Procter & Gamble -- Inventory Optimization at P&G: Achieving Real Benefits through User Adoption of Inventory Tools
The Problem
Four billion times per day, P&G brands touch the lives of people around the world. P&G has consistently been at the forefront of supply chain excellence, being ranked as one of the top five best-managed supply chains in the world and winning numerous best practice awards. The company’s global reach provides significant scale opportunities to optimize areas such as inventory management, new product launches, merchandising, and promotions.
P&G’s supply chain analysts employ a standard roadmap to determine which inventory optimization tools are right for a given supply chain’s business and operating conditions. At one end of the spectrum, shorter and less complex supply chains utilize detailed single-stage calculators to determine optimum inventory requirements. At the other end of the spectrum, higher-complexity supply networks require more sophisticated multiechelon tools. In the early 2000s, P&G recognized the need for more advanced inventory tools to allow it to continue trimming already lean inventories while maintaining its superior customer service.
The Analytics Solution
The adoption of distribution requirements planning systems in the late 1980s triggered the development of simple but robust models at P&G for setting inventory targets across a distribution network, one echelon at a time. Multiechelon technology from Optiant was selected to serve as its future inventory optimization platform. P&G executed a successful pilot in its most complex beauty care supply chain in 2005–2006.
The analytics that underlies the multiechelon inventory planning engine is based on the guaranteed service model of safety stock optimization. Although the basics of this research stream have been known to apply to strategic supply chain design for years, considerable advances in both operations research and computer science have been required to solve the tactical inventory problem at P&G’s scale. These analytics advances include modeling nonstationary demand to reflect the seasonal nature of consumer demand, modeling review periods to capture different replenishment frequencies across the supply chain, and most significantly, the ability to optimize inventory levels and locations in acyclic network topologies. It is this last advance that has allowed P&G to capture the multiechelon nature of their supply chains.
The Value
Since 2006, multiechelon inventory optimization has been deployed across more than 80% of the global beauty care supply chains to solve both tactical and strategic production–inventory planning problems. Even more importantly, a closed-loop planning process integrates these two sets of decisions.
These models have been very successfully adopted and have contributed to multimillion dollar reductions in worldwide inventory. Beauty care supply chains are achieving incremental total inventory reductions of 3% to 7% from an already low base. Some specific applications of the multiechelon tools to aid in strategic redesign of a supply chain have yielded cost reductions of more than 25%.
