P&G PRICE PLAN TO SPUR EFFICIENCY

JAMES TENSER

CINCINNATI -- Procter & Gamble here said last week it plans a new price incentive intended to influence the trade to adopt more efficient practices in logistics and promotions.

The company has packaged several cost-saving programs and efficient promotion activities into a new initiative dubbed Streamlined Logistics II. The initial phase of the broad set of pricing and logistics activities started in June 1994.

The newly planned pricing initiative is characterized by an additional tier of discount prices for participating retailers. The pricing tier, for which retailers must meet certain conditions to qualify, is to go into effect next February. Dean Skadberg, P&G director of industry affairs, said the spread between the incentive-based prices and those currently available will vary by product and with a number of other parameters, rendering it impossible to estimate the degree by which new prices will be below current ones. But -- as an indication of the magnitude of the industrywide savings potential -- Skadberg and Steve David, P&G vice president of sales for North America, told SN last week that P&G projects that as much as $50 million in efficiency-driven, pass-along savings for its retail customers is available during a period of approximately two years.

The new pricing tier will be available to retailers that meet a set of defined goals for automating ordering and billing using electronic data interchange, efficient

delivery and efficient promotion, Skadberg said.

"We are encouraging efficient behaviors by asking our customers to work with us and do a series of things that will enable both of us to realize cost savings. Then we will turn that back around in the form of a lower price to those customers." Said David: "We want as much of our all-commodity volume qualifying for this as we possibly can get." He declined to specify what portion of P&G accounts would be able to qualify for the new incentive price bracket. But, he said, company studies show that "substantial numbers" will do so in two years: "We are budgeting over the next two years that all of the $50 million will be saved and passed along to our customers." At the same time, he acknowledged that EDI technology has been difficult for some of P&G's retail customers to fully embrace. "We originally misjudged a little bit the industry's readiness to get there, particularly the financial transaction set. We want to provide an incentive to our customers to make the necessary investment in hardware and software so they can use the industry standard transaction sets."

The two P&G executives also described planned company-account partnership efforts aimed at efficient promotion, some of which are to be enabled by the improvements in logistics.

Primary features of the SLII initiatives are:

Efficient ordering and billing: Customers will be able to automate all orders and billing using EDI, which will improve speed and accuracy, reducing the need for manual intervention.

Efficient delivery: Retailers will be rewarded for picking up backhaul loads on schedule and for unloading P&G deliveries in two hours or less. P&G will also begin using the Chep pallet pool system for all its shipments except for a few paper items.

Efficient promotion: P&G will streamline its offerings of display-ready unit loads from its current level of more than 400 options down to 100 choices that reflect the company's biggest brands and best-selling stockkeeping units.

Comarketing: The company will build on its existing account-customized direct-mail marketing programs by offering a custom-published family magazine that can be configured and distributed to meet retailers' marketing objectives.

Activity-Based Costing: The company is making intensive use of ABC techniques to identify the per-case cost of inefficient industry practices, and the amounts that can be saved by improving those practices.

Streamlined Logistics II follows an evolutionary progression that began with P&G's highly publicized Value Pricing initiative in 1993, which endeavored to reduce costly inventory swings caused by promotional trade loading.

When the original Streamlined Logistics program began in June of 1994, P&G shifted to two pricing brackets from what were 17 at the time across all its business units. It also went to common payment terms, now 2%, 19 days.

Said Skadberg: "One of the real objectives was to reduce complexities that we had built into our own systems. We were averaging 27,000 manual interventions monthly in our order and invoice process, or 31% of orders. We have now reduced that in one year to 5,000 per month or less than 6% or orders."

Many of those interventions were a result of complexities in the company's order and pricing systems.

"Last year we were implementing something like 55 pricing changes per day with 100 brands. Those changes were in large part promotion-related. Multiply that by 17 different pricing brackets and the complexity was enormous."

As P&G's pursuit of efficiencies continues, Skadberg said promotional aspects will increasingly figure into logistics. Cutting back on display-ready unit loads is a case in point.

"We are no longer going to put out a week's supply that a customer cannot realistically work through. That suggests you focus on bigger brand sizes that have good turnover," he said.

In another development, P&G said last week that the latest addition to its comarketing program is the custom-published Family Magazine. It has been tested in recent months at several western supermarket chains, including Ralphs Grocery Co., Albertson's, Lucky Stores, Smitty's Supervalu and Super A. Foods, said David. The publication is digest-sized, and usually 24 pages. It's distributed by direct mail to targeted consumers in the retailer's trading area. P&G provides proprietary lists.

Content includes information about several P&G products and space for messages tailored to the participating retailer. Targetbase Marketing, Dallas, handles the custom publishing tasks.

David said retailers accrue funds for this activity based on their total business volume with P&G.