Post-Graduate Programme in Management

(PGPM: 2013-2015)
Term: IV (Jun- Sep, 2014)

Management Development Institute - Gurgaon
Supply Chain Management



Case 04
Procter & Gamble: Using Agent
Based Modeling and RFID
ID Name
1 13P085 Milan Sachdeva
2 13P096 Pavneet Kaur
3 13P099 Praveen Dewani
4 13P100 Prerna Thakur
5 13P112 Sonakshi Gupta
6 13P116 Sovil Kadoo
SCM
Case Presentation
Presentation Date:
American multinational
consumer goods company

Products include pet
foods, cleaning agents and
personal care products

$89.9 billion sales
140,000 employees

More than 140
manufacturing facilities
in more than 80
countries
More than 25
R&D centers in
12 countries

Supply Network
P&G believes in two moments of truth:

When customer
buys the product
from shelf
When they
actually use it
and like it
Major Initiatives

Collaborative Planning Forecasting and
Replenishment (CPFR)

Consumer Driven Supply Network (CDSN)
CPFR
CPFR concentrates on improving inventory and
reducing out-of-stocks, but there is a trade-off
Benefits:
Improved
responsiveness to
consumer demand
Increased sales
Reduced Costs Reduced Inventory
CDSN
P&G decided to have a connection between
actual sales and the supply chain process.
Forecast driven Actual demand driven
Supply Chain Supply Network
We need to work off of real demand, so that
we produce what is actually selling, not what
is forecast to sell: Harrison, Head of Global
Product Supply Division

CDSN
Benefits:
Improved forecast
accuracy by 30%
Reduced Shelf
level stock outs
Improved Supply
Chain response
time (6months
2 months)
Reduced Safety
Inventory by 10%
Increased overall
Sales by 15%
Increased Net
Profits by 19%
Flexible Plants
high versatile
facilities with quick
turnaround
capabilities
Software Agents
suppliers detect
threat to normal
operations and
create an alterative
delivery schedule
Plants bids next
production run
based on its
capability to
deliver its current
job
When products
reach DC,
dynamic
distribution
followed
Software agents
collect real time
sales data from
multiple stores for
trend analysis
Smart shelves in
stores like
Walmart alert
stocker to restock
just in time
Docking facilities
replace costly
warehouses
In case of issues
during transit,
P&Gs agents
detect it and
preqaulify an
alternative truck
P&G
Replenishment
Cycle
Agent Based Modelling
Class of computational models for simulating the actions and interactions of
autonomous agents (both individual or collective entities such as organizations or
groups) with a view to assessing their effects on the system as a whole. Creation of
a supply network operates like internet; not sequential
Complex Systems
Local
Agent
Local
Agent
Local
Agent
Semi
Autonomous;
acting on a few
simple rules

Programmed to
mimic actual
behavior
Simulations performed what-if analysis to test impact of new logistic rules on inventory
levels, transportation costs and in-store stock outs
NuTech Solutions AND BIOS Group
Agent Based Simulation Tool
P&G Plant Store DC Store HQ
Individual
Stores
Shipment
Trucks
Products
What does it use? Effects of policies on efficiency
Actual customer demand profiles to
determine daily sales and promotion
frequency
Metrics Used the amount of
inventory of a particular item that a
store needed to carry in order to
avoid an unacceptable out of stock
percentage and daily plant shipping
variability
Plant shipping and StoreDC order
policies, truck rounding and
forecasting of demand

StoreDC allocation policies

Lead time between
Plant and StoreDC
StoreDC and individual stores
Changes from Computer Simulations
Relaxation of rigid
rules in order to
improve overall
performance of the
supply network
Requires cultural
changes
More flexibility in
manufacturing;
fundamentally
retooling it to
produce every
product everyday
Benefits include fewer
stock outs and happier
customers
More flexibility in
distribution
Its possible to restock a
retailer in 24 hrs rather
than a customary 48- 72
hrs
Business Process Reengineering
Re-engineering- rethink and redesign of a business
process to achieve dramatic improvements in critical
measures of performance such as cost, service, and speed
Eliminating
processes
that were
not
necessary
Enhancing
processes
that were
needed
1 2
RFID
RFID Technology Allows Goods to Be Identified and Monitored Via a Wireless
Tag

System = Device + Reader + Controller
Device tag / label electronic chips
Reader/writer to communicate with device
Controller manages data interface with
computer systems
RFID in Supply Chain Management
Dock Loading Throughput Problem
Low loading throughput at loading plant in Spain
Area bottleneck no space for stacking pallets to be shipped
Two options explored:




HALT PRODUCTION


To wait for loading dock to
clear
Outcome
Low productivity
Waste of time

DOUBLE LOADING

Move pallets to truck
from dock
Reload pallets on the dock
Reloading mistakes lead
to wrong pallets delivered
to the customer
Productivity and profits
declined
RFID- based system
Pallets identified by RFID tags
Easy recognition and sorting of pallets by workers
Benefits



Additional Benefits

Loading time
reduced by
40%
Mishandling
errors reduced
Reduction in
labor and
process time
Alerts sent on
extraordinary
conditions
Reduction in
threats result in
fewer insurance
claims
Also, fewer out-
of-stock
situations
HenceBETTER EFFICIENCY!
ACCURATE

TIME SAVING
One Step Further
Electronic Product Code (EPC) helps identify each
product uniquely
Used by P&G to increase product visibility into store
sales floor and backroom
EPC Information Services (EPC IS) web services to
protect trading partners
Applications developed by IBM and T1BCO to query
retailers EPC IS to gain product visibility

Changing Paradigms
Value creation by
product innovation
- Theme &
Variation Strategy
Value creation by
customization
Individualized
Transactions
Value creation by
Supply chain
innovation
Mass
marketing
paradigm
E.g.: General
Foods
Precision
marketer
E.g.: Dell
Intercompany
SC processes
E.g.: P&G and
Walmart
Value Creation through Supply Chain
Innovation
1980 Collaborated to
build one of the 1
st
CPFR
systems
a software system that linked
P&G to Walmarts distribution
centers, taking advantage of
advances in the worlds
telecommunications
infrastructure
Shifted from arms-length
way to inter-company
supply chain processes
Vendor managed inventory
Set up of a master distributer
by P&G
Precision Marketer a
way to shift from product
innovation to supply
chain innovation
Deeper offensive terminal point
Managed relationships
Sharing knowledge of the
precision markets to innovate
faster & symbiotically