Reinventing the Supply Chain and Manufacturing s Role

1. Reinventing the Supply Chain and Manufacturing�s Role AMR Supply Chain Conference Rick Ciccone February, 2006

2. Presentation Flow About P&G Why: The need to reinvent the supply chain What: An overview of P&G�s Consumer Driven Supply Network strategy and Manufacturing�s role How: Measures linked to Business Strategy and building key capabilities

3. $67.9 billion sales* 135,000 employees More than 170 manufacturing facilities in more than 40 countries More than 20 R&D centers in 10 countries Unique organization structure About P&GAt a glance

4. P&G + Gillette Began operations as one company October 1, 2005 Increases P&G�s position in faster-growing, higher-margin, more asset-efficient businesses Combines each company�s unique consumer/shopper understanding to strengthen retailer relationships Common vision of supply network as source of value creates opportunity to share and accelerate best practices

5. P&G + Gillette 22 brands with sales of $1 billion or more 14 with sales between $500 million and $1 billion = Expanded innovation platforms and pipeline

7. Two Moments of TruthWhen she chooses and when she uses

8. Why change con�t Talked earlier about the 2 moments of truth �when choose and use. Well u can�t really choose if you are not on the sellf �or out of stock. Here is some data on what happens when consumers come to the shelf and the product is out of stock � talk each of the piecesWhy change con�t Talked earlier about the 2 moments of truth �when choose and use. Well u can�t really choose if you are not on the sellf �or out of stock. Here is some data on what happens when consumers come to the shelf and the product is out of stock � talk each of the pieces

9. Winning at the First Moment of TruthThe need for a Consumer-Driven Supply Network

10. Innovation Value Shelf presence Customization In-store experience Why: The Consumer is BossEver-increasing expectations

11. Industry consolidation Importance of free cash flow Growth of private labels Focus on margins Seeking to be unique Seeking to offer solutions Why: Retailers Are RespondingChanging to win with the new consumer

12. Why: New Pressure on Manufacturers Today�s supply networks aren�t fast and flexible enough Pace of innovation Increasing number and complexity of products Demand for affordability and value Speed to market

13. The Consumer Driven Supply Network

14. What: Reinventing the Supply Network Chain Long and slow Forecast-based Manufacturer-driven Internal focus Designed from product forward Cost-reduction Network Fast and flexible Demand-based Consumer-driven External focus Designed from shelf back Value and growth creation

15. What: Manufacturing�s FocusEnable a Flexible, Responsive, Highly Productive and Profitable Supply Network Link to External Metrics Build capabilities to execute a Produce to Demand operating strategy

16. What: External metrics Understand how the supply network performs from the shopper and retailer perspective Right Place: Shelf Out-of-Stocks, Case Fill Rate Right Product: Quality at the Shelf Right Price: Target Price Right Time: End-to-End Supply Network Time Right Value: Sales / Margin / Cost

17. How: Master PlanTranslate business need through external metrics to Manufacturing Capability Plan

18. Leadership cascades metrics from the Company Strategy down to the individual. At P&G every employee has a work plan that ties to the Company Strategy. Everyone needs to understand how their piece contributes to the whole � and Leadership owns insuring that if all the pieces are added, the overall result is delivered. Leadership cascades metrics from the Company Strategy down to the individual. At P&G every employee has a work plan that ties to the Company Strategy. Everyone needs to understand how their piece contributes to the whole � and Leadership owns insuring that if all the pieces are added, the overall result is delivered.

19. Linkage to Scorecard Individual Work Plans make up the Team or Department Scorecard which in turn makes up the Organization Scorecard. Individual Work Plan items should be Work Processes vs Output measures � This is a tricky concept but critical to success. Example � an output measure might be that Line Efficiency should be 90% - this is not a directly controllable item by any individual � it does not articulate what the person is to do and how. A work process might be �complete an inspection of all motors to insure their operating temperature is within compliance�. If you get the work processes right, then the output � 90% line efficiency will be delivered. This concept of work process applies in all aspects not just manufacturing. Use another example if time permitsIndividual Work Plans make up the Team or Department Scorecard which in turn makes up the Organization Scorecard. Individual Work Plan items should be Work Processes vs Output measures � This is a tricky concept but critical to success. Example � an output measure might be that Line Efficiency should be 90% - this is not a directly controllable item by any individual � it does not articulate what the person is to do and how. A work process might be �complete an inspection of all motors to insure their operating temperature is within compliance�. If you get the work processes right, then the output � 90% line efficiency will be delivered. This concept of work process applies in all aspects not just manufacturing. Use another example if time permits

20. Establish Foundation and Sustain Example - Plant Cockpit Foundational elements (prerequisites) include ... IRA, BOM, PR/MTBF, MPS, validated inventory targets based on current SN capability, operational excellence (%Skus in Limits), agreed to service levels being deliveredFoundational elements (prerequisites) include ... IRA, BOM, PR/MTBF, MPS, validated inventory targets based on current SN capability, operational excellence (%Skus in Limits), agreed to service levels being delivered

21. Specific Manufacturing Capabilities include ... Daily planning and execution Short cycles and small doses Reduce inventory safety stock Capable to produce any item any day (as needed) RCO capability Drive out waste (time, inventory, wasted effort) Leveraging information Flexible (skilled) crewing as needed Specific Manufacturing Capabilities include ... Daily planning and execution Short cycles and small doses Reduce inventory safety stock Capable to produce any item any day (as needed) RCO capability Drive out waste (time, inventory, wasted effort) Leveraging information Flexible (skilled) crewing as needed

22. Collaborative business planning with retail customer Design product to move it efficiently to the shelf Collaboration on �events�, key merchandising activities and Initiatives Manufacturing flexibility and cycle response to produce-to-demand vs. produce-to-forecast Supplier relationships move from �connected� to �integrated� based on demand Speed and reliability of the supply system How: Demand DrivenManufacturing integrated with end-to-end SN

23. External focus: culture change Operational excellence: service and availability Synchronization: information replaces inventory Shelf-back design Flexibility: take time and cost out of the system Responsiveness: customer andconsumer driven Customer collaboration: joint value creation How: Key Operating PrinciplesThe journey to the Consumer-Driven Supply Network Exploit Lean and Agile manufacturing to deliver JVC; that is, meet customer requests/needs (responsiveness and flexibility/Differentiation) in an efficient and timely way to create a competitive advantage for the business.Exploit Lean and Agile manufacturing to deliver JVC; that is, meet customer requests/needs (responsiveness and flexibility/Differentiation) in an efficient and timely way to create a competitive advantage for the business.

24. Consumer wins Better in-store experience: fresh quality product ON the shelf, more new products and innovations Customer wins Synchronized, reliable innovation flow Inventories reduced � more cash Drop in OOS P&G wins Drop in OOS Despite 2-3 times more SKUs, costs are lower, inventories are reduced and volume is growing ResultsReinventing the Supply Chain