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Collaborative consolidation centers : exploration of horizontal collaboration as an emerging supply chain trend in the physical distribution network of Procter & Gamble

Lavieren, Oscar Robert van (2008) Collaborative consolidation centers : exploration of horizontal collaboration as an emerging supply chain trend in the physical distribution network of Procter & Gamble.

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Abstract:Procter & Gamble produces, markets and sells leading brands around the world and is known for continuously improving their logistical capabilities and retailer service. For some innovative developments P&G has been able to take a more careful approach due to its scale, being second in the race to the market or second in adopting a process development. This is therefore an introductory research study that explores the trend towards horizontal collaboration in the supply chain and the impact it has on transport efficiency and delivery frequency to the retailer in Western Europe for P&G. This includes the option of potentially working with competitors in the supply chain to compensate for rising transport prices and retailer demands. This study acts as a first building block in building an awareness of this emerging supply chain trend and the possibility of transforming the existing distribution center setup into facilities fit for horizontal collaboration. For this broad investigation three sub-research questions explored the risks & requirements, areas of interest in Western Europe and general operational impact to analyze the feasibility of implementing this concept in the P&G supply chain. The main research question that was answered is: For horizontal collaboration in Procter & Gamble s outbound logistics operations what are the key focus points and potential savings that could be created with collaborative consolidation centers? This study concludes that horizontal collaboration in the form of collaborative consolidation centers (CCC), which are shared distribution centers to facilitate pooled distribution, offer significant room for improvement in transport (truck fill rate) and retailer service (delivery frequency). The size of the savings differs per country and characteristics of the CCC structure. First a list of conclusions have been made, which support and guide P&G towards transforming their current supply chain setup in the future. The requirements and drivers for a successful horizontal collaboration between FMCG suppliers are: 1. Definition and alignment of goals and performance measurements 2. Definition rules and contractual agreements 3. Selection of suitable partner(s) 4. Creation of a detailed business plan and monitoring progress The second part was an investigation into transport efficiency and retailer service in Western Europe. Several countries were indicated as main points of interest for a CCC setup. This analysis produced results that could be explained and related to the supply chain setup of specific countries, the determining supply chain characteristics that define a region to be of interest for a CCC setup are: 1. Consecutive high percentage of monthly part truck load shipments 2. Low average retailer delivery frequency 3. High dispersion and decentralization of retailer distribution centers 4. Relative smaller regional market share with P&G brands 5. Sub-optimal regional DC infrastructure, dependency on other P&DC's and/or haulier platforms Thirdly, based on the results of the second research question this study further calculates the potential impact on one specific region of interest. This indicated significant theoretical transport cost saving on outgoing retailer deliveries on the main product assortment tradelanes of P&G. By combining loads of different FMCG suppliers to create pooled distribution and using cost redistribution methods to compensate for volume shipment differences the price per pallet delivery can be lowered to new levels. These are savings which are not achievable by independent FMCG suppliers because of the tremendous scale advantages through collaboration. Furthermore it would be feasible for P&G to increase the delivery frequency of shipments to the retailer and attain a preferred supplier status at the retailer without increasing cost; therefore facilitating additional promotions, more influence on product shelf placements and roll-outs of new products. To wrap up, a CCC setup in select regions of the P&G supply chain of Western Europe offers significant room for improvement in transport efficiency and retailer service through horizontal collaboration. Like any development or change in the supply chain there are risks involved. However P&G should now seize the opportunity to further investigate the practical risks of implementing CCC's and search for potential partners before the current setup loses its competitiveness versus other FMCG suppliers that do take part in horizontal collaboration and can answer to more challenging retailer demands.
Item Type:Essay (Master)
Procter & Gamble
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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