An investigation of P&G’s supply chain management

This sample explains An investigation of P&G’s supply chain management. Starting from a detailed introduction of the company. It covers Rothwell’s 5 Models of the Innovation Process, Nonaka’s framework 1994 and their application to link a business.

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Abstract

This report talks about Procter & Gamble, which is a company dealing in multinational consumer goods, founded by William Procter and James Gamble in 1837. The portfolio of this company is strongly trusted for quality, and the brands are leaders in the markets. The popular brands of this company are Ariel, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, Vicks, and Whisper, etc. Ackoff’s Apex is explained in the report where five categories of data, information, knowledge, understanding, and wisdom are explained. According to Ackoff, the first four are related to the past and talk about what has been or what is known. But the fifth category i.e. wisdom that talks about the future as vision and design are incorporated into it. People who attain wisdom can create the future rather than just grasping the past and present. For achieving wisdom, people have to move through the other categories successfully. P&G has successfully applied Rothwell’s 5 Models of the Innovation Process and Nonaka Framework to link a business relationship in supply chain management. It was concluded that P&G has effectively integrated both knowledge management and innovation in its supply chain management process to make it better and effective. It has understood the fact that the effective operation of the supply chain network can impact both revenues of the company and its margins. It has innovated and developed its supply chains to deliver better efficiencies to consumers, and it has achieved lower cost too. It has been successful in proving that innovative ways can be applied to transform the raw materials and products that are shipped to plants, then to consumers. This has enabled the company to become a trusted brand not only in Singapore but all over the world.
 

[reviews]

Introduction to the company

Procter & Gamble is a company dealing with multinational consumer goods. It was founded by William Procter and James Gamble in 1837. The company has headquarters in downtown Cincinnati, Ohio, United States (Review Editor, 2006). This company is also a Fortune 500 company and operates in about 70 countries, serving almost five billion consumers all over the world. The portfolio of this company is strongly trusted for quality, and the brands are leaders in the markets. Some of its popular brands are Ariel, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, Vicks, and Whisper, etc. The regional headquarters for this company's operations in Asia-Pacific is in Singapore. The brand and business management activities like manufacturing, marketing, supply chain management, etc. are carried out here. Also, Singapore is a host of P&G's Asia Leadership Development Centre (Review Editor, 2006).
The report aims at applying the concepts and theories to maximize knowledge exploration and exploitation on IT Innovation of P&G. it is necessary to do this because these concepts are gaining importance in the IT world today and an assessment of them will help in building an effective organisation, or it will help to increase the effectiveness of an already established organisation like P&G. 

Cognitive hierarchy

This hierarchy is also known as the DIKW Pyramid, which stands for Data-information-Knowledge-Wisdom Pyramid. It was given by Russell Ackoff who said that the content in the mind of a human can be classified into five parts: Data which are the symbols in raw form, and they have no relevance beyond their existence.it is not necessary that data has a meaning in itself, it can be meaningless too. Then when the data is processed to give useful results or meanings, then it is called information (Choi, 2012). It is created by generating relational connections. It gives answers to questions like ‘who, what, when, where' etc. When a person applies this data and information to give the answers to ‘how' questions then it is called knowledge. Understanding comes next to knowledge, and it is the appreciation of ‘why'. The process of understanding is interpolative and probabilistic. Understanding helps in taking knowledge and synthesizing new knowledge from the previously held knowledge.  When the understanding is evaluated, it is called wisdom. It helps in making judgements between right and wrong, good or bad, etc.
All the categories except wisdom are present in IT or computers. They have data; they can process it, have knowledge; can understand things but computers cannot analyse things. Wisdom is possessed only by humans.  Also, understanding cannot be regarded as a separate stage in this hierarchy; it helps in the transition from one category to other (Choi, 2012).
According to Ackoff, the first four categories i.e. data, information, knowledge, and understanding related to the past. In the Greek period, only three categories were regarded- data, information, and knowledge but Ackoff’s Apex modified it and gave the theory that knowledge can again be developed, and understanding and wisdom come above the level of knowledge (Davis & Grove, 1986). The first four categories in this talk about what has been or what is known. But the fifth category i.e. wisdom that talks about the future as vision and design are incorporated into it. People who attain wisdom can create the future rather than just grasping the past and present. For achieving wisdom, people have to move through the other categories successfully. By gaining knowledge of relevant subjects, one can create a pool of information in his mind, and this data can be stored to be applied in the future. When one does it successfully, he is said to achieve wisdom. The wisdom can be implemented by sharing the thoughts and ideas with others so that if others have something valuable to offer, it can be integrated with one’s own wisdom. But for sharing the valuable knowledge that owns possess, there must be trust between the sender and receiver. 

