Themes: New Product Development
Pub Date : July 2009
Countries : Global
Industry : FMCG
– Greg Shoemaker, Vice President for Central Direct Procurement at Hewlett Packard
– Financial Times
Confronting the challenges of rising supplier costs, growing retailer prowess, intensifying competition, fickle consumer tastes and preferences in the consumer packaged goods industry, P&G gained a distinctive competitive edge through a strengthened focus on supply network efficiencies. By making consumer the centre of all its core operations, P&G initiated Customer Driven Supply Network (CDSN) that starts from customer choice at the store shelf and works backwards towards product manufacture; a paradigm shift from forecast-based supply chain to the one based on realtime demand. P&G's relationship with Wal-Mart exemplifies the success of CDSN but given the complexities of P&G's size and scale, analysts remain sceptical about the success of P&G–Wal-Mart's pilot study with other retailers.Analysts are also dubious of the scope for success in exporting the model to developing markets wherein the industry dynamics are extremely contradictory.
Consumer Packaged Goods Industry – The Changing Dynamics
During the early 20th century, consumer packaged goods evolved to be a highly competitive industry with a large number of players vying for a greater market share . Manufacturers, with their market prowess, focused extensively on reinforcing their strong brands and improving productivity. They established their dominance either by restructuring their brand portfolios throughmergers and acquisitions or focusing on core brands. Though consolidation gave manufacturers significant global presence, focus on core brands made it difficult for retailers to avail price cuts. They even limited the quantity of high-demand products supplied/allotted to the retail stores, insisted on selling products in all sizes and packages and forced retailers to involve in promotional activities. For instance, P&G brought its extensive consumer research to retailers and insisted on increased shelf space for its brands. Lacking sophisticated point-of-sale systems, retailers could not dispute with P&G's analyses and resented its retail clout.
However, changing industry fortunes gravely affected the consumer packaged goods companies. Through aggressive expansions, these companies diversified into numerous unrelated businesses; Unilever, for instance, had 400 core brands. Proliferation of brand extensions cluttered the store shelves making it tough for brands to lure consumers. Further, regardless of geography, advances in technology, information and communications resulted in proliferation of media and marketing approaches, distribution channels, customer segments, products and brands
1] Paul, “2008 Medal of Professional Excellence: P&G is king of collaboration”, http://www.purchasing.com/article/CA6591887.html?nid=4019, September 11th 2008
2] Birchall Jonathan, “How P&G's logistics revolution supplied a new demand”, http://www.ft.com/cms/s/0/95fb6a66-6fe0-11dd-986f-0000779fd18c.html, August 22nd 2008 This case