DALLAS -- Procter & Gamble has a supply chain that reaches around the world and relies on delivery mechanisms that range from trains and buses to bikes and even animals. So when one of the company's key supply chain executives took the stage here at the 7th Annual Supply Chain and Logistics North America summit, attendees were eager to hear about the company's experiences.
R. Keith Harrison, global product supply officer at the home, health and beauty product manufacturer, used a military term to describe the current global market to more than 370 people gathered here at the Hyatt Regency hotel. "VUCA -- volatile, uncertain, complex and ambiguous," Harrison explained. "Most of us are operating today in an environment like this."
Developing nations home to developing supply chains
P&G -- which saw $79 billion in net sales this year -- can credit some of its success in a down economy to its global strategy. With 135,000 employees and 145 manufacturing plants in 180 countries, P&G is the world's largest shipper.
The company is continuing to expand into developing nations, including Pakistan and Nigeria. "Emerging markets are key; they account for almost all our growth," Harrison said.
That's not to say that P&G has been immune to the recession. Transportation has become an even greater expense, with commodity energy costs rising by $3 billion in 2008. U.S. GDP has fallen 10 points, from +4% to -6%, and P&G's Asian and European markets have been especially hard hit.
"We have a highly volatile environment," Harrison said. "As supply chain leaders, we need to anticipate the future."
Cultural differences pose global supply chain challenges
Managing such a vast global supply chain brings many challenges. "We need to be thinking about a variety of consumer needs, incomes and uses," Harrison said. "One size does not fit all." A video showing P&G products around the world highlighted some of these differences, particularly in transportation and logistics. Depending on the country, products may be shipped using trains, buses, boats, vans, bikes or even livestock.
To address these challenges, P&G is focusing on three areas -- engineering and low-cost capital, distribution, and modeling.
"Engineering must be a source of competitive advantage," Harrison said.
The company is now building multi-business unit plants with module designs that are quick and cost-effective to assemble and maintain.
Logistics emerging as major manufacturing cost
Distribution is of critical importance; in the past year, P&G has spent more on logistics needs than it has on total plant operations.
"From a cost standpoint, logistics has become a huge challenge in the world we're in," Harrison said. "Customers have incredibly tight delivery schedules -- if you miss it, you get an opportunity to come back tomorrow and that's it."
Modeling software is another focus for P&G. The company has worked with CombineNet to develop a custom logistics modeling tool that displays shipping lane options. P&G is also using modeling software for planning, creating 3D plant sites and virtual tours of facilities before they're even built. The result has been process improvements and increased accuracy in construction.
This software can also help manufacturers adapt and survive during supply chain disasters. When Hurricane Katrina hit the Gulf Coast, P&G was able to use product modeling software to keep track of goods and shipments in the area. The company did not lose a single shipment.
"We need to have a much more agile supply chain capability that traditional ways won't give you," Harrison said.
Jim O'Donnell, director of supply chain optimization at audio equipment manufacturer Bose Corporation, understands the challenges of operating a global supply chain. "We're not moving into many Third World markets, but we do have facilities around the world," O'Donnell said. Bose is currently working to improve the supply chain and logistics functions of its SAP ERP system.