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Using the supply chain to increase sales
This article describes how Procter & Gamble is using its supply chain not only to improve profits but also to increase sales growth.
Adding value with the supply chainby Jonathan Birchall
As the manager in charge of the world's largest supply chain, Keith Harrison believes the time has come to give the business of logistics more credit. The Head of Global Product Supply at Procter & Gamble believes the search for a competitive edge will focus more on supply-chain efficiency as retailers and suppliers battle huge increases in raw material and energy costs. 'Today you have road congestion; you have freight costs, driver shortages, capacity issues. Working capital is at a premium. Competition among retailers and vendors is higher. All of this is putting pressure on having a more efficient supply chain. This is more critical than it has been before.'
Since his appointment in 2001, Mr Harrison has been at the forefront of efforts to drive costs from P&G's supply chain, helping the company meet its long-term sales and earnings growth targets, in spite of surging input costs. But he says P&G has also been looking increasingly over the past three years at ways to turn improvements in the supply chain into top-line sales growth. 'We're trying to make the supply chain into a growth engine for the company,' he says. 'A lot of the time, supply-chain management is reactive, or passive, cost control. But we think there's also an opportunity for us also to use the supply chain to create top-line growth as well as bottom-line performance.'
An effective supply chain helps manufacturers by reducing a retailer's 'out-of-stocks', which in turn prevents lost sales. Those sales also benefit the retailer, while efficient delivery of products to meet demand can also reduce the costs of holding inventory to the retailer.
P&G is telling retailers that it should be rewarded for the benefits its supply chain delivers. 'If I do something with my supply chain to reduce my customer's inventories, I want more than just the "supplier of the year" award,' he says. 'How do we get that value that we've created at least partially reinvested in growing our business?
Do we get sharper pricing, better features, more display, better shelving?'
As an example of the potential benefits, Mr Harrison gives the example of a pilot project with Wal-Mart in the US, whose worldwide stores account for 15 per cent of P&G's overall sales. The two established a cooperative relationship in the late 1980s, starting with Wal-Mart's decision to allow P&G and other suppliers access to the customer sales data collected by its Retail Link computer system.
Over the past 12 months, a P&G factory in Missouri has been using live sales data from stores not to forecast demand but to schedule replenishment deliveries on a store-by-store basis for a single test product. Rather than shipping the required volume to a dis?tribution centre, where it is then divided up for each store, the shipments are instead prepared at the factory for the right store. When the goods arrive at so the Wal-Mart distribution centre, they are moved directly from P&G's truck to the appropriate Wal-Mart truck, with no time in storage. 'It is assembled for a store, and it is just flowing through the system,' says Mr Harrison.
Kevin O'Marah, a logistics consultant at AMR Research, believes P&G is the first consumer goods company to use the Retail Link data in this way.
Use the words and phrases in the box to complete the sentences.
|cost control freight costs growth targets inventory replenishment deliveries road congestion sales data vendors working capital|
1 To keep costs down, it is important for retailers to keep their ........ levels as low as possible.
2 If retailers carry too much stock, they will use a lot of their .................
3 A more cost-effective way to operate is to schedule ................ on a just-in-time basis.
4 If suppliers have live access to a customer's ................, they can prepare deliveries specially for each store.
5 Suppliers are also known as .........
6 Delivering goods by truck now takes longer in many countries due to increased .................
7 With rising oil prices, ................ are also going up.
8 A traditional aim of supply-chain managers is ................, keeping costs down.
9 P&G is using its supply chain to meet sales .................
Choose the best explanation for each phrase from the article.
1'... capacity issues.'
a) problems about the company's expertise
b) problems about production volumes
2'... input costs.'
a) costs of materials purchased by a company
b) costs of manpower employed by a company
3'... top-line sales growth.'
a) increased sales turnover
b) better sales of the most profitable products
4'... a growth engine for the company...'
a) something that will make the company bigger
b) something that will help the company increase sales
5'... bottom-line performance.'
a) better sales of poor performing products
b) better profitability
6'... sharper pricing...'
a) more competitive prices
b) more risky prices
Managing unexpected events and disasters
Two responses to a potential disaster
from Logistics and Supply Chain Management - Creating Value-Adding Networks by Martin Christopher
This article looks at how two companies responded to a natural disaster at a supplier factory and handled the risk to their supplies.