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Rothwell’s 5 Models of the Innovation Process


Rothwell has given a historic view of innovation management in industries by giving this model of innovation. According to him, when the innovation is more effective, the market time reduces, and product development cost comes down too. The usage of this model is that it defines the corporate innovation management strategy of a company like P&G(Rothwell, 1986). This model is descriptive in nature about how the companies, especially the manufacturing ones structures their process of innovation over time. Each generation of this model was a response to the changes in the market as growth in the economy, expansion of industry, competition, unemployment, inflation, stagflation, economic recovery and resource constraints. With these changes, the companies had to update their strategic focus, develop new processes of innovation and form new market niches (Rothwell, Townsend, Teubal, & Spiller, 1977). 

The five generations of this model are:


1.    Technology push: this was caused due to the fast growth in the economy from 1950 to the mid-1960s which created a black hole demand. The industries expanded in the west and in Japan. The focus of companies was on scientific breakthroughs, and they believed that more research and development will lead to more products in the market. This was termed as ‘strategy of hope'. Companies hired good people, gave them the best facilities that were affordable and then left them alone. In this generation, innovation occurred at the multinationals that were fast-growing and isolated from universities.  
2.    Market pull: the focus of companies shifted to ‘need pull’ in the mid-1960s to early 1970. This was a battle for market shares. All the companies were focussed towards responding to the needs of the market. Individual research projects did a cost-benefit analysis, and stronger connections were made between operating units and R&D.
3.    Coupling model: due to inflation and stagflation, rationalisation efforts arose from the mid-1970s to the mid-1980. The focus of companies was on corporate consolidation, and it resulted in ‘product portfolios'. The individual R&D projects were given up, and marketing was tightly coupled with R&D through the structured innovation processes. The central driver of this model was a reduction in operational cost.
4.    Integrated model: the theme of this model was ‘time-based struggle' when the recovery of the western economy happened from the early 1980s to the mid-’90s. Companies developed integrated processes and products to form ‘total concepts’. Strong linkages with suppliers were established, and close coupling happened with leading customers.  
5.    Network model: resource constraints became central from the 1990’s onwards. The systems integration and networking became central so that flexibility and development speed can be guaranteed. Automation of business processes happened with the help of ERP and manufacturing information systems. Business ecosystems were also focussed upon, and advanced strategic partnerships happened with collaborative marketing and research arrangements.

