P&G'S STREAMLINED PROGRAM TO ELIMINATE PRICING BRACKET

ADAM BLAIR

CINCINNATI -- The next phase of Procter & Gamble's Streamlined program of supply-chain initiatives will eliminate a transitional price bracket for customers who fail to meet a variety of efficiency criteria, including use of electronic data interchange for ordering and invoicing and participation in the Chep pallet pool program.

P&G here said more than 80% of its customers already meet the requirements for the Streamlined Logistics Price bracket, which represents the manufacturer's best price. The non-SLP bracket will be discontinued by July 1999.

The manufacturer will also cut, by an average of 13%, its quarterly payments to customers for costs of damaged, discontinued or otherwise unsalable products. The Logistics Development Initiative payments, instituted last year, were based on aggregated historical amounts that had been paid to customers for unsalable products through a variety of programs.

The Streamlined program and the SLP bracket have already motivated measurable supply-chain improvements, Peter Wojda, associate director of logistics research and development at Procter & Gamble, told a group of senior SN editors in a private meeting.

SLP pricing is currently available to 82% of P&G's customer volume, up from 77% in June 1997, according to Wojda. More than 80% of customers use EDI for ordering and invoicing, and Chep pallet use has increased from 78% to 95% since June 1997. Another SLP criteria, truck-unloading time, has decreased 135 minutes during the same period, and currently averages 74 minutes per truck, he added.

The Streamlined programs, which encompass a number of supply-chain efficiency initiatives, have had the practical effect of moving the industry to adopt a number of Efficient Consumer Response-style programs in the five years since P&G began them.

Customers who cannot meet the SLP requirements by next July will still be able to purchase products via P&G's regional distribution centers, though Wojda noted that prices there are higher than the SLP level.

"We realize all customers are not the same, and we don't want to turn a customer away because they're not EDI-capable," said Wojda. "But we want to ensure that those that do [meet the SLP criteria] get product at that price."

Two separate factors are behind P&G's 13% reduction in the quarterly LDI unsalables payments. One is that P&G, which has noted that it is responsible for 70% of overall product damage, has been able to reduce its damage rate by approximately 10% since the LDI was introduced last year, said Wojda.

The other factor is the implementation of a "shared-responsibility" principle for damage management between P&G and its customers, he added.

P&G has also been able to establish more clearly the extent of product damage, through a more rigorous auditing process. For example, the manufacturer undertook hidden damage audits, taking a total of 1.6 million samples across all 24 of its product categories, rather than simply measuring the amount of products sent to reclamation centers, Wojda said.

Besides damaged and unsalable products, the LDI is designed to compensate retailers for the costs associated with discontinued product lines. P&G is making a greater effort to forecast such transitions as far as 18 months into the future, said Wojda. The manufacturer plans to keep the total for this portion of the LDI about the same for the coming year, at approximately 0.3% of total sales, he added.

Besides the modifications to the existing Streamlined programs, P&G announced two new elements. One, beginning this July, provides customers the opportunity to build mixed truckloads of selected product categories from certain shipping sites.

Using P&G's St. Louis distribution center, customers will be able to combine products in the light-duty liquid, automatic dish- and household-cleaner categories into mixed full truckloads. For product cross docked from the manufacturer's Kansas City, Mo., facility to build such truckloads, customers will be charged an additional 35 cents per case, said Wojda.

In February 1999, the mixed-truckload program will be extended to P&G's paper products and be available from four distribution centers. "This program will help our customers reduce their inventories," said Wojda.

The other new Streamlined segment is standardized order management for an emergency-response program, designed to reduce retail out-of-stocks and encourage increased merchandising of P&G brands.

Key elements of this program include same-day shipping from all the manufacturer's grocery and health and beauty care shipping sites, and a commitment to maintain regional inventory on frequently merchandised stockkeeping units. In addition, the manufacturer will promote shared responsibility with the retailer to improve the event-forecasting process.

"We'll limit the amount of 'emergency' shipments to about 2% of the total," said Wojda, adding that he believes the availability of such a program will lower the overall amount of products shipped on an emergency basis.