A radical decision by tobacco giant Philip Morris International to transition to smoke-free products called for a global makeover of its supply chain processes. 

As e-cigarettes and vaping rose to popularity over the better half of the last decade, global tobacco giant Philip Morris International Inc. made a radical choice: It would stake its entire future on a line of smoke-free products.  

The move set the business on a new path by transforming its product portfolio from the mono-category of tobacco to multi-category products including electronics, consumables and accessories. PMI was suddenly dealing with a new ecosystem of suppliers, distributors and wholesalers with new channels to the consumers — including, for the first time, a reverse supply chain for customer service. 

To meet evolving consumer expectations, PMI needed to speed its response to supply and demand changes while catering to an increasingly complex global category of products. Leadership set out to transform the supply chain in three key areas: end-to-end synchronization, segmented execution and enabling new business models. These would collectively enable the company to offer higher levels of customer service and experience in a multi-category omnichannel environment. 

At the heart of PMI’s strategy was a vision to create data-driven, digitally enabled and streamlined processes that would make its supply chain more agile and quick to adapt to rising business complexities. 

Process and Technology Innovation 

The star of this redesign is PMI’s Supply Chain Synchronization Hub — a supply chain control tower that enables end-to-end supply, demand and inventory planning with near real-time visibility across all product segments. Key features of the Hub include:

• Centralized planning for supply, demand, inventory and fulfillment 
• Digitally-enabled and data-driven systems 
• Business service provider (BSP) integration for faster deployment and scalability 
• End-to-end visibility from store to Tier-2 component suppliers 
• Integrated risk management 
• In-house digital academy to build talent capability and ensure long-term sustainability 

To centralize supply chain planning, PMI partnered with cloud software provider E2open Ltd. This brought capabilities such as machine learning for demand planning; new system landscapes for production and capacity planning; and automated reports and alerts monitoring. The integration of BSPs played a crucial role in accelerating end-to-end visibility. 

E2open’s digital solutions were designed to maximize automation and “no touch” centralized planning activities, enabling the Hub to operate on weekly cycles to review key metrics. Integrated risk management with real-time alerts also ensure appropriate actions are defined and implemented to get orders fulfilled on time. 

By offshoring a number of processes like data analysis and reporting, the Hub teams could spend more time focusing on value-added processes and key decision making in house. 

Business Wins 

With the Hub, PMI says it has effectively transformed its supply chain from a traditional, siloed structure to an automated system capable of processing vast amounts of information and quickly responding to demand and supply variances. 

E2open’s platform consolidates data from PMI suppliers, logistics partners and warehouses into one ecosystem, while sensing real-time demand, production capacity and fulfillment constraints. With the help of artificial intelligence, the Hub can respond to issues as needed. 

A “demand forecasting center” ensures centralized mid-term production planning for all manufacturing sites, and markets are replenished based on near real-time visibility of goods in transit on a global scale. Daily, 20-minute direction meetings to review demand and fulfillment alerts have replaced lengthy, inefficient demand forecasting and production planning. 

Meanwhile, the Hub’s in-house academy is training teams on digital skills and responding to alerts, with a maximum 30-day onboarding time.

A ‘Game Changer’

PMI’s Hub went live in October 2019, and by the end of 2020, it was running more than 98% of the company’s global smoke-free product volume and over 85% of conventional product volume. The transformation has quadrupled delivery speed to consumers via both direct and indirect channels.

The tobacco company says it’s seen significant improvements in forecast accuracy and bias — including a 20% drop in mean absolute percentage error (MEAN) across 75% of its consumables product portfolio. This has led to increased productivity in demand planning, with approximately 1,200 SKUs now handled through touchless systems. Improved data hygiene (99%) has also enabled fully automated demand and supply balancing, done on a weekly basis. 

By 2021, 85% of all purchase order transactions were touchless, too. 

Overall, the Hub has improved PMI’s fixed costs (25%) and positive working capital (10%), while boosting process speeds by a staggering 600%. Supply chain visibility — one of the company’s initial key performance metrics — has reached 100%. 

Amid the volatile nature of business today, a smarter, more agile supply chain has become a game-changer and critical need of the hour, PMI says. Its Hub is poised to be a key differentiator in the future.