It's not easy to think of Procter & Gamble as a small company. But that's a fair description of the multinational's market position in Chile just two years ago.Cincinnati, Ohio-based P&G had been involved in a joint venture with a local Chilean paper company for the distribution of diapers and feminine protection products. The supporting infrastructure for that arrangement was a hodgepodge of half a dozen warehouses in the Santiago area. Most were no bigger than 2,500 square meters and lacked modern features such as multiple doors and racks, says Luis Erana, suppl- chain manager for P&G in Chile.Given the modest nature of P&G's Chilean business, the setup was adequate. At least until the company made its move for a bigger slice of the market.Buying out its partner's half share in the joint venture, P&G immediately saw a small increase in volume with the addition of health and beauty care products. But the company had more ambitious plans. It was preparing to import detergents, dishwashing soap and other major items from its global portfolio.P&G anticipated a rise in throughput from 20,000 to nearly 60,000 cases a day. Erana, who had just arrived in Chile, devised a three-year plan to build enough warehouse space to handle the surge.Vowing not to continue the old pattern of numerous small and inadequate facilities, Erana called for a master distribution center in Santiago to service all of P&G's brands in Chile. And he began searching for a "world-class" logistics provider with whom to partner.The final choice of Jacksonville, Fla.-based GATX Logistics seemed an unlikely one, given its history with P&G. In the early 1990s, it was chosen to operate a warehouse for cosmetics products in Mexico. That arrangement was terminated when P&G deemed the facility inadequate. For its part, GATX felt P&G's requirements were unrealistic, given a lack of quality targets and inventory controls, according to Fabio Duque, operations manager in Santiago. Whatever the reason for the failure, the provider didn't get another P&G contract for nearly a decade.It jumped at the chance to prove itself in Chile. Erana says P&G was impressed by GATX's knowledge of the market, achieved in part through a joint venture with local partners. Duque says GATX worked hard to commit to P&G's expectations while quoting the best possible price. By the time the new contract took effect in August of 1999, Duque had been inside P&G's warehousing operation for two months, learning exactly how it worked. "They needed a smooth transition," he explains.Eight months later, GATX opened a new state-of-the-art warehouse covering 30,000 square meters, of which 20,000 are currently dedicated to P&G. (The rest is used by Boston-based Gillette Co.) The facility includes 15 doors and dock levelers for easier loading and unloading.In October of this year, the installation of racks and other specialized equipment will reduce P&G's share of the warehouse to less than 18,000 square feet. The change should save the company $10,000 a month, says Duque.The new building is more than a place to store product while it awaits shipment to stores. It was designed as a flow-through center with the smallest amount of buffer stock possible. GATX performs a number of value-added services, including the application of stickers to comply with local regulations, customization of product, and inclusion of promotional materials and packaging. Much of that work used to be done by several vendors around Santiago, Erana says.P&G moved into a single distribution facility in Chile with minimal disruptions. There were no missed shipments as the company shifted inventory and operations. Says Erana: "We went from nothing to world class in a weekend."
Perhaps mindful of its experience with P&G in Mexico, GATX provides the customer with monthly reports on its performance, including full cost of operation. It tracks key metrics on both a daily and monthly basis, and has achieved nearly 100-percent inventory accuracy, claims Duque.
Chile's geography presents logistics planners with unique challenges. The long, narrow country runs nearly 4,000 miles from north to south. Nearly half the nation's population lives around Santiago, with the rest scattered in remote areas. The north consists mostly of desert, while land in the south breaks up into a series of fjords.
Freight costs can be high because the tight concentration of population presents carriers with few backhaul opportunities, says Erana. When product is available for hauling in the opposite direction, it often consists of agricultural, mining or seafood items, which are incompatible with consumer products.
For P&G, some of those disadvantages are offset by the presence of Gillette in the same Santiago warehouse. Duque says GATX has been working to build more full pallets to stores around Chile for better economies of scale. It can combine shipments by the two customers for even greater efficiencies - an idea that remains novel in the supposedly advanced U.S.
P&G currently arranges transportation into and out of the Santiago warehouse, but that could change as the company becomes more accustomed to outsourcing in Chile. Duque says the company is already reaching beyond the country's borders, exporting small amounts of product to Peru, Bolivia and Venezuela.
Erana says Chile will play an important role in regional distribution. Its port infrastructure is in good condition, and with the development of roads running in an east-west direction, "it would be the door into [South America's] southern cone."
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