May 01, 2011

How are Procter & Gamble’s Supply Chain Strategies better than their Competitors’?

Procter & Gamble has established itself as a market leader as a result of certain strategies it applies on its products’ Supply Chains and that impact directly on those Supply Chains.  For example, as stated in its Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis, it focuses on acquisitions of companies and products that are already good performers, with reasonable demands for these products, and that are already well-established in the market place.  Such products, to have become well-established, are themselves the result of good, efficiently-run Supply Chains.  Therefore, these Supply Chains enable their products to be sold at competitive prices to their intended markets.
If the Supply Chains operate inefficiently, the products resulting from them would require artificially higher selling prices to recover the excess costs resulting from those Supply Chains.  These excess costs would therefore result in reduced demands for the products in their marketplaces.  Consumers would therefore go for the less expensive alternatives, which would more than likely not be products manufactured and distributed by Procter & Gamble.  Thus, for Procter & Gamble to achieve Competitive Advantage over its competitors, its best interest would lie in its ability to focus on products well-established and accepted by the markets, and produced from efficient, well-run Supply Chains.
Procter & Gamble also earmark their products for redevelopment and consolidation, with a view to broadening their consumer base on a reduced number of products, per product type.  To enable this, Procter & Gamble subject their products to controlled investigations by well-qualified and experienced scientists.  These scientists would not approve them for release unless the products are tried and proven, are focused towards being innovative, and are capable of addressing the requirements of the extended or broadened market.
Procter & Gamble also has a drive to reducing its Capital spending to a certain percentage of Sales.  This Capital may in fact be part of the Supply Chain.  On achieving this, there would be a further reduction associated with, for example, Supply Chain costs, and that consumers should benefit from, as a result of reduced product prices.
Procter & Gamble also drive to concentrate on and build up their core businesses and leading brands into stronger market leaders.  Currently, Procter & Gamble has four core categories, Fabric Care, Hair Care, Baby Care and Feminine Care.  As these core businesses attract nearly 50% of its sales and larger profits, Procter & Gamble devote considerable energies to maintain these strong, and takes steps to help them grow.  In addition to developing close working relationships with its customers and main suppliers, it focuses on inventory–reduction schemes, cost reduction processes and increases in the Return on Investments (ROI) in marketing and in new products.  It also develops value–generating activities throughout the entire Supply Chain, for each of its core products, through for example, the pooling of knowledge, expertise, and reach. 
According to Procter & Gamble’s CEO, George D. Carpenter, the Company has made products more affordable to consumer markets in less developed countries lacking large–scale Supply Chains and distribution efficiencies, evident in fully developed countries.  For example, in the Philippines, Procter & Gamble has developed a job creation scheme that gets products to consumers originally not able to buy their products, through a “Reach, Distribution, and Livelihood Program”.  This Program involves “the delivery of products to people living in remote areas or whose local stores are too small or inaccessible to receive stock” [Procter & Gamble 2003 Sustainability Report].  After five months in operation, 580 jobs had been created and an additional 28,000 stores were selling Procter & Gamble products, with local distributors earning margins of 1%.
In Brazil, Procter & Gamble decided that to better understand local, domestic households, they would need to live in them and be a part of the locals’ lives.  They teamed up with the local food industry leaders, Sadia, to implement a program they would call “Living It” [Procter & Gamble 2003 Sustainability Report].  Under this scheme, Procter & Gamble staff would live in local Brazilian homes for two weeks, trying to better understand family and community life.  Through this scheme, Procter & Gamble were able to work on new products and distribution systems, as well as find better ways of communicating with its consumers.
Procter & Gamble are truly a global organization, operating plants all over the world. These plants are also used for job creation in developing areas.  As Procter & Gamble make many different products according to many different categories, their competitors are plentiful; although there is no single, direct competitor, in 100% of its product lines, services, and activities.  There are only many different competitors that compete on any one or more of different product lines.
Supply Chain Management is integral to creating and maintaining Competitive Advantage.  Procter & Gamble have done this by aligning many of their accounts with suppliers and by initiating change in their overall Supply Chain structure; such that they now call it a network as it allows for communication between each and every level rather than only according to a flow-on fashion.  They have brought a change about in their system to be what they are today.  Procter & Gamble attribute this success of theirs to their way of managing the Supply Chain.  Hence we can say that managing Supply Chains in an effective style will definitely help organisations by giving it a Competitive Advantage over its rivals.
Datamonitor (2004), Proctor & Gamble Company profile.
Day, C.R. (1993), Turn up the thermostat, Industry Week, 242(16) pp.38-41.,10801,77855,00.html
Procter & Gamble Sustainability Report (2003),
 Harshad Patil has done his B.Tech. from Veermata Jijabhai Technological Institute, Mumbai and can be reached at eharshad @ gmail . com

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