Pepsi : Promoting Nothing Case Study

PROCTER & GAMBLE TRIES TO OPTIMIZE INVENTORY

Question 1: Why are larger supply chains more difficult to manage? List several reasons.

Answer: Before discussing the difficulties of managing larger supply chains it is important to define the term ‘Supply Chain’.

Supply Chain: Supply chain is a network of organizations and business processes for procuring raw materials, transforming these materials into intermediate and finished products, and distributing the finished products to customers. It links suppliers, manufacturing plants, distribution canters, retail outlets and customers to supply goods and services from source through consumption.

Supply chain management begins with the source of supply and ends at the point of consumption. Supply chain management covers the flow of materials, information and payments in both directions through a number of value adding processes.

It is very difficult to manage larger supply chains. The reasons are listed below:

• Larger supply chains are extremely complicated, since those deal with thousands of suppliers, manufacturing facilities and markets.

• Larger supply chains are highly sensitive, as the slightest of changes at any part of the supply chain has significant effects on all of the other participants.

• In an extensive supply chain, the chances for any errors or inefficiencies to occur are grater than with smaller or more compact supply chain.

• Inventory optimization for a larger supply chain is critical to cutting costs and increasing revenues.

• The presence of multiple echelons in a distribution network makes inventory management more difficult because each echelon is isolated from other echelons, so changes in inventory made by one echelon may have unpredictable consequences on the others.

• Larger supply chains have chances of bullwhip effects since the information about the demand for the product gets distorted as it passes from one entity to the next across the larger supply chains.

Managing or maintaining larger supply chains is very costly. So managers of larger supply chains are always searching for ways to reduce the supply chain cost and improve efficiency throughout its entire manufacturing and distribution network.

Question 2: Why is supply chain management so important at a company such as P&G?

Answer: Before discussing the importance of supply chain management at a company like P&G, let’s discuss briefly about the company.

Procter & Gamble: Procter& Gamble is one of the world’s largest consumer goods companies. The company is operating in 80 countries with 138000 employees. The company sells more than 300 brands worldwide including Cover Girl cosmetics, Olay skin care, Crest, Charmin, Tide, Pringles and Pampers. And the company earns more than $76 billion a year.

For a giant multinational company like P&G, supply chain management is very important since it needs to handle a wide range of products. Without proper management of this huge assemble of goods, the company could not become such an efficient one. Supply chain management also helps to minimize different costs and maximize the revenue generation. The reasons for which supply chain management is so important for P&G are discussed below:

• To handle the demand of the customers of the huge numbers of products P&G should have many supply chain management applications so that the company can cope up with the variability of demands of the customers and satisfy them.

• To reducing surplus inventory and huge holding cost, it is important for a large company like P&G to manage the supply chain.

• To ensuring Just-in-time delivery strategy, P&G needs to have an efficient supply chain management system.

• To achieve better forecasting capability for product movement, supply chain management is important for the company.

• Major competitors of P&G such as Wal-Mart and Target compete by offering brand name products with lower price possible. To beat the competitors, it is very important for P&G to achieve a superior supply chain management system as a new way of differentiation.

• Moreover to overcome all the difficulties of managing larger supply chains discussed in question no 1, P&G needs to have a proficient supply chain management system.

In one word, success of a large business like P&G somehow depends on a successful supply chain. P&G has already renowned for its successful supply chain management.

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Pepsi : Promoting Nothing Case Study