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Procter & Gamble is
a $38 billion corporation that controls and consumes a great many assets and raw materials, processes them along parallel and
intersecting pathways, and produces a large variety of wares that it then distributes all over the world.
In 1998,
some senior managers wondered if their "earth-to-earth" supply chain - the long trail of resource allocation, manufacturing,
distribution, and customer consumption - might not be streamlined somehow. Even an incremental increase in its overall
supply-chain efficiency, they knew, could yield enormous savings and higher profits.
But this was a problem P&G
wasn't capable of addressing itself because, paradoxically, it didn't know what its own supply chain was - not
conceptually, at least. The company was responsible for it, operated it, oversaw it, and ran it, but didn't understand it on
a theoretical level.
Using Simulation Science experts, a team conducted a full study of P&G's supply chain. It was
characterized by three major parameters: total inventory in the system; total time in the system; and out-of-stocks on the
shelves. Of these, the only one that couldn't be fiddled with was out-of-stocks. Without exception, P&G wanted to have Tide,
Comet, and the rest of its product lines on the shelves at all times.
The Simulation Scientists eventually produced
five models of the P&G supply chain and ran them on their workstations thousands of times under different settings and
conditions, creating a simulation of the business.
A key insight was that many of P&G's problems with their supply
chain were a result of their own policy of requiring all shipments to be made in full truckloads only; partial loads weren't
permitted. Such a requirement makes obvious and intuitive sense, yet it is wrong. Having your trucks full when they leave the
loading dock maximizes their utility and efficiency, leaves no wasted space, saves diesel fuel, reduces air pollution, and
minimizes duplication of effort.
Simulations, however, uncovered that adherence to the full-trucks rule caused
disruptions elsewhere in the system. It converted smooth, or laminar, flow into an irregular and jagged shipping stream,
creating bottlenecks - and even temporary out-of-stocks - as trucks waited for their cargo holds to be filled. Relaxing the
full-trucks requirement would iron out any and all supply-chain kinks.
A profound insight that saved P&G millions.
Around $300 million. In the first year.
information on the SAP web site
Excerpts from Wired Issue 8.06 - June 2000