PROCTOR & GAMBLE TRIES TO OPTIMIZE INVENTORY

The shampoo and lipstick aisles at Target and Wal-Mart hardly seem like battlegrounds,
but they are actually sites for an unending struggle among consumer products companies
for retail shelf space. No company knows this better than Proctor & amble, on e of the
world!s largest consumer goods companies, with annual re"enue surpassing #$% billion
and &'(,))) employees in () countries. The company sells more than ')) brands
worldwide, including *o"er irl cosmetics, +lay skin care, *rest, *harmin, Tide,
Pringles, and Pampers.
,emand "ariability for P&!s products from its -eauty di"ision is "ery high. . popular
eye shadow or lipstick color may fall out or fa"or, while fashion trends call for new
products continually to come on stream. Ma/or retail outlets such as Wal-Mart and target
compete by offering brand-name products at the lowest price possible.
0n response to these pressures, P& is constantly searching for ways to reduce supply
chain costs and impro"e efficiency throughout its entire manufacturing and distribution
network. 0t recently implemented a multi-echelon in"entory optimi1ation system to
manage its supply chain more efficiently.
The supply chains of a company as large as P& are e2tremely complicated, featuring
thousands of suppliers, manufacturing facilities, and markets. 3"en the slightest of
changes at any part of the supply chain has significant effects on all of the other
participants. What!s more, because P&!s supply chains are so e2tensi"e, the chance for
any error or inefficiencies to occur are greater than with smaller, more compact supply
chains. 0n"entory optimi1ation for a company as large as P& is therefore critical to
cutting costs and increasing re"enues. P& was already renowned for its supply chain
management, successfully reducing its surplus in"entory with sales and operations
planning, better forecasting, /ust-in-time deli"ery strategies, and "endor-managed
in"entory acti"ity. -ut multi-echelon in"entory optimi1ation has pro"ided the company
with a new means to achie"e e"en higher le"els of efficiency.
Multi-echelon networks are networks, in which products are located in a "ariety of
locations along their path to distribution, some of which are in different 4echelons!, or
tiers, of the enterprise!s distribution network. 5or e2ample, large retailers! distribution
networks often consist of a regional distribution centre and a large number of forward
distribution centres. The presence of multiple echelons in a distribution network makes
in"entory management more difficult because each echelon is isolated from other
echelons, so changes in in"entory made by one echelon may ha"e unpredictable
conse6uences on the others.
Multi-echelon in"entory optimi1ation seeks to minimi1e the total in"entory in all of the
echelons of a company!s supply chain. This is more complicated than traditional
in"entory optimi1ation because of the additional lead times between each echelon, the
bullwhip effect, and the need to synchroni1e orders and control costs between echelons.
*ompanies with this le"el of comple2ity in their supply chains must replenish and di"ide
their in"entories at each distribution point along the supply chain, as opposed to /ust one
distribution point or e"en /ust the in"entory of the initial supplier. 3ach point in the
supply chain is also unaware of the in"entory le"els of points beyond those that they ha"e
immediate contact with, which creates a lack of "isibility up and down the supply chain.
The multi-echelon approach to in"entory management consists of the following factors7
multiple independent forecast updates in each echelon8 accounting for all lead times and
"ariations in lead times8 management of the bullwhip effect8 creation of "isibility up and
down the demand chain8 synchroni1ed order strategies8 and appropriate modeling of the
effects of different echelons! replenishment strategies on one another.
P& prefers to de"elop its own analytical tools, but in this case turned into +ptiant for its
Power*hain 9uite multi-echelon in"entory optimi1ation solution. illette, which P&
was preparing to ac6uire at the time, had already begun using +ptiant software with
strong results.
Power*hain 9uite determines appropriate in"entory configurations that can adapt
smoothly to 6uickly changing demand. The solution uses mathematical models, based on
award-winning research from M0T, which balance costs, resources, and customer ser"ice
to arri"e at these configurations. Power*hain tools pool in"entory to minimi1e risk across
products, components, and customers and also coordinate in"entory policy across
different items. :When in"entory is a"ailable at the same time, this helps reduce early
stock;. Power*hain enables companies to design new supply chains and to model their
end-to-end supply chain. They then can 6uickly e"aluate the cost and performance of
alternate supply chain structures and sourcing options to make better decisions. +ptiant
has pro"ided supply chain management for other leading manufacturers such as -lack &
,ecker, <P, 0=3., =raft, Microsoft, and 9onoco.
P&!s beauty di"ision has ser"ed as the pilot pro/ect for the adoption of the +ptiant
software. -eauty is one of the company!s largest, most complicated, and most profitable
di"isions. P& belie"ed that if multi-echelon in"entory strategies could increase
profitability at this di"ision, it would work at any unit of the company.
The +ptiant software first configured P&!s e2isting cosmetics supply chain, pulling in
the pre"ious &( months of demand data and using the pre"ious ' months! demand
"ariability. 0t then optimi1ed the in"entory strategy within that supply chain, aiming for
target ser"ice le"els abo"e >>? and the final step created an optimal redesign of the
supply network.

@esults ha"e been impressi"e. P&!s beauty di"ision trimmed its total in"entory by ' to
$ percent and maintained ser"ice le"els abo"e >>?. The results were so successful that
P& began rolling out multi-echelon in"entory strategies across all of its "arious
manufacturing branches.
-----8-----