“Blending OR/MS, Judgment, and GIS: Restructuring P&G’s Supply Chain,”
by J.D. Camm, T. E. Chorman, F. A. Dill, J. R. Evans, D. J. Sweeney, and G.
W. Wegryn, Interfaces, Vol. 27, No. 1, (1997, Jan./Feb.), pp. 128 – 142.
Introduction
Procter & Gamble (P&G, Cincinnati, OH) produces, markets and distributes more
than 300 brands of consumer goods worldwide in more than 140 countries. P&G
has perating units (plants, divisions, facilities) in 58 locations around the globe. In
1995 worldwide sales were $33.5 billion with earnings of $2.64 billion. The
company has grown continuously over the past 159 years. To maintain and
accelerate the growth experienced continuously since the early 1800s, P&G
performed a major restructuring called strengthening global effectiveness (SGE)
to streamline work processes, drive out no value- added costs, eliminate
duplication, and rationalize manufacturing and distribution. As a consequence of
this program, there were major impacts on P&G, which wrote off more than $1
billion in assets and transition costs. The program affected more than 6,000
people and saved $200 million annually before taxes. It involved hundreds of
suppliers, more than 50 product lines, 60 plants, 10 distribution centers, and
hundreds of customer zones. A major component of the initiative was to look
carefully at the North American product supply chain, specifically to investigate
plant consolidation. Before, there had been hundreds of suppliers, more than 50
product categories, more than 60 plants, 15 distribution centers (DCs), and more
than 1,000 customers. As P&G became global in terms of brands, common
formulas, and packages, there were economies of scale and fewer operations.
Thus, plants needed to be closed to cut manufacturing expense and working
capital, to improve speed to market, and to help avoid capital investment. P&G
also wanted to deliver better consumer value by eliminating non value- added
costs; thus, they wanted to develop more efficient linkages with trade customers,
reduce customer inventory, and eliminate the least productive sizes. The decision
to restructure the supply chain seemed like the right approach. For more on
supply chain management (SCM). P&G wanted to restructure the supply chain
because
• Deregulation of the trucking industry had lowered transportation costs.
• A trend toward product compaction allowed more product to be shipped per
truckload.
• Recent focusing on total quality had led to higher levels of reliability and
increased throughput at every plant.
• Product life cycles had decreased to about 18–24 months instead of 3–5 years
over a few decades.
• Several corporate acquisitions had given P&G excess capacity.
So executives focused on product sourcing: choosing the best site and operation
level for manufacturing each product. The production scope at a given site is
limited to products relying on similar technologies. Producing too many products
at a site can be too complex. But large, single product plants can be risky (if