In 2000, worldwide demand for mobile phones was booming, and shortages of critical components were a regular threat to growth. Two of the global leaders were the Finnish electronics company Nokia and its Swedish competitor Ericsson.
On 17 March 2000, lightning caused a fire in Philips Electronics' silicon-chip manufacturing plant in New Mexico. The fire was under control in minutes, but not before it destroyed silicon chips for thousands of mobile phones. Even worse, damage from the smoke and water contaminated the complete stock of millions of chips, ready for shipment.
Philips reacted immediately, giving priority to its customers according to the value of their business. Together, Nokia and its competitor Ericsson accounted for 40% of its production. Philips therefore made a decision to meet their orders first once the plant returned to normal. However, it did not inform them about the fire until three days later.
Within two days, Nokia's computer systems detected that shipments of some Philips' chips seemed delayed. On 20 March, a components purchasing manager called Philips about the problem and was informed about the fire and probable disruption to production for around a week. As a matter of routine, Nokia put the five components produced at the Philips plant on a special monitoring list.
They began checking the status of these five components once a day instead of the usual once a week. By the end of March, it was clear to both Nokia and Philips that the problem was so serious that supplies would be disrupted for several months. Aware that this could affect the production of several million mobile phones, Nokia decided to take steps to secure supplies. Executives at Nokia put pressure on Philips to work with them to develop alternative plans to maintain supplies. Philips responded by asking their other plants to use any additional capacity to meet Nokia's needs. In addition, Nokia sent a team to its other chip suppliers in the US and Japan to negotiate priority status for supplies of chips and to persuade them to ramp up production. Two of them responded within five days, agreeing to lead times of less than a week. Ericsson remained unaware of the potential disruption to their orders until three days after the fire when Philips called.
They believed Philips' explanation that the fire was only a minor event, so did not take action until early April. By then, Nokia had already secured supplies. Unlike Nokia, Ericsson had no alternative sources of supply. It had decided earlier to single-source key components as a way of simplifying its supply chain. Ericsson lost an estimated $400m in sales as a result of the fire, and was finally forced to stop manufacturing mobile phones. In contrast, Nokia was able to maintain production levels throughout the event and strengthen its position as European market leader.
Practice: Match these words and phrases from the article (1-10) with their meanings (a-j).
||a) a factory where an industrial process takes place|
||b) the ability to produce a larger amount|
||c) damaged so badly it cannot be used|
||d) the transportation of goods|
||e) high importance in relation to others|
||f) not enough of something|
||g) time between receiving an order and delivering it|
||h) made unusable by contact with something harmful|
||i) a source of danger|
|10 lead time
||j) when a problem interrupts something and prevents it from continuing|
Read the article again and answer these questions:
1 What is Keith Harrison's job, and when did he start it?
2 How big is P&G's supply chain?
3 What pressure are retailers and suppliers under?
4 What is one thing that P&G is trying to do with its supply chain?
5 What else is P&G trying to do with its supply chain?
6 How does supply-chain management usually operate in a company?
7 How can a supplier's effective supply chain help retailers?
8 What does P&G want from its customers if it improves its supply-chain performance and reduces their out-of-stocks and inventory levels?
9 How important a customer is Wal-Mart for P&G?
10 What kind of co-operation do Wal-Mart and P&G have?
11 Is P&G the only company to have access to Wal-Mart's Retail Link data?
12 What is special about P&G's Missouri factory?
Look at the time prepositions in italic (1-3). Then match each preposition with its meaning (a-c).
|1... until three days later,
||a) inside a period of time|
|2 Within two days...
||b) not later than a particular time or date|
|3 By the end of March,..
||c) happening up to a particular point in time and then stopping|
1. Adrian Pilbeam and Nina O'Driscoll. Market Leader. Logistics Management. Business English // Longman. - p.96