P&G overhauls logistics purchasing strategy
New organization focuses on leveraging the consumer product giant’s $5 billion logistics spend
By Dave Hannon -- Purchasing, 9/8/2008 9:39:00 AM
Two years ago, in the midst of its integration of Gillette, executives at Procter & Gamble decided to overhaul the way the company manages its highly fragmented $5 billion logistics spend. At the time, procurement decisions for outbound logistics were made in local and regional customer service units spread around the globe. Decisions on inbound logistics were mostly in the hands of P&G’s suppliers, as buyers would quote materials prices with freight included.
Under the direction of Vice President for Global Purchases Rick Hughes, P&G established a Logistics Purchases organization that included a staff of 62 people from its existing customer service group. For the Logistics Purchases organization to flourish, though, Hughes knew it needed a strong leader with background in strategic sourcing as well as global supply management. That man was Jet Antonio. In 2006 Antonio was named director of global logistics purchases and was charged with a mighty task: Reign in P&G’s global logistics spend and processes and bring it up to the standards set by other purchasing organizations within P&G—and do it quickly.
But Antonio was up to the task. His background at P&G goes way back—in fact it goes back an entire generation, as his father worked for P&G in his native Philippines and in 1985 Antonio joined P&G there as well, in the purchases organization, and has since lived up to his name (“Jet”) by working for P&G in no less than five countries. In 1990, Antonio was charged with establishing P&G’s first purchasing group in China (he hired 15 people which grew into a staff of more than 150 today). From there he went to Japan to manage P&G’s chemicals spending and after that it was off to Thailand to help consolidate the firm’s Asian manufacturing footprint. From 2001 to 2004, Antonio worked in Singapore at P&G’s Southeast Asian purchasing headquarters and later he was part of the team that developed P&G’s purchasing skills capability development program which would eventually become its Purchasing University.
With a global background and organization start-up experience, as well as a deep understanding of P&G’s procurement strategies, Antonio was a wise choice to head up the company’s Logistics Purchases organization.
Organizational focus
“My goal in the past two years has been to move this organization up to the standard where the rest of purchases organizations are at within P&G,” Antonio tells Purchasing. When Antonio took over the post, P&G was still up to its eyeballs in the Gillette integration, evaluating the two firms’ supply bases in a variety of areas, including logistics. One of the first spend areas that jumped out at Antonio in the logistics area was pallets. And P&G buys a lot of them. Well, technically, they rent a lot of them.
"P&G uses about 40 million pallets a year and we actually use a pooling system where we rent our pallets,” Antonio says. Gillette was buying wood disposable pallets. So by simply moving their shipments to P&G’s pallet system, the company saved a few million dollars right away.
Early wins aside, Antonio had some organizational work to do. While he was assigned more than 60 people when he created the Logistics Purchases organization, very few of them had a background in strategic purchasing. Many had worked in customer service, but hey needed exposure to P&G’s strategic purchasing methods to improve performance. To bring the skill level in the organization up to par with the other purchasing groups in the company, Antonio sent them all to P&G’s Purchasing University training program, where they learned the core purchasing skills P&G teaches its professional buyers: sourcing strategy, competitive bidding and supplier relationship management to name a few.
Today the Logistics Purchases organization has 105 people and five associate directors around the world charged with bringing strategic supplier relationship management to several key logistics spend pools: transportation (mostly ground), warehousing, pallets and cross-border moves (ocean and air freight) being the largest.
Technology to the rescue
But even with that level of resources, the logistics spend at a company the size of P&G can be extremely complicated and even putting contracts out to bid can be a challenge. To help streamline that process, P&G has used CombineNet optimization software since 2005 to bid out its truckload, ocean freight, LTL, bulk and intermodal transportation. “For example in the U.S. we run 7,000 ground lanes and have about 150 logistics providers traveling to and from 70 distribution centers,” Antonio says. Their last bid event included about 170,000 different bid packages. “It would take an army of buyers years to evaluate and compare those bids but this technology makes bidding it out more manageable,” he says. Global Purchases Vice President Richard Hughes says that over the last couple of years, use of CombineNet and a more strategic approach to the market and suppliers has enabled close to $200 million in cost reductions.
Also on the technology front, P&G’s logistics organization now leverages the same contract management tool that its other purchasing groups use from Upside Software. They’ve also started using the contract management tool for logistics.
Consolidation has also been a major focus for the new organization, both in number of logistics suppliers and in distribution centers. Currently, P&G has about 1,400 logistics suppliers and “that’s too many” according to Antonio. His group is running SRM projects with 10 of its logistics providers with the goal of developing deeper relationships with suppliers and awarding more business to the most trusted to better leverage its massive spend. In addition, the Logistics Purchases organization is expanding its supplier diversity efforts, currently spending upwards of $280 million with women and minority-owned logistics suppliers.
But it’s a long process. “The logistics supply base around the world is very fragmented,” Antonio says. Every country has its own trucking industry which can range from entrepreneurs with one or two trucks to large multinationals with a fleet of 25,000 trucks. As part of that goal of consolidation suppliers, P&G is also looking more closely at using integrated 3PLs and 4PLs in certain areas and has run a “significant pilot” in one region to date.
The consolidation of distribution centers has happened a bit more quickly. Post-Gillette, P&G had upwards of 580 distribution centers around the world. Through its Distribution Reinvention program, Antonio’s team has worked with the product supply organization to pare it down to 380 and has used the consolidation project as a reason to review and optimize many of the transportation lanes in and out of the existing DCs. In total, there has been around $130 million in savings from the project to date.
On the manufacturing front, P&G is projecting an expansion of its footprint from the current list of 150 by 20-25 sites in the next 5-10 years to meet increasing demand from developing countries.
One of the metrics that Antonio uses to benchmark his progress in overhauling the logistics spend is average annual savings for the logistics spend pool. When he took leadership of logistics sourcing in 2006, logistics had the lowest savings levels in the company at 1.2% savings. Only two years in, Antonio’s organization is producing an average of 4.3% savings. But that’s just the beginning, he says.
“At the end of the day, purchasing can only do so much to generate savings,” says Antonio. “Where you really see dramatic impact is when purchasing teams up with operations and supply network design.”
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P&G’s logistics spend by the numbers $5 billion P&G’s total logistics spend both inbound and outbound 80% Percentage of P&G’s logistics spend focused on outbound movements from manufacturing to DCs or customers. 105 People in P&G’s logistics purchases organization 40M Number of pooled pallets P&G uses each year in its shipping 1,400 Number of logistics suppliers P&G has currently 1,500 Number of logistics contracts currently in place at P&G 7,000 Number of U.S. lanes P&G’s logistics operation runs 150 P&G manufacturing sites around the world. That is expected to increase by 20-25 as P&G expands manufacturing in BRIC nations and locates manufacturing closer to end-markets. 22 Business categories at P&G $170M Amount spent with minority or women-owned businesses in logistics |
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