 Innovation in the supply chain process of P&G

The company is content in maintaining the status quo as the leader in the manufacturing of consumer goods. It faces pressure to remain competitive in the industry because here the behaviour of a consumer constantly changes and they demand new products. So for achieving this, P&G has focussed on keeping its supply chain leaner, more efficient and closer to the customer as per the above-mentioned framework. The company knows that it cannot do it in isolation, for doing this, synchronisation of operations is needed, and it has to be integrated with suppliers and customers too.  
Thus, it can be said that P&G has followed the ‘Rothwell's 5 Models of the Innovation Process.' This model is applicable to manufacturing companies, and P&G is a manufacturing company. The second stage of this model says that companies focussed on meeting the needs of consumers and this company also keeps on trying to do that. Then the coupling model demands that successful product portfolios need to be created which is also achieved by P&G as it has a range of products in its portfolio and all of them are successful. In the integrated model, strong linkages with suppliers were established, and close coupling happened with leading customers and in P&G, the company knows that it cannot operate in isolation, so it has synchronised the operations and integrated it with suppliers and customers too. Then following the integrated model, the company has invested hugely in marketing and R&D to develop their products, differentiate them with the products of competitors and has done extensive market research (Rothwell, Townsend, Teubal, & Spiller, 1977).  
P&G has successfully synchronised its supply chain from end to end, and they have opted for a business model that is totally different from the way companies used to interact with suppliers traditionally, and the company has also delivered the required value of innovation. It has developed an ability to replenish 80% of its orders in less than 24 hours and has redesigned its distribution network to help achieve this in Singapore as well as in other countries ("Procter & Gamble raises profit", 2003). The visibility of this company has improved throughout the supply chain. 
Thus, it can be said that P&G is highly innovative.

Nonaka’s framework 1994

This is called the SECI model of knowledge. There are four specific knowledge conversion types identified in this model that occurs when tactic of an individual becomes the explicit knowledge of an individual. The four types are Socialization, Externalization, Combination, and Internalization. This framework is useful to the companies as it helps it to forecast and diagnose the gaps that exist in the process and the places where efforts need to be put to fill those gaps. In P&G, the gaps have been filled in supply chain management to make it more synchronized and efficient (Fricke, 2009). 
A.    Socialization is from tactic knowledge to tactic knowledge. It happens when the tactic knowledge is generated through the shared experience among individuals. Such conversion occurs with the help of joint activities like face to face interaction and working in the same environment. Management by walking around can be considered as socialization. In P&G joint business plans are made, and they are integrated with the process from end to end. All the people associated with the supply chain management work together under the same roof and make strategies to make the process more effective (Bellinger, 2004). The coordination helps the company to achieve the desired results without any wastage. Managers follow the practice of ‘Management by walking around' and check the status of ongoing work so that there is no halt in the process.  
B.    Externalization is from tactic to explicit knowledge. It happens when an individual translates his tactic knowledge into the comprehensible forms and others can understand and express it. Successful transfer of knowledge happens when tactic knowledge or management wisdom becomes explicitly stated through exchange mechanisms like two-way dialogue, visual depiction of ideas, etc. The gap in the transfer of knowledge is most evident when the conversion of tactic knowledge happens to explicit knowledge. In P&G, all the wisdom of senior management and junior management is shredded without any hassle and constraints. If anyone comes up with an innovative idea or thought, he is given a chance to speak his mind without any constraint (Jessup, 2008). Also, two-way dialogues happen in the company which is very important in a process like supply chain management as if people will not talk to each other; this process cannot be managed as it is an ongoing process and any problem at any end can cause disturbances in the entire process. 
C.    The combination is from explicit to explicit knowledge. It happens when people or groups exchange and combines the various bodies of explicit knowledge by interacting socially and thus amplifying the explicit knowledge. The reliability of this conversion is on three processes: collecting and combining externalized knowledge; disseminating this knowledge; and, revising and reconceptualising the explicit knowledge to make it more usable and understandable. The examples include face to face meetings, audio and web-based conversations, etc. P&G encourages people and groups to exchange and combines the various bodies of explicit knowledge that they possess by interacting socially and thus explicit knowledge is amplified in the organisation. It makes sure that the conversation is reliable  (Jessup, 2008). 
D.    Internalization is from explicit to tactic knowledge. It happens when the newly generated explicit knowledge is transformed into the tactic knowledge of the company. This process can occur at any level: individual, group or organisational. The companies need to embody the explicit knowledge in action and practice and internalized through "learning by doing". For example on the job training, simulations, etc. At all levels, the company P&G internalises the knowledge. The supply chain is managed by all people in the company who learn new things by putting them into practice i.e. they learn by doing (Faucher, 2008).

