored to retailers.

A common format

Developing common data standards among manufacturers, retailers and suppliers is one key to realizing P&G's hoped-for savings, David said.

Indeed, P&G has been one of the drivers of UCCnet, a project of the Uniform Code Council Inc.

This month, the UCC is rolling its continuously synchronized item data catalog to a broader audience from the original six trading partners in its pilot project. In addition, P&G has joined with Transora, UCCnet, the European retailer b-to-b exchange GlobalNetXChange and German retailer MetroAG in a pilot to test a system for seamless transaction flow, purchase orders and other data exchange.

"The technology partnership will be the key to "unlocking retail data'' and providing CPG manufacturers with more real-time sales and marketing feedback, said Forrester Research analyst Robert Rubin.

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