Phil Ruotolo, associate director of merchandising solutions customization with Procter & Gamble, details the consumer-products giant's strategy for adjusting to ever-shifting consumer preferences.
Q: How is P&G responding to changing customer preferences?
Ruotolo: Several years ago, we embarked on an innovative supply-chain solution. We created what we call mixing centers. It was the first time we had brought a portfolio of different P&G products into one location. The next question was, how do we think about merchandising in a more unique way? So we went to a 14-day order lead time. Previously, there was typically a four- to six-week window, and most of it was on a forecast. What inevitably happens is that you're building inventory of something that a customer might want to order.
In this new model, we differentiate the finished product in our customization locations, and then do all of the forecasting for our materials. Now we're able to react very quickly to what a customer might want, and can fulfill that within 14 days.
Q: So this is execution, not planning?
Ruotolo: Correct. It's taking all your favorite P&G products, and bringing them all together into one facing. As a consumer, you’re drawn to that display. We want to drive trials with consumers as they come across our products. Hopefully, they’ll make multiple purchases.
Q: In order to hit that 14-day window, you had to change the location of your product. Did that mean building more facilities, or repurposing existing ones?
Ruotolo: The mixing centers house all of the P&G products that a customer might order. Previously, product would come from a manufacturing site or supply warehouse. Now the distribution center is typically one day’s transit from customers, and they can order a whole portfolio of products. I can also do customization — mix and match all of those different products and put them on the same shipment.
Previously, each supply warehouse would send a contract packer for all of the different P&G products, then manipulate it four to six weeks from an order, which was typically a forecast. You’re hedging your bets that you got your forecast right. If a customer order doesn’t come thorough, you've got nonperforming or obsolete inventory. Having a 14-day order cycle allows us to manipulate the specific customer request in very close proximity to when the customer wants the product.
Q: Where does the concept of product customization come in for e-commerce orders?
Ruotolo: We’re exploring that. I know we're thinking about how we play with Amazon. How do we have space within our distribution centers that Amazon can ship out of? We’re doing pilots across North America on e-commerce, and there's lots to come. It's not a space where we feel comfortable that we've cracked the nut, but it’s certainly a place to learn. We want our distribution centers to be ready for e-commerce.
Q: What are some of the benefits that you’ve realized so far?
Ruotolo: On the display side, we've delivered great benefits. One of the unique things we did was take over one of the display manufacturing locations. P&G doesn't typically get into manufacturing of customization. We’ll farm that out to a third party. It made sense for us to understand that, so that we could innovate in the supply chain.
One of the things we're doing now is bringing our suppliers and co-packers into our network on a quarterly basis, and holding innovation workshops. We’re driving new supply-chain solutions and designs, and we've seen great results. Service for our display manufacturing business has been the best it's ever been since starting to do this work, and we've seen over a 30-percent reduction in labor. In a tight labor market, finding the labor to do customization and display manufacturing can be very challenging, and this allows us do it in a less labor-intensive way. We’re doing a lot of work on smart automation and trying to make displays better, faster, and cheaper.
Q: Your case fill rate is really high.
Ruotolo: We've been above 99.4 percent.
Q: And your production costs have been cut as well?
Ruotolo: We’ve almost cut them in half. We're continuing to see great progress in the utilization of labor, and thinking about how we automate smartly.
Q: How do you deal with the technology side, especially when it comes to accessing and managing data?
Ruotolo: For display customization, we've partnered with a company called Nulogy. They’ve given us visibility of our material streams, and the ability to connect virtually about when our material deliveries are taking place. About 70 percent of what we see coming through our supply chain is a one-time occurrence, and the platform allows us to order materials and get real-time knowledge of where those materials are.
The other thing it allows us to do is get visibility of how we're doing from a manufacturing standpoint. We get real-time data, so that we can see any losses or where there might be trouble in the manufacturing processes. We can then form teams to innovate around that area, and drive better solutions. In addition, we can compare manufacturing results across our network, and figure out how to partner with our co-packers to make displays cheaper. It’s all about how we make the best supply-chain solution in the most cost-effective way.
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