Application of Rothwell 5 models of Innovation and Nonaka Framework to link a business relationship in supply chain management at P&G

P&G focuses on maintaining the status quo as the ‘leader in the manufacturing of consumer goods’ all over the country. It has a constant pressure to remain competitive because in this industry, the behaviour of consumer keeps on changing and they demand new and innovative products. So for achieving this, P&G has focussed on keeping its supply chain leaner, more efficient and closer to the customer. The company knows that it cannot happen in isolation, for doing this, synchronisation of operations is needed, and it has to be integrated with suppliers and customers too.  Thus, it can be said that P&G has followed the ‘Rothwell's 5 Models of the Innovation Process.' This model is applicable to manufacturing companies, and P&G is a manufacturing company (Rothwell, 1986). The second stage of this model says that companies focussed on meeting the needs of consumers and this company also keeps on trying to do that. Through continuous innovation, it is able to get the right product for people at the right place and time. Then the coupling model demands that successful product portfolios need to be created which are also achieved by P&G as it has a range of products in its portfolio and all of them are successful (Awad, 2004). In the integrated model, strong linkages with suppliers were established, and close coupling happened with leading customers and in P&G, the company knows that it cannot operate in isolation, so it has synchronised the operations and integrated it with suppliers and customers too. The transformative initiative that the company applies to its supply chain management has led the company to achieve the fulfilment of demand profitably. The change introduces in its supply chain is all proactive and meets the demand of consumers timely. It is a great achievement of the company that it is able to do this for a highly segmented consumer base in a saturated market. Then following the integrated model, the company has invested hugely in marketing and R&D to develop their products, differentiate them with the products of competitors and has done extensive market research.  P&G has successfully synchronised its supply chain from end to end, and they have opted for a business model that is totally different from the way companies used to interact with suppliers traditionally and the company has also delivered the required value of innovation. It has developed an ability to replenish 80% of its orders in less than 24 hours and has redesigned its distribution network to help achieve this in Singapore as well as in other countries. The visibility of this company has improved throughout the supply chain ("Procter & Gamble raises profit", 2003). 
By following the appropriate models mentioned above the company has gone beyond $1.2 billion in cost savings in a year, and expects that number to rise to $1.6 billion by the end of 2016 (Review Editor, 2006). Also, the Company has got a 5% year-over-year productivity improvement at the sites that it had already believed to be lean and establishes a goal of 5% annual productivity improvements in the coming years ("Procter & Gamble raises profit", 2003). The company senior management has said that they will continue to play the role of leaders in the supply chain by continuous innovations and knowledge management processes, and they will keep on evolving at the speed of light. The success of the company is hardwired to its business, and the business cannot be separated from the product supply and supply chain. Three of them are embedded into the system and are driven together ("Procter & Gamble raises profit", 2003). 
This company has assessed the solutions required in the supply chain so that retail customers could be given most value and faster than ever response time could be achieved. It has almost 73,000 team member who runs the supply network over 130 manufacturing sites and across 200 distribution centres. The brand equity of P&G is measured on the terms that how well it touches the lives of end customers (Awad, 2004). Customers place much importance on the fact that whether the company is able to deliver products on time or not and this company has understood these measurements very well and has also understood that what service excellence is all about. The company has built six mega-distribution centres in strategic locations across North America because it wants to achieve the goal of being within one day's transit to 80 per cent of retailers. The manufacturing base is also reconfigured in North America so that a demand-driven model for replenishment can be established. For speeding up the response time, the company has created supplier villages on the line of a just-in-time model which will help the suppliers of a company to respond more quickly.

Conclusion 

It can be concluded from the above analysis that P&G has effectively integrated both knowledge management and innovation in its supply chain management process to make it better and effective. It has understood the fact that the effective operation of the supply chain network can impact both revenues of the company and its margins. It has innovated and developed its supply chains to deliver better efficiencies to consumers, and it has achieved a lower cost too. It has been successful in proving that innovative ways can be applied to transform the raw materials and products that are shipped to plants, then to consumers. This has enabled the company to become a trusted brand not only in Singapore but all over the world.

References

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